Document:

VALENCE TECHNOLOGY, INC.

                             2000 STOCK OPTION PLAN

     1.   PURPOSE

     The purpose of the Plan is to further the growth and development of Valence
Technology, Inc., a Delaware corporation (the "Company"), and its Affiliates by
providing appropriate incentives and rewards to Employees (including officers of
the Company), Directors and Consultants who are in a position to contribute
materially to the prosperity of the Company, to increase such persons' interests
in the Company's welfare, to encourage them to continue their services to the
Company or its Affiliates, and to attract individuals of outstanding ability to
enter the employment of the Company or its Affiliates, to remain or become
directors of the Company and to provide valuable services to the Company or its
Affiliates. The Plan offers selected individuals an opportunity to acquire a
proprietary interest in the success of the Company, or to increase such
interest, by purchasing Shares of the Company's Stock.

     2.   INCENTIVE AND NONSTATUTORY STOCK OPTIONS

     Two types of Stock Options (referred to herein as "Options" without
distinction between such two types) may be granted under the Plan: Options
intended to qualify as Incentive Stock Options under Section 422 of the Internal
Revenue Code and Nonstatutory Stock Options not specifically authorized or
qualified for favorable income tax treatment by the Code. All options shall be
separately designated as Incentive Stock Options or Nonstatutory Stock Options
at the time of grant, and in such form as issued pursuant to Section 7, and a
separate certificate or certificates shall be issued for Shares purchased on
exercise of each type of Option. An Option designated as a Nonstatutory Stock
Option shall not be treated as an Incentive Stock Option.

     3.   DEFINITIONS

     The following definitions are applicable to the Plan:

          3.1 "AFFILIATE" shall mean any Parent or any Subsidiary of the
Company.

          3.2 "BOARD" shall mean the Board of Directors of the Company, as
constituted from time to time.

          3.3 "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time.

          3.4 "COMMITTEE" shall mean a compensation committee of the Board, as
described in SECTION 4.2.

          3.5 "COMPANY" shall mean Valence Technology, Inc., a Delaware
corporation.

          3.6 "CONSULTANT" shall mean an individual who performs bona fide
services for the Company or an Affiliate as a consultant or advisor, excluding
Employees and Directors.

          3.7 "DIRECTOR" shall mean a member of the Board of the Company.

          3.8 "DISABILITY" shall mean that the Optionee is unable to engage in
any substantial

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gainful activity by reason of any medically determinable physical or mental
impairment. For purposes of determining the term of an ISO pursuant to Section
7.1 hereof, the Disability must be expected to result in death or to have lasted
or be expected to last for a continuous period of not less than 12 months. The
determination of whether an individual has a Disability shall be determined
under procedures established by the Plan Administrator.

          3.9 "EMPLOYEE" shall mean any individual who is a common-law employee
of the Company, a Parent or a Subsidiary.

          3.10 "EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Board of Directors in
the applicable Stock Option Agreement.

          3.11 "FAIR MARKET VALUE" shall mean the fair market value of a Share,
determined as follows:

               3.11.1 If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market, the Fair Market Value of a share of Common Stock shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in 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 Plan Administrator deems reliable;

               3.11.2 If the Common Stock is quoted on the Nasdaq System (but
not on the Nasdaq National Market) or 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 bid and 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 Plan Administrator deems reliable;

               3.11.3 In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the Plan
Administrator. Such determination shall be conclusive and binding on all
persons.

          3.12 "INCENTIVE STOCK OPTION" shall mean an Option intended to be and
designated as an employee "incentive stock option" within the meaning of Section
422 of the Code.

          3.13 "NON-EMPLOYEE DIRECTOR" means a director who either (i) is not a
current employee or officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
of 1933 ("Regulation S-K"), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.

          3.14 "NONSTATUTORY OPTION" shall mean an Option not described in
Sections 422(b) or 423(b) of the Code.

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          3.15 "OPTION" shall mean an Incentive Stock Option or Nonstatutory
Option granted under the Plan and entitling the holder to purchase Shares, which
shall be evidenced by a written agreement between the Company and an Optionee.

          3.16 "OPTIONEE" shall mean an individual who holds an Option.

          3.17 "OUTSIDE DIRECTOR" shall mean a member of the Board who either
(i) is not a current employee of the Company or an Affiliate, is not a former
employee of the Company or an Affiliate receiving compensation for prior
services (other than benefits under a tax qualified pension plan), was not an
officer of the Company or an Affiliate at any time, and is not currently
receiving a direct or indirect remuneration from the Company or an Affiliate for
services in any capacity other than as a Director, or (ii) is otherwise
considered an "outside director" who satisfies the requirements of such term as
defined in Treas. Regs. ss.1.162-27(e)(3).

          3.18 "PARENT" shall mean any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.

          3.19 "PLAN" shall mean this Valence Technology, Inc. 2000 Stock Option
Plan, as amended from time to time.

          3.20 "PLAN ADMINISTRATOR" shall mean the Board or the Committee
designated pursuant to SECTION 4.2 hereof to administer, construe and interpret
the terms of the Plan.

          3.21 "SERVICE" shall mean service as an Employee, Director or
Consultant.

          3.22 "SHARE" shall mean one share of Stock, as adjusted in accordance
with Section 8 (if applicable).

          3.23 "STOCK" shall mean the Common Stock of the Company, par value
$0.001 per Share.

          3.24 "STOCK OPTION AGREEMENT" shall mean the agreement between the
Company and an Optionee, which contains the terms, conditions and restrictions
pertaining to the Optionee's Option.

          3.25 "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.

     4. ADMINISTRATION

          4.1 ADMINISTRATION BY BOARD. Subject to SECTION 4.2 hereof, the Plan
Administrator shall be the Board of Directors of the Company (the "Board")
during such periods of time as all members of the Board are Outside Directors.
The Plan Administrator shall have authority to

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construe and interpret the Plan, to promulgate, amend, and rescind rules and
regulations relating to its administration, from time to time to select from
among the eligible Employees, Directors and Consultants (as determined pursuant
to Section 6) of the Company and its subsidiaries those persons to whom Options
will be granted, to determine the timing and manner of the grant of the Options,
whether the option will be an Incentive Stock Option or a Nonstatutory Stock
Option, to determine the exercise price, the number of shares covered by and all
of the terms of the Options (which need not be identical), to determine the
duration and purpose of leaves of absence which may be granted to Option holders
without constituting termination of their employment for purposes of the Plan,
and to make all of the determinations necessary or advisable for administration
of the Plan. The Plan Administrator may, in its absolute discretion, without
amendment to the Plan, accelerate the date on which any Option granted under the
Plan becomes exercisable, waive or amend the operation of Plan provisions
respecting exercise after termination of employment or otherwise adjust any of
the terms of such Option. The interpretation and construction by the Plan
Administrator of any provision of the Plan, or of any agreement issued and
executed under the Plan, shall be final and binding upon all parties. No member
of the Board shall be liable for any action or determination undertaken or made
in good faith with respect to the Plan or any agreement executed pursuant to the
Plan.

          4.2 ADMINISTRATION BY COMMITTEE. The Board may, in its sole
discretion, delegate any or all of its duties as Plan Administrator and, subject
to the provisions of Section 4.3 of the Plan, at any time the Board includes any
person who is not an Outside Director, the Board shall delegate all of its
duties as Plan Administrator during such period of time to a Committee of not
fewer than two (2) members of the Board, all of the members of which Committee
shall be persons who, in the opinion of counsel to the Company, are Outside
Directors and Non-Employee Directors, to be appointed by and serve at the
pleasure of the Board. From time to time, the Board may increase or decrease (to
not less than two members) the size of the Committee, and add additional members
to, or remove members from, the Committee. The Committee shall act pursuant to a
majority vote, or the written consent of a majority of its members, and minutes
shall be kept of all of its meetings and copies thereof shall be provided to the
Board. Subject to the provisions of the Plan and the directions of the Board,
the Committee may establish and follow such rules and regulations for the
conduct of its business, as it may deem advisable. No member of the Committee
shall be liable for any action or determination undertaken or made in good faith
with respect to the Plan or any agreement executed pursuant to the Plan.

          4.3 EXCEPTIONS. Anything to the contrary notwithstanding, the
requirements in Sections 2.1 and 2.2 that all members of the Committee be
non-employee directors and Outside Directors shall not apply for any period of
time during which the Company's Common Stock is not registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended, and shall not
apply with respect to grants to employees other than the named executive
officers who are subject to the executive compensation disclosure rules under
the Securities Exchange Act of 1934, as amended. Those provisions of the Plan
that make express reference to Rule 16b-3 under the Securities Exchange Act of
1934, as amended, shall apply only to reporting persons. Whether or not the
Board has delegated administration, the Board shall have the final power to
determine all questions of policy and expediency that may arise in the
administration of the Plan, including the power to amend the Plan as provided in
Section 12.1. The Board may abolish the Committee at any time and revest in the
Board the administration of the Plan.

     5. SHARES SUBJECT TO THE PLAN

          5.1 BASIC LIMITATION. Shares offered under the Plan may be authorized
but unissued Shares or treasury Shares. The aggregate number of Shares that may
be issued under the Plan

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(upon exercise of Options) shall not exceed 2,500,000 Shares, subject to
adjustment pursuant to SECTION 11. The number of Shares that are subject to
Options or other rights outstanding at any time under the Plan shall not exceed
the number of Shares that then remain available for issuance under the Plan. The
Company, during the term of the Plan, shall at all times reserve and keep
available a sufficient number of Shares to satisfy the requirements of the Plan.

          5.2 ADDITIONAL SHARES. In the event that any outstanding Option for
any reason expires or is canceled or otherwise terminated, the Shares allocable
to the unexercised portion of such Option shall again be available for the
purposes of the Plan. In the event that Shares issued under the Plan are
reacquired by the Company pursuant to the terms of any forfeiture provision,
right of repurchase or right of first refusal, such Shares shall again be
available for the purposes of the Plan.

          5.3 LIMIT ON INCENTIVE STOCK OPTIONS. The aggregate Fair Market Value
(determined at the time the Option is granted) of the Shares with respect to
which ISOs granted after 1986 are exercisable for the first time by an Optionee
during any calendar year (under all ISO plans of the Company and its Affiliates)
shall not exceed $100,000. To the extent that the aggregate Fair Market Value
(determined at the time of the Option is granted) of the Shares with respect to
which ISOs are exercisable for the first time by an Optionee during any calendar
year exceeds $100,000, such Options shall be treated as Nonstatutory Options.
The determination of the Options to be treated as Nonstatutory Options shall be
made by taking Options into account in the order in which they were granted.

     6. ELIGIBILITY

          6.1 GENERAL RULE. Incentive Stock Options may be granted only to
Employees (including officers) of the Company or its Affiliates. A Director of
the Company shall not be eligible to receive Incentive Stock Options unless such
director is also an Employee (including an officer) of the Company or any
Affiliate. Nonstatutory Stock Options may be granted only to key Employees
(including officers) of, Directors of or Consultants to the Company or its
Affiliates.

          6.2 INDIVIDUAL LIMIT. Subject to the provisions of SECTION 11 relating
to adjustments upon changes in Stock, no person shall be eligible to be granted
Options covering more than 700,000 Shares of the Company's Stock in any fiscal
year.

          6.3 TEN-PERCENT STOCKHOLDERS. No person shall be eligible for the
grant of an Incentive Stock Option under the Plan if, at the time of grant, such
person owns (or is deemed to own pursuant to Section 424(d) of the Code) stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of any of the Affiliates unless the exercise
price of such option is at least one hundred ten percent (110%) of the fair
market value of such Stock at the date of grant and the term of the Option does
not exceed five (5) years from the date of grant.

     7. OPTION PROVISIONS

     Each Option shall be in such form and shall contain such terms and
conditions as the Plan Administrator shall deem appropriate. The provisions of
separate Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option Agreement or
otherwise) the substance of each of the following provisions:

          7.1 TERM. The term of any Option shall not be greater than ten (10)
years from the

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date it was granted. An Option shall terminate three (3) months after
termination of the Optionee's Service with the Company or an Affiliate, unless
(i) such termination is due to such person's Disability, in which case the
option may, but need not, provide that it may be exercised at any time within
one (1) year following such termination of Service; or (ii) the Optionee dies
while in the Service of the Company or an Affiliate, or within not more than
three (3) months after termination of such Service, in which case the Option
may, but need not, provide that it may be exercised at any time within eighteen
(18) months following the death of the Optionee by the person or persons to whom
the Optionee's rights under such Option pass by will or by the laws of descent
and distribution; or (iii) the Option by its terms specifies either (a) that it
shall terminate sooner than three (3) months after termination of the Optionee's
Service, or (b) that it may be exercised more than three (3) months after
termination of such Service with the Company or an Affiliate. This Section 7.1
shall not be construed to extend the term of any Option to permit anyone to
exercise the Option after expiration of its term, nor shall it be construed to
increase the number of Shares as to which any Option is exercisable from the
amount exercisable on the date of termination of the Optionee's Service.

          7.2 EXERCISE PRICE. The Exercise Price for the shares subject to any
Option shall be determined by the Plan Administrator at the time of grant, but
shall not be less than par value per share. Anything to the contrary
notwithstanding, the Exercise Price for the shares subject to any Incentive
Stock Option shall not be less than 100% of the Fair Market Value of the shares
of Common Stock of the Company on the date the Stock Option is granted. In the
case of an Incentive Stock Option granted to an employee who owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any Affiliate, the Option price shall not be less than
110% of the fair market value per share of the Stock of the Company on the date
the Option is granted.

          7.3 PAYMENT. The Exercise Price of an Option shall be paid, to the
extent permitted by applicable statutes and regulations, either:

               7.3.1 In cash or check at the time the option is exercised; or

               7.3.2 In the discretion of the Plan Administrator, upon such
terms as the Plan Administrator shall approve, (i) by a copy of instructions to
a broker directing such broker to sell the Shares for which such Option is
exercised, and to remit to the Company the aggregate exercise price of such
Options (a "cashless exercise"), (ii) by paying all or a portion of the Exercise
Price for the number of Shares being purchased by tendering Shares owned by the
Optionee, duly endorsed for transfer to the Company, with a Fair Market Value on
the date of delivery equal to the aggregate purchase price of the Shares with
respect to which such Option or portion thereof is thereby exercised (a
"stock-for-stock exercise"), (iii) by a stock for stock exercise by means of
attestation whereby the Optionee identifies for delivery specific Shares already
owned by Optionee and receives a number of Shares equal to the difference
between the Option Shares thereby exercised and the identified attestation
Shares (an "attestation exercise"), or (iv) with a full-recourse promissory
note. However, the par value of the Shares, if newly issued, shall be paid in
cash or cash equivalents. The Shares shall be pledged as security for payment of
the principal amount of the promissory note and interest thereon. The interest
rate payable under the terms of the promissory note shall not be less than the
minimum rate (if any) required to avoid the imputation of additional interest
under the Code. Subject to the foregoing, the Plan Administrator (at its sole
discretion) shall specify the term, interest rate, amortization requirements (if
any) and other provisions of such note.

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               7.3.3 The Exercise Price shall include payment of the amount of
all federal, state, local or other income, excise or employment taxes subject to
withholding (if any) by the Company or any Affiliate as a result of the exercise
of a Stock Option. At the discretion of the Plan Administrator, upon such terms
as the Plan Administrator shall approve, the Optionee may pay all or a portion
of the tax withholding by (i) cash or check payable to the Company, (ii)
cashless exercise, (iii) stock-for-stock exercise, (iv) by paying all or a
portion of the tax withholding for the number of Shares being purchased by
withholding Shares from any transfer or payment to the Optionee ("stock
withholding"), or (v) a combination of one or more of the foregoing payment
methods. Any Shares issued pursuant to the exercise of an Option and transferred
by the Optionee to the Company for the purpose of satisfying any withholding
obligation shall not again be available for purposes of the Plan and the number
of Shares subject to stock withholding shall not exceed an amount equal to the
minimum required applicable tax withholding rates.

          7.4 RESTRICTIONS ON TRANSFER OF OPTION. Any Incentive Stock Option
shall not be transferable except by will, by the laws of descent and
distribution, and shall be exercisable during the lifetime of the person to whom
the Incentive Stock Option is granted only by such person. A Nonstatutory Stock
Option may be transferred to the extent provided in the Option Agreement;
provided that if the Option Agreement does not expressly permit the transfer of
a Nonstatutory Stock Option, the Nonstatutory Stock Option shall not be
transferable except by will, by the laws of descent and distribution or pursuant
to a domestic relations order satisfying the requirements of Rule 16b-3, and
shall be exercisable during the lifetime of the person to whom the Option is
granted only by such person or any transferee pursuant to a domestic relations
order. Notwithstanding the foregoing, the person to whom the Option is granted
may, by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the Optionee,
shall thereafter be entitled to exercise the Option.

          7.5 EXERCISABILITY. The total number of Shares subject to an option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). From time to time during each of such installment periods, the
Option may become exercisable ("vest") with respect to some or all of the Shares
allotted to that period, and may be exercised with respect to some or all of the
Shares allotted to such period and/or any prior period as to which the Option
was not fully exercised. During the remainder of the term of the Option (if its
term extends beyond the end of the installment periods), the Option may be
exercised from time to time with respect to any Shares then remaining subject to
the Option. The provisions of this SECTION 7.5 are subject to any Option
provisions governing the maximum number of shares as to which an Option may be
exercised. The Option may, but need not, include a provision whereby the
Optionee may elect at any time during the Option term to exercise the Option as
to any part or all of the Shares subject to the Option prior to the stated
vesting date of the Option or of any installment or installments specified in
the Option. Any Shares so purchased from any unvested installment or Option may
be subject to a repurchase right in favor of the Company or to any other
restriction the Plan Administrator determines to be appropriate.

          7.6 SECURITIES LAW REQUIREMENTS. The Company may require any optionee,
or any person to whom an option is transferred under SECTION 7.4, as a condition
of exercising any such option:

               7.6.1 To give written assurances satisfactory to the Company as
to the Optionee's knowledge and experience in financial and business matters
and/or to employ a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and

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experienced in financial and business matters, and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the option; and

               7.6.2 To give written assurances satisfactory to the Company
stating that such person is acquiring the Stock subject to the Option for such
person's own account and not with any present intention of selling or otherwise
distributing the Stock. These requirements, and any assurances given pursuant to
such requirements, shall be inoperative if:

                    (a) The issuance of the Shares upon the exercise of the
Option has been registered under a then currently effective registration
statement under the Securities Act of 1933, as amended (the "Securities Act");
or

                    (b) As to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws.

     8. COVENANTS OF THE COMPANY

          8.1 RESERVATION OF SHARES. During the terms of the Options granted
under the Plan, the Company shall keep available at all times the number of
Shares of Stock required to satisfy such Options.

          8.2 RESTRICTION ON ISSUANCE OF SHARES. The Company shall seek to
obtain from each regulatory commission or agency having jurisdiction over the
Plan such authority as may be required to issue and sell Shares of Stock upon
exercise of the Options granted under the Plan; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
either the Plan, any Option granted under the Plan or any Stock issued or
issuable pursuant to any such Option. If, after reasonable efforts, the Company
is unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of Stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell Stock upon exercise of such Options unless and until
such authority is obtained.

     9. USE OF PROCEEDS FROM STOCK

     Proceeds from the sale of Stock pursuant to Options granted under the Plan
shall constitute general funds of the Company.

     10. MISCELLANEOUS

          10.1 NO SHAREHOLDER RIGHTS. Neither an Optionee nor any person to whom
an Option is transferred under Section 7.4 shall be deemed to be the holder of,
or to have any of the rights of the holder with respect to, any Shares subject
to such Option unless and until such person has satisfied all requirements for
exercise of the Option pursuant to its terms.

          10.2 FINANCIAL DISCLOSURE. Throughout the term of any Option granted
pursuant to the Plan, the Company shall make available to the holder of such
Option, not later than one hundred twenty (120) days after the close of each of
the Company's fiscal years during the Option term, upon request, such financial
and other information regarding the Company as comprises the annual report to
the stockholders of the Company provided for in the bylaws of the Company.

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          10.3 NO RETENTION RIGHTS. Nothing in the Plan or any instrument
executed or Option granted pursuant thereto shall confer upon any eligible
Employee or Optionee any right to continue in the employ of the Company or any
Affiliate (or to continue acting as a Consultant or Director) or shall affect
the right of the Company or any Affiliate to terminate the Service of any
Optionee with or without cause. In the event that an Optionee is permitted or
otherwise entitled to take a leave of absence, the Company shall have the
unilateral right to (i) determine whether such leave of absence will be treated
as a termination of Service for purposes of SECTION 7.5 hereof and corresponding
provisions of any outstanding Options, and (ii) suspend or otherwise delay the
time or times at which the Shares subject to the Option would otherwise vest.

     11. ADJUSTMENTS UPON CHANGES IN STOCK

          11.1 GENERAL. If any change is made in the Stock subject to the Plan,
or subject to any Option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), then the Plan and
outstanding Options shall be appropriately adjusted:

               11.1.1 In the class(es) and maximum number of Shares subject to
the Plan; and

               11.1.2 In the class(es) and number of Shares and price per Share
of Stock subject to outstanding Options.

          11.2 MERGERS AND CONSOLIDATIONS. In the event of a complete
liquidation of the Company or a merger, reorganization, or consolidation of the
Company with, or upon a sale of all or substantially all of the Company's assets
to, or the acquisition of all or substantially all of the Common Stock of the
Company by any other corporation in which the Company is not the surviving
corporation or the Company becomes a wholly-owned subsidiary of another
corporation, or any other corporate transaction occurs within the meaning of
Code Section 424 and the regulations thereunder that would result in the
transfer to a new employer or discharge of a significant number of employees or
the creation or severance of a parent-subsidiary relationship (a "Corporate
Event"), any unexercised Options theretofore granted under the Plan shall be
deemed cancelled unless the surviving corporation in any such Corporate Event
elects to assume the Options under the Plan or to issue substitute Options in
place thereof; provided, however, that, notwithstanding the foregoing, if such
Options would be cancelled in accordance with the foregoing, the Plan
Administrator shall notify the Optionee in writing or electronically that the
Option shall be fully exercisable for a period of fifteen (15) days from the
date of such notice, and the Option shall terminate upon the expiration of such
period. Alternatively the purchaser(s) in such Corporate Event may, in his, her,
or its discretion, terminate all outstanding Options by delivering to the
Optionees the same kind of consideration that is delivered to the stockholders
of the Company as a result of such Corporate Event, or the Board may terminate
all outstanding Options in exchange for consideration in cash or in kind, which
consideration in both cases shall be equal in value to the higher of (i) the
Fair Market Value of those Shares of Stock or other securities the holder of
such Option would have received had the Option been exercised and no disposition
of the Shares acquired upon such exercise been made prior to such Corporate
Event, less the exercise price therefor, and (ii) the Fair Market Value of those
Shares of Stock or other securities the holder of the Option would have received
had the Option been exercised and no disposition of the Shares acquired upon
such exercise been made immediately following such Corporate Event, less the
exercise price therefor.

     12. AMENDMENT OF THE PLAN

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          12.1 RIGHT TO AMEND OR TERMINATE THE PLAN. The Board may amend,
suspend or terminate the Plan at any time and for any reason; provided, however,
that any amendment of the Plan which increases the number of Shares available
for issuance under the Plan (except as provided in SECTION 11), extends the term
beyond ten (10) years after the earlier of the date the Plan is adopted or the
date the Plan is approved by the Company's shareholders, or which materially
changes the class of persons who are eligible for the grant of ISOs, shall be
subject to the approval of the Company's stockholders. Stockholder approval
shall not be required for any other amendment of the Plan, except to the extent
stockholder approval is necessary for the Plan to satisfy the requirements of
Rule 16b-3 under the Exchange Act or any Nasdaq or securities exchange listing
requirements.

          12.2 MODIFICATION, EXTENSION, AND RENEWAL OF OPTIONS. Subject to the
terms and conditions and within the limitations of the Plan, the Plan
Administrator may modify, extend, or renew outstanding Options granted under the
Plan, and accept the surrender of outstanding Options (to the extent not
theretofore exercised). The Plan Administrator shall not, however, modify any
outstanding Incentive Stock Option in any manner that would cause the Option not
to qualify as an Incentive Stock Option within the meaning of Section 422 of the
Code. Notwithstanding the foregoing, no modification of an Option shall, without
the consent of the Optionee, alter or impair any rights of the Optionee under
the Option. However, a termination of the Option in which the Optionee receives
a cash payment equal to the difference between the Fair Market Value and the
exercise price for all shares subject to exercise under any outstanding Option
shall not alter or impair any rights of the Optionee.

     13. EFFECTIVE DATE AND TERM OF PLAN

          13.1 EFFECTIVE DATE. The Plan, as set forth herein, shall be effective
as of January 3, 2000 (the "Effective Date", which is the date of its adoption
by the Board of Directors), subject to the approval of the Company's
stockholders. In the event that the stockholders fail to approve the Plan within
12 months after its adoption by the Board of Directors, any grants of Options or
sales or awards of Shares that have already occurred shall be rescinded, and no
additional grants, sales or awards shall be made thereafter under the Plan.

          13.2 TERMINATION DATE. The Plan shall terminate automatically on
January 3, 2010 and may be terminated on any earlier date pursuant to SECTION
12.1 above.

     14. EXECUTION.

To record the adoption of the Plan by the Board of Directors, the Company has
caused its authorized officer to execute the same as of January 3, 2000.<PAGE>

                                                                 EXHIBIT 10.1
                               NEURON DATA, INC
                             1996 STOCK OPTION PLAN
                             ----------------------

              (As Amended and Restated Effective August 27, 1996,
            September 25, 1996, October 28, 1997, April 23, 1999,
                    December 2, 1999 and December 31, 1999)

                                  ARTICLE ONE

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

     I.   PURPOSE OF THE PLAN

          A.   This 1996 Stock Option Plan is intended to promote the interests
of Neuron Data, Inc., a California corporation, by providing eligible persons
with the opportunity to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Corporation as an incentive for them to
remain in the service of the Corporation.

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

     II.  ADMINISTRATION OF THE PLAN

          A.   The Plan shall be administered by the Board. However, any or all
administrative functions otherwise exercisable by the Board may be delegated to
the Committee. Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.

          B.   The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such roles and regulations
as it may deem appropriate for proper administration of the Plan and to make
such determinations under, and issue such interpretations of, the Plan and any
outstanding options as it may deem necessary or advisable. Decisions of the Plan
Administrator shall be final and binding on all parties who have an interest in
the Plan or any option or Shares issued thereunder.

     III.   ELIGIBILITY

          A.   The persons eligible to receive option grants under the Plan are
as follows:

                  (i)    Employees,

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

                  (iii)  consultants who provide services to the Corporation
          (or any Parent or Subsidiary).

          B.  The Plan Administrator shall have full authority to determine
which eligible persons are to receive option grants under the Plan, the time or
times when such option grants are to be made, the number of shares to be covered
by each such grant, the status of the granted option as either an Incentive
Option or a Non-Statutory Option, the time or times at which each option is to
become exercisable, the vesting schedule (if any) applicable to the option
shares and the maximum term for which the option is to remain outstanding.

     IV.  STOCK SUBJECT TO THE PLAN

          A.  The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed 7,003,429.

          B.  Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at the option 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.  Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
Without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan and (ii) the number and/or class of securities and the exercise
price per share in effect under each outstanding option in order to prevent the
dilution or enlargement of benefits thereunder. The adjustments determined by
the Plan Administrator shall be final, binding and conclusive. In no event shall
any such adjustments be made in connection with the conversion of one or more
outstanding shares of the Corporation's preferred stock into shares of Common
Stock.

                                       2
<PAGE>

                                  ARTICLE TWO

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

     I.   OPTION TERMS

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

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

               1.  The exercise price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:

                  (i) The exercise price per share shall not be less than
          eighty-five percent (85%) of the Fair Market Value per share of Common
          Stock on the option grant date.

                 (ii) If the person to whom the option is granted is a 10%
          Shareholder, then the exercise price per share shall not be less than
          one hundred ten percent (110%) of the Fair Market Value per share of
          Common Stock on the option grant date.

               2.  The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Three
and the documents evidencing the option, be payable in cash or check made
payable to the Corporation. Should the Common Stock be registered under Section
12(g) of the 1934 Act at the time the option is exercised, then the exercise
price may also be paid as follows:

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

                                       3
<PAGE>

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

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

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

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

                 (i) Should the Optionee cease to remain in Service for any
       reason other than Disability or death, then the Optionee shall have a
       period of three (3) months following the date of such cessation of
       Service during which to exercise each outstanding option held by such
       Optionee.

                 (ii) Should such Service terminate by reason of Disability,
       then the Optionee shall have a period of twelve (12) months following the
       date of such cessation of Service during which to exercise each
       outstanding option held by such Optionee.

                 (iii) Should the Optionee die while holding one or more
       outstanding options, then the personal representative of the Optionee's
       estate or the person or persons to whom the option is transferred
       pursuant to the Optionee's will or in accordance with the laws of descent
       and distribution shall have a period of twelve (12) months following the
       date of the Optionee's death during which to exercise each such option.

                 (iv) Under no circumstances, however, shall any such option be
       exercisable after the specified expiration of the option term.

                 (v) During the applicable post-Service exercise period, the
       option may not be exercised in the aggregate for more than the number of
       vested shares for which the option is exercisable on the date of the
       Optionee's

                                       4
<PAGE>

       cessation of Service. Upon the expiration of the applicable exercise
       period or (if earlier) upon the expiration of the option term, the option
       shall terminate and cease to be outstanding for any vested shares for
       which the option has not been exercised. However, the option shall,
       immediately upon the Optionee's cessation of Service, terminate and cease
       to be outstanding with respect to any and all option shares for which the
       option is not otherwise at the time exercisable or in which the Optionee
       is not otherwise at that time vested.

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

          E.  Unvested Shares. The Plan Administrator shall have the discretion
              ---------------
to grant options which are exercisable for unvested shares of Common Stock under
the Plan. Should the Optionee cease Service while holding such unvested shares,
the Corporation shall have the right to repurchase, at the exercise price paid
per share, all or (at the discretion of the Corporation and with the consent of
the Optionee) any of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right. The Plan Administrator may not impose a vesting schedule upon
any option grant or any shares of Common Stock subject to the option which is
more restrictive than twenty percent (20%) per year vesting, with the initial
vesting to occur not later than one (1) year after the option grant date.
However, this minimum vesting requirement shall not be applicable with respect
to any option granted to an officer, director or consultant of the Corporation
(or any Parent or Subsidiary).

          F.  First Refusal Rights. Until such time as the Common Stock is first
              --------------------

registered under Section 12(g) of the 1934 Act, the Corporation shall have the
right of first refusal with respect to any proposed disposition by the Optionee
(or any successor in interest) of any shares of Common Stock issued under the
Plan. Such right of first refusal shall be exercisable in accordance with the
terms established by the Plan Administrator and set forth in the document
evidencing such right.

          G.  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 other than by will or by the laws of descent and
distribution following the Optionee's death.

          H.  Withholding. The Corporation's obligation to deliver shares of
              -----------
Common Stock upon the exercise of any options granted under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.

     II.  INCENTIVE OPTIONS

          The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of the Plan shall be applicable to

                                       5
<PAGE>

Incentive Options. Options which are specifically designated as Non-Statutory
Options shall not be subject to the terms specified in this Section II.
              ---

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

          B.  Exercise Price. The exercise price per share shall not be less
              --------------
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.

          C.  Dollar Limitation. The aggregate Fair Market Value of the shares
              -----------------
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one (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.

          D.  10% Shareholder. If any Employee to whom an Incentive Option is
              ---------------
granted is a 10% Shareholder, then the option term shall not exceed five (5)
years measured from the option grant date.

     III. CORPORATE TRANSACTION

          A.  The shares subject to each option outstanding under the Plan at
the time of a Corporate Transaction shall automatically vest in full so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for all of the shares of Common Stock at
the time subject to that option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. However, the shares subject to an
outstanding option shall not vest on such an accelerated basis 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 to be replaced
with a comparable option to purchase shares of the capital stock of the
successor corporation (or parent thereof), (ii) such option is to be replaced
with a cash incentive program of the successor corporation which preserves the
spread existing on the unvested option shares at the time of the Corporate
Transaction and provides for subsequent payout in accordance with the same
vesting schedule applicable to those unvested option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant. The determination of option
comparability under clause (i) above shall be made by the Plan Administrator,
and its determination shall be final, binding and conclusive.

                                       6
<PAGE>

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

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

          D.  Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
                         --------
securities shall remain the same.

          E.  The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration, in whole or in part, of
one or more outstanding options (and the automatic termination, in whole or in
part, of one or more outstanding repurchase rights, with the immediate vesting
of the shares of Common Stock subject to those terminated rights) upon the
occurrence of a Corporate Transaction, whether or not those options are to be
assumed or replaced (or those repurchase rights are to be assigned) in the
Corporate Transaction.

          F.  The Plan Administrator shall have full power and authority to
structure option grants so that the shares subject to those grants will
automatically vest in full in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those options are assumed or replaced and the
vesting of the underlying option shares does not otherwise accelerate. Such
options shall remain exercisable for fully-vested shares until the earlier of
                                                                   -------
(i) the expiration of the option term or (ii) the expiration of the one (1)-year
period measured from the effective date of the Involuntary Termination. In
addition, the Plan Administrator may structure one or more of the Corporation's
outstanding repurchase rights so that those rights shall immediately terminate
upon an Involuntary Termination of the Optionee's Service within a designated
period (not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase rights are assigned and the
vesting of the shares subject to those rights does not otherwise accelerate. The
shares subject to the terminated repurchase rights shall accordingly vest in
full upon such Involuntary Termination.

                                       7
<PAGE>

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

     IV.  CANCELLATION AND REGRANT OF OPTIONS

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

                                       8
<PAGE>

                                 ARTICLE THREE

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

     I.   FINANCING

          The Plan Administrator may permit any Optionee to pay the option
exercise price by delivering a promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. Promissory notes may be authorized with or without security
or collateral. However, any promissory notes delivered by a consultant must be
secured by property other than the purchased shares of Common Stock. In all
events, the maximum credit available to each Optionee may not exceed the sum of
                                                                         ---
(i) the aggregate option exercise price payable for the purchased shares plus
(ii) any Federal, state and local income and employment tax liability incurred
by the Optionee in connection with the option exercise.

     II.  ADDITIONAL AUTHORITY

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

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

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

     III. EFFECTIVE DATE AND TERM OF THE PLAN

                                       9
<PAGE>

          A.  The Plan shall become effective when adopted by the Board, but no
option granted under the Plan may be exercised until the Plan is approved by the
Corporation's shareholders. If such shareholder approval is not obtained within
twelve (12) months after the date of the Board's adoption of the Plan, then all
options previously granted under the Plan shall terminate and cease to be
outstanding, and no further options shall be granted. Subject to such
limitation, the Plan Administrator may grant options under the Plan at any time
after the effective date of the Plan and before the date fixed herein for
termination of the Plan.

          B.  The Plan was amended and restated by the Board on August 27, 1996
in order to increase the maximum number of shares of Common Stock authorized for
issuance over the term of the Plan by an additional 280,797 shares from
1,224,200 to 1,504,997 shares. The Plan was amended and restated by the Board
again on September 25, 1996 in order to further increase the maximum number of
shares of Common Stock authorized for issuance over the term of the Plan by an
additional 109,640 shares from 1,504,997 to 1,559,817 shares. Both of these 1996
share increases were subsequently approved by the shareholders. The Board again
amended and restated the Plan on October 27, 1997 to increase the maximum number
of shares of Common Stock authorized for issuance over the term of the Plan by
an additional 300,000 shares from 1,559,817 to 1,859,817 shares. This 300,000
share increase was approved by the shareholders on December 12, 1997. The board
again amended and restated the Plan on December 1999 to increase the maximum
number of shares of common stock authorized for issuance over the term of the
Plan by an additional 850,000 shares from 4,903,429 to 5,753,429 shares. This
850,000 shares increase was approved by the shareholders on December 2, 1999.
The Board again amended and restated the Plan on December 31, 1999 to increase
the maximum number of shares of common stock authorized for issuance over the
term of the Plan by 1,250,000 shares from 5,753,429 shares to 7,003,429 shares.

          C.  The Plan shall terminate upon the earliest of (i) the expiration
                                                --------
of the ten (10)-year period measured from the Plan Effective Date, (ii) the date
on which all shares available for issuance under the Plan shall have been issued
or (iii) the termination of all outstanding options in connection with a
Corporate Transaction. Upon any such Plan termination, all options and unvested
stock issuances outstanding under the Plan shall continue to have full force and
effect in accordance with the provisions of the documents evidencing those
options or issuances.

     IV.  AMENDMENT OF THE PLAN

          A.  The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall, without the consent of the Optionees, adversely affect their
rights and obligations under their outstanding options. In addition, the Board
shall not, without the approval of the Corporation's shareholders, (i) increase
the maximum number of shares issuable under the Plan, except for permissible
adjustments in the event of certain changes in the Corporation's capitalization
or, (ii) materially modify the eligibility requirements for Plan participation.

          B.  Options may be granted under the Plan to purchase shares of Common
Stock in excess of the number of shares then available for issuance under the
Plan, provided any such options actually granted may not be exercised until
there is obtained shareholder approval of an amendment sufficiently increasing
the number of shares of Common Stock available for issuance under the Plan. If
such shareholder approval is not obtained within twelve (12) months after the
date the excess grants are first made, then any options granted on the basis of
such excess shares shall terminate and cease to be outstanding.

                                       10
<PAGE>

      V.  USE OF PROCEEDS

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

     VI.  REGULATORY APPROVALS

          The implementation of the Plan, the granting of any option hereunder
and the issuance of any shares of Common Stock upon the exercise of any 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 shares of Common Stock issued pursuant to it.

     VII. NO EMPLOYMENT OR SERVICE RIGHTS

          Nothing in the Plan shall confer upon the 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 the Optionee, which rights are
hereby expressly reserved by each, to terminate the Optionee's Service at any
time for any reason, with or without cause.

    VIII. FINANCIAL REPORTS

          The Corporation shall deliver a balance sheet and an income statement
at least annually to each individual holding an outstanding option under the
Plan, unless such individual is a key Employee whose duties in connection with
the Corporation (or any Parent or Subsidiary) assure such individual access to
equivalent information.

                                       11
<PAGE>

                                    APPENDIX
                                    --------

              The following definitions shall be in effect under the Plan:

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

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

          C.  Committee shall mean a committee of two (2) or more Board members
              ---------
appointed by the Board to exercise one or more administrative functions under
the Plan.

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

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

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

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

          F.  Corporation shall mean Neuron Data, Inc., a California
              -----------
corporation.

          G.  Disability shall mean the inability of an individual to engage in
              ----------
any substantial gainful activity by reason of any medically determinable
physical or mental impairment and shall be determined by the Plan Administrator
on the basis of such medical evidence as the Plan Administrator deems warranted
under the circumstances.

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

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

                                       12
<PAGE>

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

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

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

                  (iii)  If the Common Stock is at the time neither listed on
          any Stock Exchange nor traded on the Nasdaq National Market, then the
          Fair Market Value shall be determined by the Plan Administrator after
          taking into account such factors as the Plan Administrator shall deem
          appropriate.

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

          L.  Involuntary Termination shall mean the termination of the
              -----------------------
Optionee's Service by reason of:

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

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

          M.  Misconduct shall mean the commission of any act of fraud,
              ----------
embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure
by such person of confidential

                                       13
<PAGE>

information or trade secrets of the Corporation (or any Parent or Subsidiary),
or any other intentional misconduct by such person adversely affecting the
business or affairs of the Corporation (or any Parent or Subsidiary) in a
material manner. The foregoing definition shall not be deemed to be inclusive of
all the acts or omissions which the Corporation (or any Parent or Subsidiary)
may consider as grounds for the dismissal or discharge of any Optionee or other
person in the Service of the Corporation (or any Parent or Subsidiary).

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

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

          P.  Optionee shall mean any person to whom an option is granted under
              --------
the Plan.

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

          R.  Plan shall mean the Corporation's 1996 Stock Option Plan, as set
              ----
forth in this document.

          S.  Plan Administrator shall mean either the Board or the Committee
              ------------------
acting in its administrative capacity under the Plan.

          T.  Plan Effective Date shall mean the date the Plan is adopted by the
              -------------------
Board.

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

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

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

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

                                       14

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