Document:

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                                                                   EXHIBIT 10.16

                        UPGRADE INTERNATIONAL CORPORATION
                          1411 Fourth Avenue-Suite 629
                            Seattle, Washington 98101
                                 (206) 903-3116

July 11, 2000

Mr. Carey F. Daly II
President, Chief Executive Officer and Chairman
The Pathways Group, Inc.
14201 N.E. 200th Street
Woodinville, Washington 98072

Dear Mr. Daly:

         The purpose of this letter of intent ("Letter") is to set forth certain
nonbinding understandings and certain binding agreements between Upgrade
International Corporation, a Florida corporation ("UPGD"), and The Pathways
Group, Inc., a Delaware corporation ("PTHW"), with respect to a merger
transaction (the "Merger") to be accomplished as set forth below.

         The numbered paragraphs below constitute a general guide to the
material terms of the Merger, but they do not constitute a definitive agreement
and they shall not be enforceable unless and until the parties reach and execute
definitive agreement regarding the Merger.

         1. TRANSACTION STRUCTURE. The parties contemplate that UPGD shall form
a wholly-owned subsidiary ("Newco"), that PTHW shall merge with and into. Owners
of equity interests in PTHW shall receive comparable equity interests in UPGD,
as more fully described below. The parties contemplate that the Merger shall
qualify as a tax-free reorganization under the Internal Revenue Code of 1986, as
amended. If the parties determine that a transaction structure resulting in a
direct combination of UPGD and PTHW would facilitate the combined entity being
listed on a desired stock exchange, UPGD may elect to have the transaction
proceed according to such structure. If such alternative structure would
technically result in the survival of PTHW, the economic substance of the
transaction set out in this Letter shall still prevail, and the surviving entity
would be renamed "Upgrade International Corporation". The officers and directors
of UPGD shall be the officers and directors of the surviving parent corporation,
and Carey Daly II will be appointed to the UPGD Board of Directors at Closing.
Existing PTHW officers and directors shall remain the officers and directors of
Newco, or,

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if an alternative structure is used, shall remain the principals in
charge of the business unit conducting PTHW's business.

         2. DUE DILIGENCE. UPGD shall have a reasonable period of time, not to
exceed 10 days, after execution of the definitive agreement regarding the
Merger, within which it shall finish its due diligence investigation of PTHW.
UPGD shall have the right to terminate the agreement if, at the conclusion of
such period of time, it is not reasonably satisfied with the results of its
investigation. During the period prior to Closing, each party shall permit the
other reasonable access to its books, records, facilities and personnel.

         3. CONVERSION RATIO. Subject to paragraph 7, below, the "Conversion
Ratio" shall be fourteen and three tenths (14.3) shares of PTHW common stock in
exchange for one (1) share of UPGD common stock. PTHW shareholders shall receive
UPGD shares in the Merger based on the quotient obtained by dividing their total
shares of common stock by the Conversion Ratio.

         4. PREFERRED STOCK. At Closing, PTHW shall have no preferred stock
outstanding, and there shall be no securities outstanding that are convertible
into preferred stock.

         5. WARRANTS AND OPTIONS. Outstanding PTHW warrants and options shall be
converted into UPGD warrants and options on the following bases with respect to
each economically distinct warrant or option: (a) the number of such UPGD
warrants or options shall be equal to the quotient obtained by dividing the
number of such holder's economically distinct PTHW warrants or options by the
Conversion Ratio, and (b) the new UPGD exercise price shall be equal to the
product of the PTHW exercise price multiplied by the Conversion Ratio.

         6. CAPITAL STRUCTURE. The capitalization of PTHW at the Closing shall
not exceed 26,250,000 shares of stock outstanding on a fully diluted basis.

         7. INTERIM FINANCING. The parties shall agree on an interim financing
plan for PTHW, based on a budget to be submitted by PTHW and approved by UPGD.
For each $100,000 advanced to PTHW, the Conversion Ratio shall be increased by
0.313%, which is intended to provide UPGD the economic effect of purchasing
shares in PTHW at $1.2413 per share during the period prior to Closing. For
example, if UPGD provides interim financing of $500,000 to PTHW during the
period prior to Closing, the Conversion Ratio would be adjusted as follows:

              [($500,000/$100,000) * .00313 * 14.3] +14.3 = 14.524

If the Merger is not consummated, the funds advanced by UPGD shall become an
investment in PTHW's senior secured notes, participating pari passu with
existing senior secured noteholders in all benefits of the notes, including
without limitation security interests and warrant coverage.

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         8. FINANCIAL CONDITION. At Closing, exclusive of PTHW's software
license fee payable of $700,000, PTHW's current assets shall exceed its current
liabilities. There shall be no decrease in PTHW's noncurrent assets, other than
in connection with normal and recurring depreciation and amortization. At
Closing, other than its current liabilities and the software license fee payable
of $700,000, PTHW's liabilities, which shall include any PTHW obligations to pay
money (whether in connection with debt or equity securities), shall be no more
than $6,250,000. The definitive agreement shall contain terms indicating which
of the liabilities shall be paid at Closing and which shall be paid subsequently
over time. All PTHW financial information shall be presented in accordance with
generally accepted accounting principles on a consistent basis.

         9. FILINGS AND APPROVALS. UPGD and PTHW shall cooperate to prepare and
cause to be filed a registration statement on Form S-4 to obtain shareholder
approval of the Merger. UPGD and PTHW shall further cooperate to prepare all
other filings required to effect the transaction. Each party shall bear its own
costs in connection with these filings and approvals.

         10. EXCLUSIVITY; ACQUISITION PROPOSALS AND BREAK-UP FEE. The definitive
documentation of the Merger shall include customary provisions regarding the
obligation of PTHW and its insiders not to solicit or encourage any competing
acquisition proposal, with appropriate flexibility left to PTHW's Board of
Directors to enable it to perform its fiduciary duty to its shareholders, the
violation of which shall result in PTHW paying UPGD a break-up fee of two
percent (2%) of the transaction value.

         11. OTHER TERMS. The definitive documentation of the Merger shall
include such other terms and conditions, including representations, warranties
and covenants, customary for transactions of this type.

                               *  *  *  *  *

         The following lettered paragraphs constitute the legally binding and
enforceable agreement of UPGD and PTHW (in recognition of the significant costs
to be borne by UPGD and PTHW in pursuing the execution of a definitive agreement
regarding the Merger).

         A. PTHW will not solicit or encourage any competing acquisition
proposal from any person other than UPGD, nor will PTHW, or any of its
stockholders, through any officer, director, agent, or otherwise, (1) solicit or
initiate, directly or indirectly, or encourage submission of inquiries,
proposals, or offers from any potential buyer (other than UPGD) relating to the
disposition of the assets or securities of PTHW, or any part thereof (other than
sales in the ordinary course) or (2) subject to fiduciary obligations under
applicable law as advised in writing by counsel, participate in any discussions
or negotiations regarding, or furnish to any person any information with respect
to, the disposition of assets or any securities of PTHW or any part thereof,
during the pendency of negotiations between UPGD and PTHW, and neither UPGD nor
PTHW will unilaterally terminate these negotiations during the term of this
Letter without cause.

                                      -3-
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         B. For violation of the preceding paragraph A by PTHW or any of its
stockholders, through any officer, director, agent, or otherwise, PTHW shall pay
UPGD a break-up fee of $638,000.

         C. PTHW shall conduct its business in the ordinary course consistent
with prior practices. PTHW will not make or become obligated to make any capital
expenditures or enter or become obligated to enter into any material contracts
outside of the ordinary course of business consistent with PTHW's prior practice
without UPGD's prior written approval or engage in any other transaction outside
the ordinary course of business consistent with PTHW's prior practice. PTHW will
not make any payment or distribution with respect to its share capital, whether
by way of management fee, redemption, dividend, bonus, pay increase or
otherwise. The definitive agreement shall contain other mutually acceptable
limits on PTHW's conduct of business during the period prior to Closing.

         D. Subject to the terms set forth in paragraph G below respecting
confidentiality and certain other matters, each party will afford the other's
employees, auditors, legal counsel, and other authorized representatives all
reasonable opportunity and access during normal business hours to inspect,
investigate, and audit their respective businesses. Such inspection,
investigation and audit shall be conducted in a reasonable manner during regular
business hours. In this regard, PTHW hereby affirms the accuracy as of the date
of this Letter its representation to UPGD that the capitalization of PTHW at the
Closing shall not exceed 26,250,000 shares of stock outstanding on a fully
diluted basis.

         E. UPGD and PTHW will negotiate in good faith and use their best
efforts to arrive at a mutually acceptable definitive agreement for approval,
execution, and delivery on the earliest reasonably practicable date. UPGD and
PTHW will thereupon use their best efforts to effect the Closing and to proceed
with the transactions contemplated by the definitive agreement as promptly as is
reasonably practicable.

         F. Each of the undersigned represents and warrants that he has all
necessary authority to execute this Letter and create a binding obligation
enforceable according to its terms against the party on whose behalf he signs.

         G. Each party agrees to treat all nonpublic information concerning
the other furnished, or to be furnished, by or on behalf of the other
(collectively, the "Information") in accordance with the provisions of this
paragraph, and to take, or abstain from taking, other actions set forth
herein. Each party shall use the Information of the other solely for the
purpose of evaluating the Merger, and it will be kept confidential by such
party on a need to know basis; provided that (i) any of such Information may
be disclosed to such party's officers, directors, employees, representatives,
agents, and advisors who need to know such Information for the purpose of
evaluating the Merger, (ii) any disclosure of such Information may be made to
which the other consents in writing and (iii) such Information may be
disclosed if so required by law. If the Merger is not consummated each party
will return to the other all material containing or reflecting the
Information and will not retain any copies,

                                      -4-
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extracts, or other reproductions thereof. The provisions of this paragraph G
shall survive the termination of this Letter.

         H. Before executing the definitive agreement, neither Buyer nor Seller
shall made any public release of information regarding the matters contemplated
herein except as mutually agreed or as required by law.

         I. Each party shall bear its own costs in connection with all matters
relating to the negotiation and execution of this Letter and the definitive
agreement.

         J. Except with respect to the enforcement of paragraphs A, B and G, if
the definitive agreement is not signed on or before August 15, 2000, either
party (if not in material breach of any of the binding provisions of this
Letter) may terminate this Letter and thereafter this Letter shall have no force
and effect and the parties shall have no further obligations hereunder.

         Please sign and date this Letter in the space provided below to confirm
our mutual understandings and agreements as set forth in this Letter and return
a signed copy to the undersigned. This letter may be signed in counterparts by
facsimile, all of which taken together shall be considered a single executed
original document. If we do not receive a signed copy of this letter on or
before July 12, 2000, we will assume you have no further interest in pursuing
this matter.

Very truly yours,

UPGRADE INTERNATIONAL CORPORATION

   /s/  Daniel Bland
---------------------------------
By      Daniel Bland
        Its President

Acknowledged and agreed to:

THE PATHWAYS GROUP, INC.

   /s/ Carey F. Daly II
---------------------------------
By     Carey F. Daly II                                   -----------------
       Its President, Chief Executive Officer             Date
              and Chairman

                                      -5-<PAGE>

                                                               Exhibit 10.1

                               ZAPME! CORPORATION

                                 1998 STOCK PLAN

                     (AS AMENDED AND RESTATED JULY 28, 2000)

     1. PURPOSES OF THE PLAN. The purposes of this 1998 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 of the Plan.

              (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 foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, 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 of the Plan.

              (f) "COMMON STOCK" means the common stock of the Company.

              (g) "COMPANY" means ZapMe! Corporation, Inc., a California
corporation.

              (h) "CONSULTANT" means any person, including an advisor, engaged
by the Company or a Parent or Subsidiary to render services to such entity.

              (i) "DIRECTOR" means a member of the Board.

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              (j) "DISABILITY" means total and permanent disability as defined
in Section 22(e)(3) of the Code.

              (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 (90)
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, the Fair Market Value of
a Share of Common Stock 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, as reported in THE WALL STREET JOURNAL or such other source as
the Administrator deems reliable; or

                  (iii) In the absence of an established market for the Common
Stock, the Fair Market Value 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 and
the regulations promulgated thereunder.

              (o) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.

              (p) "NOTICE OF GRANT" means a written or electronic notice
evidencing certain times and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.

                                      -2-
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              (q) "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.

              (r) "OPTION" means a stock option granted pursuant to the Plan.

              (s) "OPTION AGREEMENT" means an 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.

              (t) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.

              (u) "OPTIONED STOCK" means the Common Stock subject to an Option
or Stock Purchase Right.

              (v) "OPTIONEE" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.

              (w) "OUTSIDE DIRECTOR" means a Director who is not an Employee.

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

              (y) "PLAN" means this 1998 Stock Plan, as amended and restated.

              (z) "RESTRICTED STOCK" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.

              (aa) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.

              (bb) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.

              (cc) "SECTION 16(b) " means Section 16(b) of the Exchange Act.

              (dd) "SERVICE PROVIDER" means an Employee, Director or Consultant.

              (ee) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 14 of the Plan.

              (ff) "STOCK PURCHASE RIGHT" means the right to purchase Common
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.

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

                                      -3-
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     3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 14 of
the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 8,900,000 Shares, including (a) any Shares which were
reserved but unissued under the Company's 1997 Stock Option Plan ("1997
Plan") as of the date of stockholder approval of the original adoption of
this Plan, and (b) any Shares subsequently returned to the 1997 Plan as a
result of termination of options or repurchase of Shares issued under the
1997 Plan, plus (c) an annual increase to be added on the first day of the
Company's fiscal year beginning in fiscal year 2000 equal to the lesser of
(i) 2,000,000 shares, (ii) 5% of the outstanding shares on such date, or
(iii) an amount determined by the Board. 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); PROVIDED, however, that Shares that have actually been issued under
the Plan, whether upon exercise of 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.

              (a) PROCEDURE.

                  (i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.

                  (ii) SECTION 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.

                  (iii) RULE 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.

                  (iv) OTHER ADMINISTRATION. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.

              (b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:

                  (i) to determine Fair Market Value;

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

                                      -4-
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                  (iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;

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

                  (v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, 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 shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;

                  (vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;

                  (vii) to institute an Option Exchange Program;

                  (viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;

                  (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 modify or amend each Option or Stock Purchase Right
(subject to Section 16(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;

                  (xi) 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 an Optionee
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;

                  (xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;

                  (xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.

                                      -5-
<PAGE>

              (c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.

     5. ELIGIBILITY. Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.

     6.  LIMITATIONS.

              (a) 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 6(a), 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.

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

              (c) The following limitations shall apply to grants of Options:

                  (i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 1,000,000 Shares.

                  (ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 1,000,000
Shares, which shall not count against the limit, set forth in subsection (i)
above.

                  (iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 14.

                  (iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 14), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.

     7. TERM OF PLAN. Subject to Section 20 of the 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 terminated earlier under Section 16 of the Plan.

     8. TERM OF OPTION. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an

                                      -6-
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Incentive Stock Option granted to an Optionee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5)
years from the date of grant or such shorter term as may be provided in the
Option Agreement.

     9.  OPTION EXERCISE PRICE AND CONSIDERATION.

              (a) EXERCISE PRICE. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:

                  (i) In the case of an Incentive Stock Option

                                    (A) granted to an Employee who, at the time
the Incentive Stock 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 per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant.

                                    (B) granted to any Employee other than an
Employee described in paragraph (A) immediately above, 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, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% 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 of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.

              (b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.

              (c) FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:

                  (i) cash;

                  (ii) check;

                  (iii) promissory note;

                                      -7-
<PAGE>

                  (iv) other Shares which (A) 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 (B) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;

                  (v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;

                  (vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;

                  (vii) any combination of the foregoing methods of payment; or

                  (viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.

     10. EXERCISE OF OPTION.

              (a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. 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 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 shareholder shall exist
with respect to the Optioned Stock, 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 14 of the Plan.

                  Exercising an Option in any manner shall decrease 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. Subject to
Section 14, if an Optionee ceases to be a Service Provider (but not in the event
of an Optionee's change of status from Employee to Consultant (in which case an
Employee's Incentive Stock Option shall automatically convert to a Nonstatutory
Stock Option on the ninety-first (91st) day following such change of status) or
from Consultant to Employee), such Optionee may, but only within such period

                                      -8-
<PAGE>

of time as is specified in the Option Agreement (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that Optionee was entitled
to exercise it at the date of such termination. 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, but only
within twelve (12) months from the date of such termination (and in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise his or her Option the extent the Option is vested on
the date of 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 at any time within twelve (12) months
following the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant), by the Optionee's
estate or by a person who acquires the right to exercise the Option by bequest
or inheritance, but only to the extent that the Option is vested on the date of
death. If, at the time of death, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
immediately revert to the Plan. The Option may be exercised by the executor or
administrator of the Optionee's estate or, if none, by the person(s) entitled to
exercise the Option under the Optionee's will or the laws of descent or
distribution. 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.

              (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.

     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, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.

                                      -9-
<PAGE>

              (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 a rate
determined by the Administrator.

              (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 SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will 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 14
of the Plan.

     12. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right 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. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.

     13. FORMULA OPTION GRANTS TO OUTSIDE DIRECTORS. Outside Directors shall be
automatically granted Options each year in accordance with the following
provisions:

              (a) All Options granted pursuant to this Section shall be
Nonstatutory Stock Options and, except as otherwise provided herein, shall be
subject to the other terms and conditions of the Plan.

              (b) Each Outside Director shall be automatically granted an Option
to purchase 20,000 Shares (each an "Option") following each annual meeting of
the stockholders of the Company.

              (c) Any exercise of an Option granted before the Company has
obtained stockholder approval of the Plan in accordance with Section 20 hereof
shall be conditioned upon obtaining such stockholder approval of the Plan in
accordance with Section 20 hereof.

              (d) The terms of each Option granted pursuant to this Section
shall be as follows:

                  (i) the term of the Option shall be ten (10) years.

                  (ii) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Option.

                                      -10-
<PAGE>

                  (iii) the Option shall be fully vested and exercisable as to
100% of the Shares subject to the Option on its date of grant.

     14. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR DISSOLUTION.

              (a) CHANGES IN CAPITALIZATION. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, the number of shares of Common
Stock covered by First Options and Subsequent Options to be granted under the
Plan, 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 or which have been returned to the Plan upon cancellation or
expiration of an Option or Stock Purchase Right and the number of shares of
Common Stock which may be added to the Plan each fiscal year (pursuant to
Section 3), 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; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the 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 until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option 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.

     15. DATE OF GRANT. The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.

     16. AMENDMENT AND TERMINATION OF THE PLAN.

              (a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.

                                      -11-
<PAGE>

              (b) SHAREHOLDER APPROVAL. The Company shall obtain shareholder
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.

     17. CONDITIONS UPON ISSUANCE OF SHARES.

              (a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right 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 or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right 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.

     18. 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.

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

     20. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.

                                      -12-

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