Document:

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                                                                    EXHIBIT 4.2

                       1997 SUPPLEMENTAL STOCK OPTION PLAN

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                               KOMAG, INCORPORATED

                       1997 SUPPLEMENTAL STOCK OPTION PLAN

 (AMENDED JANUARY 30, 1998, JUNE 12, 1998, DECEMBER 23, 1999 AND JUNE 15, 2001)

                                  ARTICLE ONE

                               GENERAL PROVISIONS

I.      PURPOSES OF THE PLAN

        This 1997 Non-Executive Officer Stock Option Plan (the "Plan") is
intended to promote the interests of Komag, Incorporated, a Delaware corporation
(the "Corporation"), by providing a method whereby eligible individuals may be
offered incentives and rewards which will encourage them to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation and continue to render services to the Corporation (or its parent or
subsidiary corporations).

II.     ADMINISTRATION OF THE PLAN

        A. The Plan shall be administered by one or more committees comprised of
Board members (the "Committee") or the Board may retain the power to administer
the Plan. The members of the Committee shall each serve for such period of time
as the Board may determine and shall be subject to removal by the Board at any
time.

        B. The Committee (or the Board if no Committee has been designated)
shall serve as the Plan Administrator and shall have full power and authority
(subject to the express provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for the proper administration of such
program and to make such determinations under the program and any outstanding
option as it may deem necessary or advisable. Decisions of the Plan
Administrator shall be final and binding on all parties with an interest in the
Plan or any options or shares issued hereunder.

III.    ELIGIBILITY FOR OPTION GRANTS

        A. The persons eligible to participate in the Plan shall be

        -       employees (excluding officers and directors) of the Corporation
                (or its parent or subsidiary corporations), or

        -       independent contractors and consultants who provide valuable
                services to the Corporation (or its parent or subsidiary
                corporations).

        B. The Plan Administrator shall have full authority to select the
eligible individuals who are to receive option grants under the Plan, the number
of shares to be covered by each granted option, the time or times at which such
option is to become exercisable and the maximum term for which the option is to
be outstanding.

        C. For purposes of the Plan, the following provisions shall be
applicable in determining the parent and subsidiary corporations of the
Corporation:

                Any corporation (other than the Corporation) in an unbroken
        chain of corporations ending with the Corporation shall be considered to
        be a PARENT corporation of the Corporation, provided each such
        corporation in the unbroken chain (other than the Corporation) owns, at
        the

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        time of the determination, stock possessing fifty percent (50%) or more
        of the total combined voting power of all classes of stock in one of the
        other corporations in such chain.

                Each corporation (other than the Corporation) in an unbroken
        chain of corporations beginning with the Corporation shall be considered
        to be a SUBSIDIARY of the Corporation, provided each such corporation
        (other than the last corporation) in the unbroken chain owns, at the
        time of the determination, stock possessing fifty percent (50%) or more
        of the total combined voting power of all classes of stock in one of the
        other corporations in such chain.

IV.     STOCK SUBJECT TO THE PLAN

        A. The stock issuable under the Plan shall be shares of the
Corporation's authorized but unissued or reacquired Common Stock. The aggregate
number of shares which may be issued over the term of the Plan shall not exceed
Nine Million Five Hundred Sixty Three Thousand and Thirty Seven (9,563,037)
shares (subject to adjustment from time to time in accordance with paragraph
IV.C of this Article One).

        B. Should an option be terminated for any reason prior to exercise in
whole or in part, the shares subject to the portion of the option not so
exercised shall be available for subsequent option grants under this Plan. In
addition, unvested shares issued under the Plan and subsequently repurchased by
the Corporation at the original exercise price paid per share, pursuant to the
Corporation's repurchase rights under the Plan shall be added back to the number
of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent option
grants under the Plan.

        C. In the event any change is made to the Common Stock issuable under
the Plan (whether by reason of (i) merger, consolidation or reorganization or
(ii) recapitalization, stock dividend, stock split, combination of shares,
exchange of shares or other similar change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration), then
unless such change results in the termination of all outstanding options
pursuant to the provisions of paragraph II of Article Two of the Plan,
appropriate adjustments shall be made to (i) the aggregate number and/or class
of shares issuable under the Plan, and (ii) the number and/or class of shares
and price per share in effect under each outstanding option under the Plan. The
purpose of such adjustments to the outstanding options shall be to preclude the
enlargement or dilution of rights and benefits under such options.

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                                   ARTICLE TWO

                              OPTION GRANT PROGRAM

I.      TERMS AND CONDITIONS OF OPTIONS

        Options granted pursuant to this Article Two shall be authorized by
action of the Plan Administrator and shall be Non-Statutory Options. The granted
options shall be evidenced by instruments in such form as the Plan Administrator
shall from time to time approve; provided, however, that each such instrument
shall comply with and incorporate the terms and conditions specified below.

        A. Option Price.

           1. The option price per share shall be fixed by the Plan
Administrator. In no event, however, shall the option price per share be less
than one hundred percent (100%) of the fair market value per share of Common
Stock on the date of the option grant.

           2. The option price shall become immediately due upon exercise of the
option and shall be payable as follows:

               (i) full payment in cash or check drawn to the Corporation's
order;

               (ii) full payment in shares of Common Stock held by the optionee
for the requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at fair market value on the
Exercise Date (as such term is defined below) equal to the option price;

               (iii) full payment through a combination of shares of Common
Stock held by the optionee for the requisite period necessary to avoid a charge
to the Corporation's earnings for financial reporting purposes and valued at
fair market value on the Exercise Date and cash or check, equal in the aggregate
to the option price; or

               (iv) to the extent the option is exercised for vested shares, the
option price may also be paid through a broker-dealer sale and remittance
procedure pursuant to which the optionee shall provide irrevocable instructions
to (I) a Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, an amount equal to the aggregate option price
payable for the purchased shares plus all applicable Federal and State income
and employment taxes required to be withheld by the Corporation by reason of
such purchase and (II) the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm.

               For purposes of this subparagraph 2, the Exercise Date shall be
the date on which notice of the exercise of the option is delivered to the
Corporation. Except to the extent the sale and remittance procedure is utilized
in connection with the exercise of the option, payment of the option price for
the purchased shares must accompany such notice.

           3. The fair market value of a share of Common Stock on any relevant
date under subparagraph 1 or 2 above (and for all other valuation purposes under
the Plan) shall be determined in accordance with the following provisions:

               (i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the fair market value shall be the closing selling price
per share of Common Stock on the day prior to the date in question, as such
price is reported by the National Association of Securities Dealers on the
Nasdaq National Market or any successor system. If there is no closing selling
price for the Common Stock on the day prior to the date in

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question, then the fair market value shall be the closing selling price on the
last preceding date for which such quotation exists.

               (ii) If the Common Stock is at the time listed on either the New
York Stock Exchange or the American Stock Exchange, then the fair market value
shall be the closing selling price per share of Common Stock on the day prior to
the date in question on such exchange, as such price is officially quoted in the
composite tape of transactions on that exchange. If there is no closing selling
price for the Common Stock on the day prior to the date in question, then the
fair market value shall be the closing selling price on the last preceding date
for which such quotation exists.

           B. Term and Exercise of Options.

              Each option granted under this Article Two shall be exercisable
at such time or times, during such period, and for such number of shares as
shall be determined by the Plan Administrator and set forth in the instrument
evidencing such option; provided, however, that no option granted under this
Article Two shall have a maximum term in excess of ten (10) years from the grant
date.

           C. Limited Transferability of Options.

              During the lifetime of the optionee, the option shall be
exercisable only by the optionee and shall not be assignable or transferable by
the optionee otherwise than by will or by the laws of descent and distribution
following the optionee's death. However, the Plan Administrator may grant one or
more options under this Article Two which may, in connection with the optionee's
estate plan, be assigned in whole or in part during the optionee's lifetime to
one or more members of the optionee's immediate family or to a trust established
exclusively for one or more such family members. The assigned portion may only
be exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate.

           D. Termination of Service.

              1. Should an optionee cease to remain in Service for any reason
(including death, permanent disability or retirement at or after age 65) while
the holder of one or more outstanding options granted to such optionee under the
Plan, then such option or options shall not (except to the extent otherwise
provided pursuant to paragraph VII below) remain exercisable for more than a
twelve (12)-month period (or such shorter period as is determined by the Plan
Administrator and set forth in the option agreement) following the date of
cessation of Service; provided, however, that under no circumstances shall any
such option be exercisable after the specified expiration date of the option
term. Except to the extent otherwise provided pursuant to subparagraph I.D.4
below, each such option shall, during such twelve (12)-month or shorter period,
be exercisable for any or all vested shares for which that option is exercisable
on the date of such cessation of Service. Upon the expiration of such twelve
(12)-month or shorter period or (if earlier) upon the expiration of the option
term, the option shall terminate and cease to be exercisable for any such vested
shares for which the option has not been exercised. However, the option shall,
immediately upon the optionee's cessation of Service, terminate and cease to be
outstanding with respect to any option shares in which the optionee is not
otherwise at that time vested or for which the option is not otherwise at that
time exercisable.

              2. Should the optionee die while in Service, or cease to remain
in Service and thereafter die while the holder of one or more outstanding
options under the Plan, each such option may be exercised by the personal
representative of the optionee's estate or by the person or persons to whom the
option is transferred pursuant to the optionee's will or in accordance with the
laws of descent and distribution but, except to the extent otherwise provided
pursuant to subparagraph I.D.4 below, only to the extent of the number of vested
shares (if any) for which the option is exercisable on the date of the
optionee's death. Such exercise must be effected prior to the earlier of (i) the
first anniversary of the date of the optionee's death or (ii) the specified
expiration date of the option term. Upon the occurrence of the earlier event,
the option shall terminate and cease to be exercisable.

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              3. If (i) the optionee's Service is terminated for cause
(including, but not limited to, any act of dishonesty, willful misconduct, fraud
or embezzlement or any unauthorized disclosure or use of confidential
information or trade secrets) or (ii) the optionee makes or attempts to make any
unauthorized use or disclosure of confidential information or trade secrets of
the Corporation or its parent or subsidiary corporations, then in any such event
all outstanding options granted the optionee under the Plan shall terminate and
cease to be exercisable immediately upon such cessation of Service or (if
earlier) upon such unauthorized use or disclosure of confidential or secret
information or attempt thereat.

              4. The Plan Administrator shall have complete discretion,
exercisable either at the time the option is granted or at the time the optionee
dies, retires at or after age 65, or ceases to remain in Service, to establish
as a provision applicable to the exercise of one or more options granted under
the Plan that during the limited period of exercisability following death,
retirement at or after age 65, or cessation of Employee status as provided in
subparagraph I.D.1 or I.D.2 above, the option may be exercised not only with
respect to the number of vested shares for which it is exercisable at the time
of the optionee's cessation of Service, but also with respect to one or more
subsequent installments in which the optionee would have otherwise vested had
such cessation of Service not occurred.

              5. For purposes of the foregoing provisions of this paragraph I.D
(and all other provisions of the Plan),

              -    The optionee shall be deemed to remain in the SERVICE of the
                   Corporation for so long as such individual renders services
                   on a periodic basis to the Corporation (or any parent or
                   subsidiary corporation) in the capacity of an Employee, a
                   non-employee member of the Board or an independent consultant
                   or advisor.

              -    The optionee shall be considered to be an EMPLOYEE for so
                   long as such individual remains in the employ of the
                   Corporation or one or more of its parent or subsidiary
                   corporations, subject to the control and direction of the
                   employer not only as to the work to be performed but also as
                   to the manner and method of performance.

           E. Stockholder Rights.

              An option holder shall have none of the rights of a stockholder
with respect to any shares covered by the option until such individual shall
have exercised the option, paid the option price and been issued a stock
certificate for the purchased shares. No adjustment shall be made for dividends
or distributions (whether paid in cash, securities or other property) for which
the record date is prior to the date the stock certificate is issued.

           F. Repurchase Rights.

              The shares of Common Stock acquired upon the exercise of options
granted under this Article Two may be subject to repurchase by the Corporation
in accordance with the following provisions:

              The Plan Administrator shall have the discretion to authorize the
issuance of unvested shares of Common Stock under this Article Two. Should the
Optionee cease Service while holding such unvested shares, the Corporation shall
have the right to repurchase any or all of those unvested shares at the option
price paid per share. The terms and conditions upon which such repurchase right
shall be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the instrument evidencing such
repurchase right.

              All of the Corporation's outstanding repurchase rights shall
automatically terminate, and all shares subject to such terminated rights shall
immediately vest in full, upon the occurrence of any Corporate Transaction under
paragraph II of this Article Two, except to the extent: (i) any such repurchase
right is to be assigned to the successor corporation (or parent thereof) in
connection with the Corporate Transaction or (ii) such termination is precluded
by other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.

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               The Plan Administrator shall have the discretionary authority,
exercisable either before or after the optionee's cessation of Service, to
cancel the Corporation's outstanding repurchase rights with respect to one or
more shares purchased or purchasable by the optionee under this Article Two and
thereby accelerate the vesting of such shares in connection with the optionee's
cessation of Service.

II.     CORPORATE TRANSACTIONS

        A. In the event of any of the following stockholder-approved
transactions (a "Corporate Transaction"):

           (i) a merger or acquisition in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State of the Corporation's incorporation,

           (ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Corporation, or

           (iii) any reverse merger in which the Corporation is the surviving
entity,

           then each option outstanding under this Article Two shall
automatically become exercisable, during the five (5) business day period
immediately prior to the specified effective date for the Corporate Transaction,
with respect to the full number of shares of Common Stock purchasable under such
option and may be exercised for all or any portion of such shares as fully
vested shares of Common Stock. An outstanding option under the Plan shall not be
so accelerated, however, if and to the extent (i) such option is, in connection
with the Corporate Transaction, either to be assumed by the successor
corporation or parent thereof or be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation or parent
thereof or (ii) the acceleration of such option is subject to other limitations
imposed by the Plan Administrator at the time of grant.

        B. Immediately following the consummation of the Corporate Transaction,
all outstanding options under the Plan shall, to the extent not previously
exercised or assumed by the successor corporation or its parent company,
terminate and cease to be exercisable.

        C. Each outstanding option under this Article Two which is assumed in
connection with the Corporate Transaction or is otherwise to continue in effect
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply and pertain to the number and class of securities which would have been
issuable, in consummation of such Corporate Transaction, to an actual holder of
the same number of shares of Common Stock as are subject to such option
immediately prior to such Corporate Transaction. Appropriate adjustments shall
also be made to the option price payable per share, provided the aggregate
option price payable for such securities shall remain the same. In addition, the
class and number of securities available for issuance under the Plan following
the consummation of the Corporate Transaction shall be appropriately adjusted.

        D. Option grants under this Article Two shall in no way affect the right
of the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.

III.    CANCELLATION AND REGRANT

        The Plan Administrator shall have the authority to effect, at any time
and from time to time, with consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options covering the same or different numbers of
shares of Common Stock but having an exercise price per share equal to one
hundred percent (100%) of the fair market value of the Common Stock on the new
grant date.

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IV.     EXTENSION OF EXERCISE PERIOD

        The Plan Administrator shall have full power and authority, exercisable
from time to time in its sole discretion, to extend, either at the time the
option is granted or at any time while such option remains outstanding, the
period of time for which the option is to remain exercisable following the
optionee's cessation of Service or death from the twelve (12)-month or shorter
period set forth in the option agreement to such greater period of time as the
Plan Administrator shall deem appropriate; provided, however, that in no event
shall such option be exercisable after the specified expiration date of the
option term.

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                                  ARTICLE THREE

                                  MISCELLANEOUS

I.      AMENDMENT OF THE PLAN

        The Board shall have complete and exclusive power and authority to amend
or modify the Plan in any or all respects whatsoever. However, no such amendment
or modification shall, without the consent of the holders, adversely affect
rights and obligations with respect to options at the time outstanding under the
Plan.

II.     EFFECTIVE DATE AND TERM OF PLAN

        A. The Plan shall become effective upon its adoption by the Board.
Unless sooner terminated in accordance with paragraph II of Article Two, the
Plan shall terminate upon the earlier of (i) September 26, 2007 or (ii) the date
on which all shares available for issuance under the Plan shall have been issued
or cancelled pursuant to the exercise or surrender of options granted hereunder.
If the date of termination is determined under clause (i) above, then options
outstanding on such date shall not be affected by the termination of the Plan
and shall continue to have force and effect in accordance with the provisions of
the instruments evidencing such options.

        B. On January 30, 1998, the Board approved an amendment to the Plan to
increase the number of shares of Common Stock reserved for issuance over the
term of the Plan by an additional 1,000,000 shares.

        C. On June 12, 1998, the Board approved an amendment to the Plan to
increase the number of shares of Common Stock reserved for issuance over the
term of the Plan by an additional 1,500,000 shares.

        D. On December 23, 1999, the Board approved an amendment to the Plan to
increase the number of shares of Common Stock reserved for issuance over the
term of the Plan by an additional 1,500,000 shares.

        E. On June 15, 2001, the Board approved an amendment to the Plan to
increase the number of shares of Common Stock reserved for issuance over the
term of the Plan by an additional 1,963,037 shares.

III.    USE OF PROCEEDS

        Any cash proceeds received by the Corporation from the sale of shares
pursuant to options granted under the Plan shall be used for general corporate
purposes.

IV.     TAX WITHHOLDING

        The Corporation's obligation to deliver shares or cash upon the exercise
or surrender of any option granted under the Plan shall be subject to the
satisfaction of all applicable federal, state and local income and employment
tax withholding requirements.

V.      NO EMPLOYMENT/SERVICE RIGHTS

        Neither the action of the Corporation in establishing or restating the
Plan, nor any action taken by the Plan Administrator hereunder, nor any
provision of the restated Plan shall be construed so as to grant any individual
the right to remain in the employ or service of the Corporation (or any parent
or subsidiary corporation) for any period of specific duration, and the
Corporation (or any parent or subsidiary corporation retaining the services of
such individual) may terminate such individual's employment or service at any
time and for any reason, with or without cause.

VI.     REGULATORY APPROVALS

        A. The implementation of the Plan, the granting of any option hereunder,
and the issuance of stock upon the exercise or surrender of any such option
shall be subject to the Corporation's procurement of all approvals

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and permits required by regulatory authorities having jurisdiction over the
Plan, the options granted under it and the stock issued pursuant to it.

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

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           Notice of Grant generally used in connection with the 1997
                        Supplemental Stock Option Plan.

                               KOMAG, INCORPORATED
                         NOTICE OF GRANT OF STOCK OPTION

        Notice is hereby given of the following option grant (the "Option") to
purchase shares of the Common Stock of Komag, Incorporated. (the "Corporation"):

        Optionee:
                  -------------------------------------------------------------

        Grant Date:                       Exercise Price: $           per share
                   ----------------------                  ----------

        Option Type: Non-Statutory Stock Option    Number of Option Shares:
                     ---------------------------                           ----

        Vesting Commencement Date:                 Expiration Date:
                                   -------------                   ------------

        Exercise Schedule: The Option shall become vested and exercisable for
twenty-five percent (25%) of the Option Shares upon Optionee's completion of one
(1) year of Service measured from the Grant Date and shall become exercisable
for the balance of the Option Shares in thirty-six (36) successive equal monthly
installments upon Optionee's completion of each additional month of Service over
the thirty-six (36) month period measured from the first anniversary of the
Grant Date.

Optionee understands and agrees that the Option is granted subject to and in
accordance with the terms of the Komag, Incorporated 1997 Supplemental Stock
Option Plan (the "Option Plan"). Optionee further agrees to be bound by the
terms of the Option Plan and the terms of the Option as set forth in the Stock
Option Agreement (the "Option Agreement") referenced herein. Optionee assumes
responsibility for reviewing the official prospectus for the Plan, and Stock
Option Agreement available on Komag's Intranet Stock Plan Pages, and on Komag's
Public File Server at KUS1\VOL1\KOMAG in the folder titled STKINFO:

          Plan summary and Prospectus file named     OPSCT97.DOC
          Plan Stock Option Agreement file named     OPAGR97.DOC

Copies of these documents are also available upon request from the Stock Plan
Administrator.

        No Employment or Service Contract. Nothing in this Notice or in the
attached Option Agreement or in the Plan shall confer upon Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of Optionee, which rights are
hereby expressly reserved by each, to terminate Optionee's Service at any time
for any reason, with or without cause.

        Definitions. All capitalized terms in this Notice shall have the meaning
assigned to them in this Notice or in the referenced Option Agreement.

KOMAG, INCORPORATED

By:                                              Optionee:
   -------------------------------                        ---------------------

Title:                                           Date:
      ----------------------------                    -------------------------<PAGE>   1

                                                                    EXHIBIT 4.3

                         1987 RESTATED STOCK OPTION PLAN

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                               KOMAG, INCORPORATED

                         RESTATED 1987 STOCK OPTION PLAN
         (AMENDED AND RESTATED APRIL 16, 1999 AND THROUGH MAY 15, 2001)

                                   ARTICLE ONE

                               GENERAL PROVISIONS

I.      PURPOSES OF THE PLAN

        This Restated 1987 Stock Option Plan (the "Plan") is intended to promote
the interests of Komag, Incorporated, a Delaware corporation (the
"Corporation"), by providing a method whereby eligible individuals may be
offered incentives and rewards which will encourage them to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation and continue to render services to the Corporation (or its parent or
subsidiary corporations).

II.     STRUCTURE OF THE PLAN

        A. Option Programs. The Plan shall be divided into two separate
components: the Discretionary Option Grant Program described in Article Two and
the Automatic Option Grant Program described in Article Three. Under the
Discretionary Option Grant Program, eligible individuals may, at the discretion
of the Plan Administrator, be granted options to purchase shares of Common Stock
in accordance with the provisions of Article Two. Under the Automatic Option
Grant Program, each eligible member of the Corporation's Board of Directors (the
"Board") will automatically receive an option grant to purchase shares of Common
Stock in accordance with the provisions of Article Three.

        B. General Provisions. Unless the context clearly indicates otherwise,
the provisions of Articles One and Four of the Plan shall apply to the
Discretionary Option Grant Program and the Automatic Option Grant Program and
shall accordingly govern the interests of all individuals under the Plan.

III.    ADMINISTRATION OF THE PLAN

        A. The Discretionary Option Grant Program shall be administered by one
or more committees comprised of Board members. The primary committee (the
"Primary Committee") shall be comprised of two or more non-employee Board
members and shall have sole and exclusive authority to grant stock options and
stock appreciation rights under the Discretionary Option Grant Program to
officers and employee-directors of the Corporation subject to the short-swing
profit restrictions of the Federal securities laws. Stock options may be granted
under the Discretionary Option Grant Program to all other eligible employees and
consultants by either the Primary Committee or a second committee comprised of
two or more employee-Board members (the "Secondary Committee"). The members of
the Primary Committee and the Secondary Committee shall each serve for such
period of time as the Board may determine and shall be subject to removal by the
Board at any time.

        B. Subject to the limited authority provided the Secondary Committee to
effect option grants in accordance with the provisions of paragraph III.A of
this Article One, the Primary Committee shall serve as the Plan Administrator
and shall have full power and authority (subject to the express provisions of
the Discretionary Option Grant Program) to establish such rules and regulations
as it may deem appropriate for the proper administration of such program and to
make such determinations under the program and any outstanding option as it may
deem necessary or advisable. Decisions of the Plan Administrator shall be final
and binding on all parties with an interest in the Plan or any outstanding
option under this Discretionary Option Grant Program.

        C. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the express terms and conditions of Article
Three.

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IV.     ELIGIBILITY FOR OPTION GRANTS

        A. The persons eligible to receive options pursuant to the Discretionary
Option Grant Program under Article Two of the Plan shall be

        -       those key employees (including officers and directors) of the
                Corporation (or its parent or subsidiary corporations) who
                render services which tend to contribute materially to the
                success of the Corporation (or its parent or subsidiary
                corporations) or which may reasonably be anticipated to
                contribute materially to the future success of the Corporation
                (or its parent or subsidiary corporations),

        -       non-employee Board members who render valuable services to the
                Corporation (or its parent or subsidiary corporations), and

        -       those independent contractors and consultants who provide
                valuable services to the Corporation (or its parent or
                subsidiary corporations).

        B. Non-employee Board members shall also be eligible to receive
automatic option grants under the provisions of Article Three.

        C. The Plan Administrator shall have full authority to select the
eligible individuals who are to receive option grants under the Plan, the number
of shares to be covered by each granted option, whether such option is to be an
incentive stock option ("Incentive Option") which satisfies the requirements of
Section 422 of the Internal Revenue Code or a non-statutory option
("Non-Statutory Option") not intended to meet such requirements, the time or
times at which such option is to become exercisable and the maximum term for
which the option is to be outstanding.

        D. For purposes of the Plan, the following provisions shall be
applicable in determining the parent and subsidiary corporations of the
Corporation:

                Any corporation (other than the Corporation) in an unbroken
        chain of corporations ending with the Corporation shall be considered to
        be a PARENT corporation of the Corporation, provided each such
        corporation in the unbroken chain (other than the Corporation) owns, at
        the time of the determination, stock possessing fifty percent (50%) or
        more of the total combined voting power of all classes of stock in one
        of the other corporations in such chain.

                Each corporation (other than the Corporation) in an unbroken
        chain of corporations beginning with the Corporation shall be considered
        to be a SUBSIDIARY of the Corporation, provided each such corporation
        (other than the last corporation) in the unbroken chain owns, at the
        time of the determination, stock possessing fifty percent (50%) or more
        of the total combined voting power of all classes of stock in one of the
        other corporations in such chain.

V.      STOCK SUBJECT TO THE PLAN

        A. The stock issuable under the Plan shall be shares of the
Corporation's authorized but unissued or reacquired Common Stock. The aggregate
number of shares which may be issued over the term of the Plan shall not exceed
21,140,000 shares (subject to adjustment from time to time in accordance with
paragraph V.D of this Article One).

        B. In no event any one individual participating in the Plan be granted
stock options and separately exercisable stock appreciation rights for more than
3,000,000 shares of Common Stock (as adjusted for the December 1995 split) in
the aggregate over the remaining term of the Plan, subject to adjustment from
time to time in accordance with paragraph V.D of this Article One. For purposes
of such limitation, no stock options or stock appreciation rights granted prior
to January 1, 1994 shall be taken into account.

                                       2.
<PAGE>   4

        C. Should an option be terminated for any reason prior to exercise in
whole or in part, the shares subject to the portion of the option not so
exercised shall be available for subsequent option grants under this Plan. In
addition, unvested shares issued under the Plan and subsequently repurchased by
the Corporation at the original exercise price paid per share, pursuant to the
Corporation's repurchase rights under the Plan shall be added back to the number
of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent option
grants under the Plan. However, shares subject to any option or portion thereof
cancelled in accordance with paragraph IV of Article Two or paragraph III of
Article Three and shares repurchased by the Corporation pursuant to its
repurchase rights under the Plan shall not be available for subsequent option
grants under the Plan.

        D. In the event any change is made to the Common Stock issuable under
the Plan (whether by reason of (i) merger, consolidation or reorganization or
(ii) recapitalization, stock dividend, stock split, combination of shares,
exchange of shares or other similar change affecting the outstanding Common
Stock as a class without receipt of consideration), then unless such change
results in the termination of all outstanding options pursuant to the provisions
of paragraph III of Articles Two and Three of the Plan, appropriate adjustments
shall be made to (i) the aggregate number and/or class of shares issuable under
the Plan, (ii) the maximum number and/or class of shares for which stock options
and separately exercisable stock appreciation rights may be granted to any one
participant in the aggregate after December 31, 1993, (iii) the number and/or
class of shares and price per share in effect under each outstanding option
under the Discretionary Option Grant Program, (iv) the number and/or class of
shares per non-employee Board member for which automatic option grants are
subsequently to be made under the Automatic Option Grant Program, and (v) the
number and/or class of shares and price per share of the Common Stock in effect
under each automatic grant outstanding under the Automatic Option Grant Program.
The purpose of such adjustments to the outstanding options shall be to preclude
the enlargement or dilution of rights and benefits under such options.

                                       3.
<PAGE>   5

                                   ARTICLE TWO

                       DISCRETIONARY OPTION GRANT PROGRAM

VI.     TERMS AND CONDITIONS OF OPTIONS

        Options granted pursuant to this Article Two shall be authorized by
action of the Plan Administrator and may, at the Plan Administrator's
discretion, be either Incentive Options or Non-Statutory Options. Individuals
who are not Employees may only be granted Non-Statutory options. The granted
options shall be evidenced by instruments in such form as the Plan Administrator
shall from time to time approve; provided, however, that each such instrument
shall comply with and incorporate the terms and conditions specified below. Each
instrument evidencing an Incentive Option shall, in addition, be subject to the
applicable provisions of paragraph II of this Article Two.

        A. Option Price.

           1. The option price per share shall be fixed by the Plan
Administrator. In no event, however, shall the option price per share be less
than one hundred percent (100%) of the fair market value per share of Common
Stock on the date of the option grant.

           2. The option price shall become immediately due upon exercise of the
option and shall, subject to the provisions of paragraph VI of this Article Two
and the instrument evidencing the grant, be payable as follows:

               (i) full payment in cash or check drawn to the Corporation's
order;

               (ii) full payment in shares of Common Stock held by the optionee
for the requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at fair market value on the
Exercise Date (as such term is defined below) equal to the option price; or

               (iii) full payment through a combination of shares of Common
Stock held by the optionee for the requisite period necessary to avoid a charge
to the Corporation's earnings for financial reporting purposes and valued at
fair market value on the Exercise Date and cash or check, equal in the aggregate
to the option price.

               (iv) to the extent the option is exercised for vested shares, the
option price may also be paid through a broker-dealer sale and remittance
procedure pursuant to which the optionee shall provide irrevocable instructions
to (I) a Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, an amount equal to the aggregate option price
payable for the purchased shares plus all applicable Federal and State income
and employment taxes required to be withheld by the Corporation by reason of
such purchase and (II) the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm.

               For purposes of this subparagraph 2, the Exercise Date shall be
the date on which notice of the exercise of the option is delivered to the
Corporation. Except to the extent the sale and remittance procedure is utilized
in connection with the exercise of the option, payment of the option price for
the purchased shares must accompany such notice.

           3. The fair market value of a share of Common Stock on any relevant
date under subparagraph 1 or 2 above (and for all other valuation purposes under
the Plan) shall be determined in accordance with the following provisions:

               (i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the fair market value shall be the closing sales price per
share of Common Stock on the date in question, as such price is reported by the
National Association of Securities Dealers on the Nasdaq National Market or

                                       4.
<PAGE>   6

any successor system. If there is no closing sales price for the Common Stock on
the date in question, then the fair market value shall be the closing sales
price on the last preceding date for which such quotation exists.

               (ii) If the Common Stock is at the time listed on either the New
York Stock Exchange or the American Stock Exchange, then the fair market value
shall be the closing sales price per share of Common Stock on the date in
question on such exchange, as such price is officially quoted in the composite
tape of transactions on that exchange. If there is no closing sales price for
the Common Stock on the date in question, then the fair market value shall be
the closing sales price on the last preceding date for which such quotation
exists.

        B. Term and Exercise of Options.

           Each option granted under this Article Two shall be exercisable at
such time or times, during such period, and for such number of shares as shall
be determined by the Plan Administrator and set forth in the instrument
evidencing such option; provided, however, that no option granted under this
Article Two shall have a maximum term in excess of ten (10) years from the grant
date.

        C. Limited Transferability of Options.

           During the lifetime of the optionee, the option shall be exercisable
only by the optionee and shall not be assignable or transferable by the optionee
otherwise than by will or by the laws of descent and distribution following the
optionee's death. However, the Plan Administrator may grant one or more
Non-Statutory Options under this Article Two which may, in connection with the
optionee's estate plan, be assigned in whole or in part during the optionee's
lifetime to one or more members of the optionee's immediate family or to a trust
established exclusively for one or more such family members. The assigned
portion may only be exercised by the person or persons who acquire a proprietary
interest in the option pursuant to the assignment. The terms applicable to the
assigned portion shall be the same as those in effect for the option immediately
prior to such assignment and shall be set forth in such documents issued to the
assignee as the Plan Administrator may deem appropriate.

        D. Termination of Service.

           1. Should an optionee cease to remain in Service for any reason
(including death, permanent disability or retirement at or after age 65) while
the holder of one or more outstanding options granted to such optionee under the
Plan, then such option or options shall not (except to the extent otherwise
provided pursuant to paragraph VII below) remain exercisable for more than a
twelve (12)-month period (or such shorter period as is determined by the Plan
Administrator and set forth in the option agreement) following the date of
cessation of Service; provided, however, that under no circumstances shall any
such option be exercisable after the specified expiration date of the option
term. Except to the extent otherwise provided pursuant to subparagraph I.D.4
below, each such option shall, during such twelve (12)-month or shorter period,
be exercisable for any or all vested shares for which that option is exercisable
on the date of such cessation of Service. Upon the expiration of such twelve
(12)-month or shorter period or (if earlier) upon the expiration of the option
term, the option shall terminate and cease to be exercisable for any such vested
shares for which the option has not been exercised. However, the option shall,
immediately upon the optionee's cessation of Service, terminate and cease to be
outstanding with respect to any option shares in which the optionee is not
otherwise at that time vested or for which the option is not otherwise at that
time exercisable.

           2. Should the optionee die while in Service, or cease to remain in
Service and thereafter die while the holder of one or more outstanding options
under the Plan, each such option may be exercised by the personal representative
of the optionee's estate or by the person or persons to whom the option is
transferred pursuant to the optionee's will or in accordance with the laws of
descent and distribution but, except to the extent otherwise provided pursuant
to subparagraph I.D.4 below, only to the extent of the number of vested shares
(if any) for which the option is exercisable on the date of the optionee's
death. Such exercise must be effected prior to the earlier of (i) the first
anniversary of the date of the optionee's death or (ii) the specified expiration
date of the option term. Upon the occurrence of the earlier event, the option
shall terminate and cease to be exercisable.

           3. If (i) the optionee's Service is terminated for cause (including,
but not limited to, any act of dishonesty, willful misconduct, fraud or
embezzlement or any unauthorized disclosure or use of confidential information

                                       5.
<PAGE>   7

or trade secrets) or (ii) the optionee makes or attempts to make any
unauthorized use or disclosure of confidential information or trade secrets of
the Corporation or its parent or subsidiary corporations, then in any such event
all outstanding options granted the optionee under the Plan shall terminate and
cease to be exercisable immediately upon such cessation of Service or (if
earlier) upon such unauthorized use or disclosure of confidential or secret
information or attempt thereat.

           4. The Plan Administrator shall have complete discretion, exercisable
either at the time the option is granted or at the time the optionee dies,
retires at or after age 65, or ceases to remain in Service, to establish as a
provision applicable to the exercise of one or more options granted under the
Plan that during the limited period of exercisability following death,
retirement at or after age 65, or cessation of Employee status as provided in
subparagraph I.D.1 or I.D.2 above, the option may be exercised not only with
respect to the number of vested shares for which it is exercisable at the time
of the optionee's cessation of Service, but also with respect to one or more
subsequent installments in which the optionee would have otherwise vested had
such cessation of Service not occurred.

           5. For purposes of the foregoing provisions of this paragraph I.D
(and all other provisions of the Plan),

           -      The optionee shall be deemed to remain in the SERVICE of the
                  Corporation for so long as such individual renders services on
                  a periodic basis to the Corporation (or any parent or
                  subsidiary corporation) in the capacity of an Employee, a
                  non-employee member of the Board or an independent consultant
                  or advisor.

           -      The optionee shall be considered to be an EMPLOYEE for so long
                  as such individual remains in the employ of the Corporation or
                  one or more of its parent or subsidiary corporations, subject
                  to the control and direction of the employer not only as to
                  the work to be performed but also as to the manner and method
                  of performance.

        E. Stockholder Rights.

           An option holder shall have none of the rights of a stockholder with
respect to any shares covered by the option until such individual shall have
exercised the option, paid the option price and been issued a stock certificate
for the purchased shares. No adjustment shall be made for dividends or
distributions (whether paid in cash, securities or other property) for which the
record date is prior to the date the stock certificate is issued.

        F. Repurchase Rights.

           The shares of Common Stock acquired upon the exercise of options
granted under this Article Two may be subject to repurchase by the Corporation
in accordance with the following provisions:

           The Plan Administrator shall have the discretion to authorize the
issuance of unvested shares of Common Stock under this Article Two. Should the
Optionee cease Service while holding such unvested shares, the Corporation shall
have the right to repurchase any or all of those unvested shares at the option
price paid per share. The terms and conditions upon which such repurchase right
shall be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the instrument evidencing such
repurchase right.

           All of the Corporation's outstanding repurchase rights shall
automatically terminate, and all shares subject to such terminated rights shall
immediately vest in full, upon the occurrence of any Corporate Transaction under
paragraph III of this Article Two, except to the extent: (i) any such repurchase
right is to be assigned to the successor corporation (or parent thereof) in
connection with the Corporate Transaction or (ii) such termination is precluded
by other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.

           The Plan Administrator shall have the discretionary authority,
exercisable either before or after the optionee's cessation of Service, to
cancel the Corporation's outstanding repurchase rights with respect to one or
more

                                       6.
<PAGE>   8

shares purchased or purchasable by the optionee under this Article Two and
thereby accelerate the vesting of such shares in connection with the optionee's
cessation of Service.

VII.    INCENTIVE OPTIONS

        The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Article Two. Incentive Options may only be
granted to individuals who are Employees. Options which are specifically
designated as "non-qualified" or "non-statutory" options when issued under the
Plan shall not be subject to such terms and conditions:

        A. Option Price. The option price per share of the Common Stock subject
to an Incentive Option shall in no event be less than one hundred percent (100%)
of the fair market value of a share of Common Stock on the date of grant.

        B. Dollar Limitation. The aggregate fair market value (determined as of
the respective date or dates of grant) of the shares of Common Stock for which
one or more options granted to any employee under the Plan (or any other option
plan of the Corporation or any parent or subsidiary corporation) may for the
first time become exercisable as Incentive Options during any one (1) calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.

        C. 10% Stockholder. If any individual to whom an Incentive Option is
granted is the owner of stock (as determined under Section 424(d) of the
Internal Revenue Code) possessing more than 10% of the total combined voting
power of all classes of stock of the Corporation or any one of its parent or
subsidiary corporations, then the option price per share shall not be less than
one hundred and ten percent (110%) of the fair market value per share of Common
Stock on the grant date, and the option term shall not exceed five (5) years,
measured from the grant date.

        Except as modified by the preceding provisions of this paragraph II, the
provisions of Articles One, Two and Four of the Plan shall apply to all
Incentive Options granted hereunder.

VIII.   CORPORATE TRANSACTIONS

        A. In the event of any of the following stockholder-approved
transactions (a "Corporate Transaction"):

           (i) a merger or acquisition in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State of the Corporation's incorporation,

           (ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Corporation, or

           (iii) any reverse merger in which the Corporation is the surviving
entity,

           then each option outstanding under this Article Two shall
automatically become exercisable, during the five (5) business day period
immediately prior to the specified effective date for the Corporate Transaction,
with respect to the full number of shares of Common Stock purchasable under such
option and may be exercised for all or any portion of such shares as fully
vested shares of Common Stock. An outstanding option under the Plan shall not be
so accelerated, however, if and to the extent (i) such option is, in connection
with the Corporate Transaction, either to be assumed by the successor
corporation or parent thereof or be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation or parent
thereof or (ii) the acceleration of such option is subject to other limitations
imposed by the Plan Administrator at the time of grant.

        B. Immediately following the consummation of the Corporate Transaction,
all outstanding options under the Plan shall, to the extent not previously
exercised or assumed by the successor corporation or its parent company,
terminate and cease to be exercisable.

                                       7.
<PAGE>   9

        C. Each outstanding option under this Article Two which is assumed in
connection with the Corporate Transaction or is otherwise to continue in effect
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply and pertain to the number and class of securities which would have been
issuable, in consummation of such Corporate Transaction, to an actual holder of
the same number of shares of Common Stock as are subject to such option
immediately prior to such Corporate Transaction. Appropriate adjustments shall
also be made to the option price payable per share, provided the aggregate
option price payable for such securities shall remain the same. In addition, the
class and number of securities available for issuance under the Plan following
the consummation of the Corporate Transaction shall be appropriately adjusted.

        D. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction shall remain subject to the applicable limitations of
paragraph II.B.

        E. Option grants under this Article Two shall in no way affect the right
of the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.

IX.     STOCK APPRECIATION RIGHTS

        A. Officers and non-employee Board members of the Corporation subject to
the short-swing profit restrictions of the Federal securities laws may, in the
Plan Administrator's sole discretion, be granted limited stock appreciation
rights in tandem with their outstanding options under this Article Two. Upon the
occurrence of a Hostile Take-Over effected at any time after the Corporation's
outstanding Common Stock is registered under Section 12(g) of the Exchange Act,
each outstanding option with such a limited stock appreciation right shall
automatically be cancelled and the optionee shall in return be entitled to a
cash distribution from the Corporation in an amount equal to the excess of (i)
the Take-Over Price of the shares of Common Stock at the time subject to the
cancelled option (whether or not the option is otherwise at the time exercisable
for such shares) over (ii) the aggregate exercise price payable for such shares.
The cash distribution payable upon such cancellation shall be made within five
(5) days following the consummation of the Hostile Take-Over. The Plan
Administrator shall pre-approve, at the time the limited right is granted, the
subsequent exercise of that right in accordance with the terms of the grant and
the provisions of this Section IV. No additional approval of the Plan
Administrator or the Board shall be required at the time of the actual option
cancellation and cash distribution.

        B. For purposes of paragraph IV.A, the following definitions shall be in
effect:

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

           The Take-Over Price per share shall be deemed to be equal to the
greater of (a) the fair market value per share on the date of cancellation, as
determined pursuant to the valuation provisions of subparagraph I.A.3, or (b)
the highest reported price per share paid in effecting such Hostile Take-Over.
However, if the cancelled option is an Incentive Option, the Take-Over Price
shall not exceed the clause (a) price per share.

        C. The shares of Common Stock subject to any option cancelled for an
appreciation distribution pursuant to this paragraph V shall NOT be available
for subsequent option grant under the Plan.

X.      EXTENSION OF EXERCISE PERIOD

        The Plan Administrator shall have full power and authority, exercisable
from time to time in its sole discretion, to extend, either at the time the
option is granted or at any time while such option remains outstanding, the
period of time for which the option is to remain exercisable following the
optionee's cessation of Service or death from the twelve (12)-

                                       8.
<PAGE>   10

month or shorter period set forth in the option agreement to such greater period
of time as the Plan Administrator shall deem appropriate; provided, however,
that in no event shall such option be exercisable after the specified expiration
date of the option term.

                                       9.
<PAGE>   11

                                  ARTICLE THREE

                         AUTOMATIC OPTION GRANT PROGRAM

XI.     ELIGIBILITY

        The individuals eligible to receive automatic option grants pursuant to
the provisions of this Article Three shall be limited to the following:

                (i) each individual serving as a non-employee member of the
        Board on January 24, 1995, the effective date of this Automatic Option
        Grant Program (the "Effective Date"); and

                (ii) each individual who is first appointed or elected as a
        non-employee Board member at any time after the Effective Date.

XII.    TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS

        A. Grant Dates. Option grants will be made under this Article Three on
the dates specified below:

           (i) Each individual who first becomes a non-employee Board member at
any time after the Effective Date, whether through election at an Annual
Stockholders Meeting or through appointment by the Board, shall automatically be
granted, at the time of such initial election or appointment, a Non-Statutory
Option to purchase 30,000 shares of Common Stock upon the terms and conditions
of this Article Three. The size of such grant has been adjusted to reflect the
two-for-one split of the Common Stock which occurred in December 1995, but then
reduced by twenty-five percent (25%) to effect a net adjustment on a 1.5-for-one
basis.

           (ii) On the date of each Annual Stockholders Meeting, beginning with
the 1999 Annual Stockholders Meeting, each individual who is at the time elected
or reelected as a non-employee member of the Board shall receive an additional
grant of a Non-Statutory Option under the Plan to purchase 12,000 shares of the
Common Stock, provided such individual has been a member of the Board for at
least six (6) months.

        The applicable 30,000-share and 12,000-share limitations on the
automatic option grants to be made to non-employee Board members under this
Article Three shall be subject to periodic adjustment pursuant to the applicable
provisions of paragraph V.C of Article One.

        B. Exercise Price. The exercise price per share shall be equal to one
hundred percent (100%) of the fair market value per share of Common Stock on the
automatic grant date.

        C. Payment.

           The exercise price shall be payable in one of the alternative forms
specified below:

           (i) full payment in cash or check made payable to the Corporation's
order;

           (ii) full payment in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's reported earnings and
valued at fair market value on the Exercise Date (as such term is defined
below); or

           (iii) full payment in a combination of shares of Common Stock held
for the requisite period necessary to avoid a charge to the Corporation's
reported earnings and valued at fair market value on the Exercise Date and cash
or check payable to the Corporation's order.

                                      10.
<PAGE>   12

           (iv) the option price may also be paid through a broker-dealer sale
and remittance procedure pursuant to which the optionee shall provide
irrevocable instructions to (I) a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the Corporation,
out of the sale proceeds available on the settlement date, an amount equal to
the aggregate option price payable for the purchased shares plus all applicable
Federal and State income and employment taxes required to be withheld by the
Corporation by reason of such purchase and (II) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm.

           For purposes of this subparagraph, the Exercise Date shall be the
date on which notice of the option exercise is delivered to the Corporation, and
the fair market value per share of Common Stock on any relevant date shall be
determined in accordance with the provisions of paragraph I.A.3 of Article Two.
Except to the extent the sale and remittance procedure specified above is
utilized for the exercise of the option, payment of the exercise price for the
purchased shares must accompany such notice.

        D. Option Term. Each automatic grant under this Article Three shall have
a maximum term of ten (10) years measured from the automatic grant date.

        E. Exercisability. The initial 30,000-share automatic grant made to each
newly-elected or newly-appointed non-employee Board member shall become
exercisable for the option shares in four (4) installments as follows:

           (i) The option shall become exercisable for twenty-five percent (25%)
of the option shares upon the completion of twelve (12) months of Board service
measured from the automatic grant date.

           (ii) The option shall become exercisable for an additional
twenty-five percent (25%) of the option shares upon the completion of
twenty-four (24) months of Board service measured from the automatic grant date.

           (iii) The option shall become exercisable for an additional
twenty-five percent (25%) of the option shares upon the completion of thirty-six
(36) months of Board service measured from the automatic grant date.

           (iv) The option shall become exercisable for the final twenty-five
percent (25%) of the option shares upon the completion of forty-eight (48)
months of Board service measured from the automatic grant date.

           The annual 12,000-share option grant made to each re-elected
non-employee Board member shall become exercisable for all the option shares
upon the optionee's completion of twelve (12) months of Board service measured
from the automatic grant date.

           As the option becomes exercisable for one or more installments of the
option shares, those installments shall accumulate, and the option shall remain
exercisable for the accumulated installments until the expiration or sooner
termination of the option term. The option, however, shall not become
exercisable for any additional option shares following the optionee's cessation
of Board service, except to the extent the option is otherwise to become
exercisable in accordance with the provisions of paragraph III of this Article
Three.

        F. Limited Transferability of Options. During the lifetime of the
optionee, the option shall only be exercisable by the optionee and shall not be
assignable or transferable by the optionee otherwise than by will or the by the
laws of descent and distribution following the optionee's death. However, each
option granted under this Automatic Option Grant Program on or after the date of
the 1999 Annual Stockholders Meeting shall be assignable in whole or in part by
the optionee during his or her lifetime, but only to the extent such assignment
is made in connection with the optionee's estate plan to one or more members of
the optionee's immediate family or to a trust established exclusively for one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate.

                                      11.
<PAGE>   13

        G. Effect of Termination of Board Membership.

           1. Should the optionee cease to be a Board member for any reason
(other than death) while holding an automatic option grant under this Article
Three, then such optionee shall have a six (6)-month period following the date
of such cessation of Board membership in which to exercise such option for any
or all of the shares of Common Stock for which the option is exercisable at the
time the optionee ceases service as a Board member.

           2. Should the optionee die while serving as a Board member or during
the six (6)-month period following his or her cessation of Board service, then
the option may subsequently be exercised, for any or all of the shares of Common
Stock for which the option is exercisable at the time of the optionee's
cessation of Board membership, by the personal representative of the optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the optionee's will or in accordance with the laws of descent and distribution.
Any such exercise must, however, occur within twelve (12) months after the date
of the optionee's death.

           3. In no event shall any automatic grant under this Article Three
remain exercisable after the specified expiration date of the ten (10)-year
option term. Upon the expiration of the applicable exercise period in accordance
with subparagraphs 1 and 2 above or (if earlier) upon the expiration of the ten
(10)-year option term, the automatic grant shall terminate and cease to be
exercisable.

        H. Stockholder Rights. The holder of an automatic option grant under
this Article Three shall have no stockholder rights with respect to any shares
covered by such option until such individual shall have exercised the option,
paid the exercise price for the purchased shares and been issued a stock
certificate for such shares.

        I. Remaining Terms. The remaining terms and conditions of each automatic
option grant shall be as set forth in the prototype Non-statutory Stock Option
Agreement attached as Exhibit A to the Plan.

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

        A. In connection with any Corporate Transaction (as such term is defined
in paragraph III of Article Two, above), the exercisability of each automatic
option grant outstanding under this Article Three shall automatically accelerate
so that each such option shall, immediately prior to the specified effective
date for the Corporate Transaction, become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to such option and
may be exercised for all or any portion of such shares. Upon the consummation of
the Corporate Transaction, all automatic option grants under this Article Three
shall terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof).

        B. In connection with any Change in Control of the Corporation, the
exercisability of each automatic option grant at the time outstanding under this
Article Three shall automatically accelerate so that each such option shall,
immediately prior to the specified effective date for the Change in Control,
become fully exercisable with respect to the total number of shares of Common
Stock at the time subject to such option and may be exercised for all or any
portion of such shares. For purposes of this Article Three, a Change in Control
shall be deemed to occur in the event:

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

           (ii) there is a change in the composition of the Board over a period
of twenty-four (24) consecutive months or less such that a majority of the Board
members ceases, by reason of one or more proxy contests for the election of
Board members, to be comprised of individuals who either (A) have been Board
members continuously since the beginning of such period or (B) have been elected
or nominated for election as Board members

                                      12.
<PAGE>   14

during such period by at least two-thirds of the Board members described in
clause (A) who were still in office at the time such election or nomination was
approved by the Board.

        C. Upon the occurrence of a Hostile Take-Over, each automatic option
grant which has been outstanding under this Article Three shall automatically be
cancelled in return for a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the shares of Common Stock at
the time subject to the cancelled option (whether or not the option is otherwise
at the time exercisable for such shares) over (ii) the aggregate exercise price
payable for such shares. The cash distribution payable upon such cancellation
shall be made within five (5) days following the consummation of the Hostile
Take-Over. Stockholder approval of this 1999 restatement of the Plan shall
constitute pre-approval of each option subsequently granted with such an
automatic cancellation provision and the subsequent cancellation of that option
in accordance with the terms and provisions of this paragraph III.C. No
additional approval of the Plan Administrator or the Board shall be required at
the time of the actual option cancellation and cash distribution.

        D. For purposes of this Article Three, Hostile Take-Over shall have the
meaning assigned to such term in paragraph V.B of Article Two. The Take-Over
Price per share shall be deemed to be equal to the greater of (a) the fair
market value per share on the date of cancellation, as determined pursuant to
the valuation provisions of paragraph I.A.3 of Article Two, or (b) the highest
reported price per share paid in effecting such Hostile Take-Over.

        E. The shares of Common Stock subject to each option cancelled in
connection with the Hostile Take-Over shall NOT be available for subsequent
issuance under this Plan.

        F. The automatic option grants outstanding under this Article Three
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.

                                      13.
<PAGE>   15

                                  ARTICLE FOUR

                                  MISCELLANEOUS

XIV.    AMENDMENT OF THE PLAN

        The Board shall have complete and exclusive power and authority to amend
or modify the Plan in any or all respects whatsoever. However, no such amendment
or modification shall, without the consent of the holders, adversely affect
rights and obligations with respect to options at the time outstanding under the
Plan. In addition, certain amendments may require stockholder approval pursuant
to applicable laws or regulations.

XV.     EFFECTIVE DATE AND TERM OF PLAN

        A. The Corporation's 1983 Stock Option Plan was initially adopted by the
Board of Directors in October 1983 and approved by the Corporation's
stockholders in November 1983. In January 1987, the Plan was renamed the Komag,
Incorporated 1987 Stock Option Plan. The Board then amended the Plan in May 1987
and such amendment was approved by the stockholders at the Annual Meeting held
in May 1987. The Plan was subsequently amended and restated by the Board in
December 1987 and January 1988, respectively, and such restatement and
amendments were approved by the stockholders at the Annual Meeting held in June
of 1988. The Plan was further amended by the Board in January 1991 and the
amendment was approved by the stockholders in May 1991. The January 23, 1992
restatement of the Plan, together with the 1,000,000 share increase, was
approved by the Board on January 23, 1992 and became effective on such date. The
stockholders approved the January 23, 1992 restatement on May 21, 1992. On
January 27, 1994, the Board adopted an amendment which increased the number of
shares of Common Stock issuable under the Plan by an additional 1,000,000
shares. The increase was approved by the stockholders at the 1994 Annual
Meeting.

        B. On January 24, 1995, the Board approved an amendment to the Plan to
effect the following changes to the Automatic Option Grant Program: (i) increase
the number of shares subject to the initial automatic option grant made to
newly-elected or newly-appointed non-employee Board members from 3,500 shares to
20,000 shares per individual; (ii) increase the number of shares subject to the
annual automatic option grant made to each re-elected non-employee Board member
from 3,500 shares to 5,000 shares; and (iii) adjust the vesting schedule in
effect for each such annual 5,000-share grant to provide for full vesting upon
completion of one (1) year of Board service rather than annual vesting over a
four (4)-year period. The amendments to the Automatic Option Grant Program were
approved by the stockholders at the 1995 Annual Meeting.

        C. In January 1996 the Board approved an amendment to the Plan to (i)
eliminate the discretion of the Plan Administrator to grant options under the
Discretionary Option Grant Program with an exercise price per share less than
100% of the fair market value per share of Common Stock on the grant date, (ii)
eliminate the loan provisions of the Plan pursuant to which one or more holders
of options under the Discretionary Option Grant Program would have otherwise had
the opportunity to finance the exercise of those options through the delivery of
full-recourse promissory notes, (iii) increase the number of shares of Common
Stock reserved for issuance over the term of the Plan by an additional 3,000,000
shares and (iv) adjust the number of shares granted to non-employee Board
members. The clause (iii) and (iv) amendments were approved by the stockholders
at the 1996 Annual Meeting.

        D. In March 1997 the Board amended and restated the Plan to effect the
following revisions: (i) increase the number of shares of Common Stock reserved
for issuance over the term of the Plan by an additional 2,500,000 shares, (ii)
render the non-employee Board members eligible to receive option grants under
the Discretionary Option Grant Program, (iii) allow unvested shares issued under
the Plan and subsequently repurchased by the Corporation at the option exercise
price or issue price paid per share to be reissued under the Plan, (iv) remove
certain restrictions on the eligibility of non-employee Board members to serve
as Plan Administrator and (v) effect a series of additional changes to the
provisions of the Plan (including the stockholder approval requirements) in
order to take advantage of the recent amendments to Rule 16b-3 of the Securities
Exchange Act of 1934, as amended, which exempts certain officer and director
transactions under the Plan from the short-swing liability provisions of the
federal securities laws. The 1997 restatement of the Plan was approved by
stockholders at the 1997 Annual Meeting.

                                      14.
<PAGE>   16
        E. On April 16, 1999, the Board amended and restated the Plan to effect
an increase in the number of stock options granted to re-elected non-employee
Board members under the Automatic Grant Program from 7,500 to 12,000 shares
annually. The 1999 restatement of the Plan has been approved by stockholders at
the 1999 Annual Meeting.

        F. On March 25, 2001, the Board amended and restated the Plan to effect
an increase in the number of shares available for issuance by 3,000,000 shares
of common stock and extend the plan term from January 22, 2002 to January 31,
2005. The 2001 amendment has been approved by the stockholders at the 2001
Annual Meeting.

        G. The special sale and remittance procedure for the exercise of
outstanding options under the Plan, which was approved by the Board in January
1991, shall be in effect for all options outstanding as of January 24, 1991
which already include such procedure as a method of exercise and for all options
granted after January 24, 1991. In addition, such procedure shall be available
for all non-qualified options currently held by officers and directors which do
not otherwise include such procedure and for any disqualifying dispositions of
Incentive Option shares effected after January 24, 1991.

        H. The provisions of each restatement and amendment of the Plan apply
only to stock options and stock appreciation rights granted under the Plan from
and after the effective date of such restatement or amendment. All stock options
and stock appreciation rights issued and outstanding under the Plan immediately
prior to such effective date shall continue to be governed by the terms and
conditions of the Plan (and the respective instruments evidencing each such
option or stock appreciation right) as in effect on the date each such option or
stock appreciation right was previously granted, and nothing in any such
restatement or amendment shall be deemed to affect or otherwise modify the
rights or obligations of the holders of such options or stock appreciation
rights with respect to their acquisition of shares of Common Stock under such
options or their exercise of such stock appreciation rights.

        I. Unless sooner terminated in accordance with paragraph III of Articles
Two and Three, the Plan shall terminate upon the earlier of (i) January 31, 2005
or (ii) the date on which all shares available for issuance under the Plan shall
have been issued or cancelled pursuant to the exercise or surrender of options
granted hereunder. If the date of termination is determined under clause (i)
above, then options outstanding on such date shall not be affected by the
termination of the Plan and shall continue to have force and effect in
accordance with the provisions of the instruments evidencing such options.

        J. Options may be granted under this Plan to purchase shares of Common
Stock in excess of the number of shares then available for issuance under the
Plan, provided (i) an amendment to increase the maximum number of shares
issuable under the Plan is adopted by the Board prior to the initial grant of
any such option and is thereafter submitted to the Corporation's stockholders
for approval and (ii) each option so granted is not to become exercisable, in
whole or in part, at any time prior to the obtaining of such stockholder
approval.

XVI.    USE OF PROCEEDS

        Any cash proceeds received by the Corporation from the sale of shares
pursuant to options granted under the Plan shall be used for general corporate
purposes.

XVII.   TAX WITHHOLDING

        The Corporation's obligation to deliver shares or cash upon the exercise
or surrender of any option granted under the Discretionary Option Grant Program
shall be subject to the satisfaction of all applicable federal, state and local
income and employment tax withholding requirements.

XVIII.  NO EMPLOYMENT/SERVICE RIGHTS

        Neither the action of the Corporation in establishing or restating the
Plan, nor any action taken by the Plan Administrator hereunder, nor any
provision of the restated Plan shall be construed so as to grant any individual
the right to remain in the employ or service of the Corporation (or any parent
or subsidiary corporation) for any period of specific duration, and the
Corporation (or any parent or subsidiary corporation retaining the services of
such individual) may terminate such individual's employment or service at any
time and for any reason, with or without cause.

                                      15.
<PAGE>   17

XIX.    REGULATORY APPROVALS

        The implementation of the Plan, the granting of any option hereunder,
and the issuance of stock upon the exercise or surrender of any such option
shall be subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the
options granted under it and the stock issued pursuant to it.

                                      16.

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