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                                                                    EXHIBIT 10.1

                              APPLICA INCORPORATED

                        2000 EMPLOYEE STOCK PURCHASE PLAN

         1.       PURPOSE. The purpose of the Plan is to provide incentive for
present and future employees of the Company and any Designated Subsidiary to
acquire a proprietary interest (or increase an existing proprietary interest) in
the Company through the purchase of Common Stock. It is the Company's intention
that the Plan qualify as an "employee stock purchase plan" under Section 423 of
the Code. Accordingly, the provisions of the Plan shall be administered,
interpreted and construed in a manner consistent with the requirements of that
section of the Code.

         2.       DEFINITIONS.

                  (a) "APPLICABLE PERCENTAGE" means the percentage specified in
Section 8, subject to adjustment by the Committee as provided in Section 8.

                  (b) "BOARD" means the Board of Directors of the Company.

                  (c) "CODE" means the Internal Revenue Code of 1986, as
amended, and any successor thereto.

                  (d) "COMMITTEE" means the committee appointed by the Board to
administer the Plan as described in Section 13 of the Plan or, if no such
Committee is appointed, the Board.

                  (e) "COMMON STOCK" means the Company's common stock, par value
$0.10 per share.

                  (f) "COMPANY" means Applica Incorporated, a Florida
corporation.

                  (g) "COMPENSATION" means, with respect to each Participant for
each pay period, the full base salary, overtime and automobile allowances paid
to such Participant by the Company or a Designated Subsidiary. Except as
otherwise determined by the Committee, "Compensation" does not include: (i)
bonuses or commissions; (ii) any amounts contributed by the Company or a
Designated Subsidiary to any pension plan; (iii) any relocation allowances (or
reimbursement for any such expenses); (iv) any amounts paid as a starting bonus
or finder's fee; (v) any amounts realized from the exercise of any stock options
or incentive awards; (vi) any amounts paid by the Company or a Designated
Subsidiary for other fringe benefits, such as health and welfare,
hospitalization and group life insurance benefits, or perquisites, or paid in
lieu of such benefits, or (vii) other similar forms of extraordinary
compensation.

                  (h) "CONTINUOUS STATUS AS AN EMPLOYEE" means the absence of
any interruption or termination of service as an Employee. Continuous Status as
an Employee shall not be considered interrupted in the case of a leave of
absence agreed to in writing by the Company or the Designated Subsidiary that
employs the Employee, provided that such leave is for a period of not more than
90 days or reemployment upon the expiration of such leave is guaranteed by
contract or statute.

                  (i) "DESIGNATED SUBSIDIARIES" means the Subsidiaries that have
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.

                  (j) "EMPLOYEE" means any person, including an Officer, whose
customary employment with the Company or one of its Designated Subsidiaries is
at least twenty (20) hours per week and more than five (5) months in any
calendar year.

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                  (k) "ENTRY DATE" means the first day of each Exercise Period.

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

                  (m) "EXERCISE DATE" means the last Trading Day ending on or
before each June 30 and December 31.

                  (n) "EXERCISE PERIOD" means, for any Offering Period, each
period commencing on the Offering Date and on the day after each Exercise Date,
and terminating on the immediately following Exercise Date.

                  (o) "EXERCISE PRICE" means the price per share of Common Stock
offered in a given Offering Period determined as provided in Section 8.

                  (p) "FAIR MARKET VALUE" means, with respect to a share of
Common Stock, the Fair Market Value as determined under Section 7(b).

                  (q) "FIRST OFFERING DATE" means July 1, 2000, or as soon
thereafter as practicable in the sole discretion of the Board of the Committee.

                  (r) "OFFERING DATE" means the first Trading Day of each
Offering Period; PROVIDED, that in the case of an individual who becomes
eligible to become a Participant under Section 3 after the first Trading Day of
an Offering Period, the term "Offering Date" shall mean the first Trading Day of
the Exercise Period coinciding with or next succeeding the day on which that
individual becomes eligible to become a Participant. Options granted after the
first day of an Offering Period will be subject to the same terms as the options
granted on the first Trading Day of such Offering Period except that they will
have a different grant date (thus, potentially, a different exercise price) and,
because they expire at the same time as the options granted on the first Trading
Day of such Offering Period, a shorter term.

                  (s) "OFFERING PERIOD" means (i) with respect to the first
Offering Period, the period beginning on the First Offering Date and ending on
December 31, 2000, and (ii) with respect to each Offering Period thereafter, and
subject to adjustment as provided in Section 4, the period beginning on the
first Trading Day of the month of January in the immediately succeeding calendar
year and ending on the last Trading Day of that calendar year.

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

                  (u) "PARTICIPANT" means an Employee who has elected to
participate in the Plan by filing an enrollment agreement with the Company as
provided in Section 5 of the Plan.

                  (v) "PLAN" shall mean this 2000 Employee Stock Purchase Plan.

                  (w) "PLAN CONTRIBUTIONS" means, with respect to each
Participant, the after-tax payroll deductions withheld from the Compensation of
the Participant and contributed to the Plan for the Participant as provided in
Section 6 of the Plan and any other amounts contributed to the Plan for the
Participant in accordance with the terms of the Plan.

                  (x) "SUBSIDIARY" shall mean any corporation, domestic or
foreign, of which the Company owns, directly or indirectly, 50% or more of the
total combined voting power of all classes of stock, and that otherwise
qualifies as a "subsidiary corporation" within the meaning of Section 424(f) of
the Code.

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                  (y) "TRADING DAY" shall mean a day on which the national stock
exchanges and the Nasdaq system are open for trading.

         3.       ELIGIBILITY.

                  (a) Any Employee who has completed at least one year of
employment with the Company or any Subsidiary and who is an Employee as of the
Offering Date of a given Offering Period shall be eligible to become a
Participant as of any Entry Date within that Offering Period under the Plan,
subject to the requirements of Section 5(a) and the limitations imposed by
Section 423(b) of the Code.

                  (b) Notwithstanding any provision of the Plan to the contrary,
no Participant shall be granted an option under the Plan (i) to the extent that
if, immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own stock and/or hold outstanding options to purchase stock possessing 5%
or more of the total combined voting power or value of all classes of stock of
the Company or of any Subsidiary of the Company, or (ii) to the extent that his
or her rights to purchase stock under all employee stock purchase plans of the
Company and its Subsidiaries intended to qualify under Section 423 of the Code
to accrue at a rate which exceeds $25,000 of fair market value of stock
(determined at the time such option is granted) for each calendar year in which
such option is outstanding at any time.

         4.       OFFERING PERIODS. The Plan shall be implemented by a series of
consecutive Offering Periods. The first Offering Period shall commence on the
First Offering Date and succeeding Offering Periods shall commence on the first
Trading Day in each succeeding calendar year (or at such other time or times as
may be determined by the Committee). The Committee shall have the power to
change the duration and/or the frequency of Offering Periods with respect to
future offerings if such change is announced at least five (5) days prior to the
scheduled beginning of the first Offering Period to be affected.

         5.       ELECTION TO PARTICIPATE.

                  (a) An eligible Employee may elect to participate in the Plan
commencing on any Entry Date by completing an enrollment agreement on the form
provided by the Company and filing the enrollment agreement with the Company on
or prior to such Entry Date, unless a later time for filing the enrollment
agreement is set by the Committee for all eligible Employees with respect to a
given offering. The enrollment agreement shall set forth the percentage of the
Participant's Compensation that is to be withheld by payroll deduction pursuant
to the Plan.

                  (b) Except as otherwise determined by the Committee under
rules applicable to all Participants, payroll deductions for a Participant shall
commence on the first payroll following the Entry Date on which the Participant
elects to participate in accordance with Section 5(a) and shall end on the last
payroll in the Offering Period, unless sooner terminated by the Participant as
provided in Section 11.

                  (c) Unless a Participant elects otherwise prior to the last
Exercise Date of an Offering Period, such Participant shall be deemed (i) to
have elected to participate in the immediately succeeding Offering Period (and,
for purposes of such Offering Period such Participant's "Entry Date" shall be
deemed to be the first day of such Offering Period) and (ii) to have authorized
the same payroll deduction for such immediately succeeding Offering Period as
was in effect for such Participant immediately prior to the commencement of such
succeeding Offering Period.

         6.       PARTICIPANT CONTRIBUTIONS.

                  (a) Except as otherwise authorized by the Committee pursuant
to Section 6(d) below, all Participant contributions to the Plan shall be made
only by payroll deductions. At the time a Participant files the enrollment
agreement with respect to an Offering Period, the Participant may authorize
payroll deductions to be made on each payroll date during the portion of the
Offering Period that he or she is a Participant in an amount not less than 1%

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and not more than 15% of the Participant's Compensation on each payroll date
during the portion of the Offering Period that he or she is a Participant (or
subsequent Offering Periods as provided in Section 5(c)). The amount of payroll
deductions shall be a whole percentage (i.e., 1%, 2%, 3%, etc.) of the
Participant's Compensation.

                  (b) A Participant may discontinue his or her participation in
the Plan as provided in Section 11, or may decrease or increase the rate or
amount of his or her payroll deductions during such Offering Period (within the
limitations of Section 6(a) above) by completing and filing with the Company a
new enrollment agreement authorizing a change in the rate or amount of payroll
deductions; PROVIDED, that a Participant may not change the rate or amount of
his or her payroll deductions more than once in any Exercise Period. The change
in rate or amount shall be effective with the first full payroll period
following ten (10) business days after the Company's receipt of the new
enrollment agreement.

                  (c) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
Participant's payroll deductions may be decreased to 0% at such time during any
Exercise Period which is scheduled to end during the current calendar year that
the aggregate of all payroll deductions accumulated with respect to such
Exercise Period and any other Exercise Period ending within the same calendar
year are equal to the product of $25,000 multiplied by the Applicable Percentage
for the calendar year. Payroll deductions shall recommence at the rate provided
in the Participant's enrollment agreement at the beginning of the following
Exercise Period which is scheduled to end in the following calendar year, unless
terminated by the Participant as provided in Section 11.

                  (d) Notwithstanding anything to the contrary in the foregoing,
but subject to the limitations set forth in Section 3(b), the Committee may
permit Participants to make after-tax contributions to the Plan at such times
and subject to such terms and conditions as the Committee may in its discretion
determine. All such additional contributions shall be made in a manner
consistent with the provisions of Section 423 of the Code or any successor
thereto, and shall be held in Participants' accounts and applied to the purchase
of shares of Common Stock pursuant to options granted under this Plan in the
same manner as payroll deductions contributed to the Plan as provided above.

                  (e) All Plan Contributions made for a Participant shall be
deposited in the Company's general corporate account and shall be credited to
the Participant's account under the Plan. No interest shall accrue or be
credited with respect to a Participant's Plan Contributions. All Plan
Contributions received or held by the Company may be used by the Company for any
corporate purpose, and the Company shall not be obligated to segregate or
otherwise set apart such Plan Contributions from any other corporate funds.

         7.       GRANT OF OPTION.

                  (a) On a Participant's Entry Date, subject to the limitations
set forth in Sections 3(b) and 12(a), the Participant shall be granted an option
to purchase on each subsequent Exercise Date during the Offering Period in which
such Entry Date occurs (at the Exercise Price determined as provided in Section
8 below) up to a number of shares of Common Stock determined by dividing such
Participant's Plan Contributions accumulated prior to such Exercise Date and
retained in the Participant's account as of such Exercise Date by the Exercise
Price; PROVIDED, that the maximum number of shares an Employee may purchase
during any Exercise Period shall be One Thousand (1,000) shares. The Fair Market
Value of a share of Common Stock shall be determined as provided in Section
7(b).

                  (b) The Fair Market Value of a share of Common Stock on a
given date shall be determined by the Committee in its discretion; PROVIDED,
that if there is a public market for the Common Stock, the Fair Market Value per
share shall be either (i) the closing price of the Common Stock on such date
(or, in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported by the New York Stock Exchange
("NYSE"), (ii) if such price is not reported, the average of the bid and asked
prices for the Common Stock on such date (or, in the event that the Common Stock

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is not traded on such date, on the immediately preceding trading date), as
reported by NYSE, (iii) in the event the Common Stock is listed on a stock
exchange, the closing price of the Common Stock on such exchange on such date
(or, in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported in The Wall Street Journal, or
(iv) if no such quotations are available for a date within a reasonable time
prior to the valuation date, the value of the Common Stock as determined by the
Committee using any reasonable means.

         8.       EXERCISE PRICE. The Exercise Price per share of Common Stock
offered to each Participant in a given Offering Period shall be the lower of:
(i) the Applicable Percentage of the greater of (A) the Fair Market Value of a
share of Common Stock on the Offering Date or (B) the Fair Market Value of a
share of Common Stock on the Entry Date on which the Employee elects to become a
Participant within the Offering Period or (ii) the Applicable Percentage of the
Fair Market Value of a share of Common Stock on the Exercise Date. The
Applicable Percentage with respect to each Offering Period shall be 85%, unless
and until such Applicable Percentage is increased by the Committee, in its sole
discretion, provided that any such increase in the Applicable Percentage with
respect to a given Offering Period must be established not less than fifteen
(15) days prior to the Offering Date thereof.

         9.       EXERCISE OF OPTIONS. Unless the Participant withdraws from the
Plan as provided in Section 11, the Participant's option for the purchase of
shares will be exercised automatically on each Exercise Date, and the maximum
number of full shares subject to such option shall be purchased for the
Participant at the applicable Exercise Price with the accumulated Plan
Contributions then credited the Participant's account under the Plan. Fractional
shares may also be purchased at the discretion of the Committee. During a
Participant's lifetime, a Participant's option to purchase shares hereunder is
exercisable only by the Participant.

         10.      DELIVERY. As promptly as practicable after each Exercise Date,
the Company shall arrange for the delivery to each Participant (or the
Participant's beneficiary), as appropriate, or to a custodial account for the
benefit of each Participant (or the Participant's beneficiary) as appropriate,
of the shares purchased upon exercise of such Participant's option. Such shares
may be in certificated or uncertificated form, at the option of the Board or
Committee. At the option of the Committee or the Board, fractional shares may be
purchased or any amount remaining to the credit of a Participant's account after
the purchase of shares by such Participant on an Exercise Date, or which is
insufficient to purchase a full share of Common Stock, shall be carried over to
the next Exercise Period if the Participant continues to participate in the Plan
or, if the Participant does not continue to participate, shall be returned to
the Participant.

         11.      WITHDRAWAL; TERMINATION OF EMPLOYMENT.

                  (a) A Participant may withdraw from the Plan at any time by
giving written notice to the Company. All of the Plan Contributions credited to
the Participant's account and not yet invested in Common Stock will be paid to
the Participant as soon as administratively practicable after receipt of the
Participant's notice of withdrawal, the Participant's option to purchase shares
pursuant to the Plan automatically will be terminated, and no further payroll
deductions for the purchase of shares will be made for the Participant's
account. Payroll deductions will not resume on behalf of a Participant who has
withdrawn from the Plan (a "Former Participant") unless the Former Participant
enrolls in a subsequent Offering Period in accordance with Section 5(a). Any
full shares previously purchased by the Participant, which are being held in a
custodial account in uncertificated form on behalf of the Participant shall be
delivered to the Participant as soon as administratively practicable. No
fractional shares will be issued. In lieu of fractional shares, the Participant
shall receive a cash payment in an amount equal to such fraction multiplied by
the current market value of a share of Common Stock.

                  (b) Upon termination of the Participant's Continuous Status as
an Employee prior to any Exercise Date for any reason, including retirement or
death, the Plan Contributions credited to the Participant's account and not yet

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invested in Common Stock will be returned to the Participant or, in the case of
death, to the Participant's beneficiary as determined pursuant to Section 14,
and the Participant's option to purchase shares under the Plan will
automatically terminate.

                  (c) A Participant's withdrawal from an Offering Period will
not have any effect upon the Participant's eligibility to participate in
succeeding Offering Periods or in any similar plan which may hereafter be
adopted by the Company.

         12.      STOCK.

                  (a) The maximum number of shares of the Company's Common Stock
that shall be made available for sale under the Plan shall be Five Hundred
Thousand (500,000) shares, subject to adjustment as provided in Section 17.
Shares of Common Stock subject to the Plan may be newly issued shares or shares
reacquired in private transactions or open market purchases. If and to the
extent that any right to purchase reserved shares shall not be exercised by any
Participant for any reason or if such right to purchase shall terminate as
provided herein, shares that have not been so purchased hereunder shall again
become available for the purpose of the Plan unless the Plan shall have been
terminated, but all shares sold under the Plan, regardless of source, shall be
counted against the limitation set forth above.

                  (b) A Participant will have no interest or voting right in
shares covered by his option until such option has been exercised.

                  (c) Shares to be delivered to a Participant under the Plan
will be registered in the name of the Participant or in the name of the
Participant and his or her spouse, as requested by the Participant.

         13.      ADMINISTRATION.

                  (a) The Plan shall be administered by the Committee. The
Committee shall have the authority to interpret the Plan, to prescribe, amend
and rescind rules and regulations relating to the Plan, and to make all other
determinations necessary or advisable for the administration of the Plan. The
administration, interpretation, or application of the Plan by the Committee
shall be final, conclusive and binding upon all persons.

                  (b) Notwithstanding the provisions of Subsection (a) of this
Section 13, in the event that Rule 16b-3 promulgated under the Exchange Act or
any successor provision thereto ("Rule 16b-3") provides specific requirements
for the administrators of plans of this type, the Plan shall only be
administered by such body and in such a manner as shall comply with the
applicable requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no
discretion concerning decisions regarding the Plan shall be afforded to any
person that is not "disinterested" as that term is used in Rule 16b-3.

         14.      DESIGNATION OF BENEFICIARY.

                  (a) A Participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
Participant's account under the Plan in the event of the Participant's death
subsequent to an Exercise Date on which the Participant's option hereunder is
exercised but prior to delivery to the Participant of such shares and cash. In
addition, a Participant may file a written designation of a beneficiary who is
to receive any cash from the Participant's account under the Plan in the event
of the Participant's death prior to the exercise of the option.

                  (b) A Participant's beneficiary designation may be changed by
the Participant at any time by written notice. In the event of the death of a
Participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such Participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate

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of the Participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the Participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.

         15.      TRANSFERABILITY. Neither Plan Contributions credited to a
Participant's account nor any rights to exercise any option or receive shares of
Common Stock under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will or the laws of descent and
distribution, or as provided in Section 14). Any attempted assignment, transfer,
pledge or other distribution shall be without effect, except that the Company
may treat such act as an election to withdraw funds in accordance with Section
11.

         16.      PARTICIPANT ACCOUNTS. Individual accounts will be maintained
for each Participant in the Plan to account for the balance of his Plan
Contributions and options issued and shares purchased under the Plan. Statements
of account will be given to Participants semi-annually in due course following
each Exercise Date, which statements will set forth the amounts of payroll
deductions, the per share purchase price, the number of shares purchased and the
remaining cash balance, if any.

         17.      ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE
                  TRANSACTIONS.

                  (a) If the outstanding shares of Common Stock are increased or
decreased, or are changed into or are exchanged for a different number or kind
of shares, as a result of one or more reorganizations, restructurings,
recapitalizations, reclassifications, stock splits, reverse stock splits, stock
dividends or the like, upon authorization of the Committee, appropriate
adjustments shall be made in the number and/or kind of shares, and the per-share
option price thereof, which may be issued in the aggregate and to any
Participant upon exercise of options granted under the Plan.

                  (b) In the event of the proposed dissolution or liquidation of
the Company, the Offering Period will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Committee. In the event of a proposed sale of all or substantially all of the
Company's assets, or the merger of the Company with or into another corporation
(each, a "Sale Transaction"), each option under the Plan shall be assumed or an
equivalent option shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation, unless the Committee determines, in
the exercise of its sole discretion and in lieu of such assumption or
substitution, to shorten the Exercise Period then in progress by setting a new
Exercise Date (the "New Exercise Date"). If the Committee shortens the Exercise
Period then in progress in lieu of assumption or substitution in the event of a
Sale Transaction, the Committee shall notify each Participant in writing, at
least ten (10) days prior to the New Exercise Date, that the exercise date for
such Participant's option has been changed to the New Exercise Date and that
such Participant's option will be exercised automatically on the New Exercise
Date, unless prior to such date the Participant has withdrawn from the Plan as
provided in Section 11. For purposes of this Section 17(b), an option granted
under the Plan shall be deemed to have been assumed if, following the Sale
Transaction, the option confers the right to purchase, for each share of option
stock subject to the option immediately prior to the Sale Transaction, the
consideration (whether stock, cash or other securities or property) received in
the Sale Transaction by holders of Common Stock for each share of Common Stock
held on the effective date of the Sale Transaction (and if such holders were
offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares of Common Stock); PROVIDED, that
if the consideration received in the Sale Transaction was not solely common
stock of the successor corporation or its parent (as defined in Section 424(e)
of the Code), the Committee may, with the consent of the successor corporation
and the Participant, provide for the consideration to be received upon exercise
of the option to be solely common stock of the successor corporation or its
parent equal in fair market value to the per share consideration received by the
holders of Common Stock in the Sale Transaction.

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                  (c) In all cases, the Committee shall have sole discretion to
exercise any of the powers and authority provided under this Section 17, and the
Committee's actions hereunder shall be final and binding on all Participants. No
fractional shares of stock shall be issued under the Plan pursuant to any
adjustment authorized under the provisions of this Section 17.

         18.      AMENDMENT OF THE PLAN. The Board or the Committee may at any
time, or from time to time, amend the Plan in any respect; PROVIDED, that (i) no
such amendment may make any change in any option theretofore granted which
adversely affects the rights of any Participant and (ii) the Plan may not be
amended in any way that will cause rights issued under the Plan to fail to meet
the requirements for employee stock purchase plans as defined in Section 423 of
the Code or any successor thereto. To the extent necessary to comply with Rule
16b-3 under the Exchange Act, Section 423 of the Code, or any other applicable
law or regulation), the Company shall obtain shareholder approval of any such
amendment.

         19.      TERMINATION OF THE PLAN.

         The Plan and all rights of Employees hereunder shall terminate on the
earliest of:

                  (a) the Exercise Date that Participants become entitled to
purchase a number of shares greater than the number of reserved shares remaining
available for purchase under the Plan;

                  (b) such date as is determined by the Board in its discretion;
or

                  (c) the last Exercise Date immediately preceding the tenth
(10th) anniversary of the Plan's effective date.

         In the event that the Plan terminates under circumstances described in
Section 19(a) above, reserved shares remaining as of the termination date shall
be sold to Participants on a PRO RATA basis.

         20.      NOTICES. All notices or other communications by a Participant
to the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.

         21.      EFFECTIVE DATE. Subject to adoption of the Plan by the Board,
the Plan shall become effective on the First Offering Date. The Board shall
submit the Plan to the shareholders of the Company for approval within twelve
months after the date the Plan is adopted by the Board.

         22.      CONDITIONS UPON ISSUANCE OF SHARES.

                  (a) The Plan, the grant and exercise of options to purchase
shares under the Plan, and the Company's obligation to sell and deliver shares
upon the exercise of options to purchase shares shall be subject to compliance
with all applicable federal, state and foreign laws, rules and regulations and
the requirements of any stock exchange on which the shares may then be listed.

                  (b) The Company may make such provisions as it deems
appropriate for withholding by the Company pursuant to federal or state tax laws
of such amounts as the Company determines it is required to withhold in
connection with the purchase or sale by a Participant of any Common Stock
acquired pursuant to the Plan. The Company may require a Participant to satisfy
any relevant tax requirements before authorizing any issuance of Common Stock to
such Participant.

         23.      EXPENSES OF THE PLAN. All costs and expenses incurred in
administering the Plan shall be paid by the Company, except that any stamp
duties or transfer taxes applicable to participation in the Plan may be charged
to the account of such Participant by the Company.

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         24.      NO EMPLOYMENT RIGHTS. The Plan does not, directly or
indirectly, create any right for the benefit of any employee or class of
employees to purchase any shares under the Plan, or create in any employee or
class of employees any right with respect to continuation of employment by the
Company, and it shall not be deemed to interfere in any way with the Company's
right to terminate, or otherwise modify, an employee's employment at any time.

         25.      APPLICABLE LAW. The laws of the State of Florida shall govern
all matter relating to this Plan except to the extent (if any) superseded by the
laws of the United States.

         26.      ADDITIONAL RESTRICTIONS OF RULE 16B-3. The terms and
conditions of options granted hereunder to, and the purchase of shares by,
persons subject to Section 16 of the Exchange Act shall comply with the
applicable provisions of Rule 16b-3. This Plan shall be deemed to contain, and
such options shall contain, and the shares issued upon exercise thereof shall be
subject to, such additional conditions and restrictions as may be required by
Rule 16b-3 to qualify for the maximum exemption from -Section 16 of the Exchange
Act with respect to Plan transactions.

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                                                                    EXHIBIT 10.1

                              AMENDED AND RESTATED
                           ARENA PHARMACEUTICALS, INC.
                          1998 EQUITY COMPENSATION PLAN

        The purpose of the Amended and Restated Arena Pharmaceuticals, Inc. 1998
Equity Compensation Plan (the "Plan") is to provide (i) designated employees of
Arena Pharmaceuticals, Inc. (the "Company") and its subsidiaries, (ii) certain
consultants and advisors who perform services for the Company or its
subsidiaries and (iii) non-employee members of the Board of Directors of the
Company (the "Board") with the opportunity to receive grants of incentive stock
options, nonqualified stock options and restricted stock. The Company believes
that the Plan will encourage the participants to contribute materially to the
growth of the Company, thereby benefiting the Company's shareholders, and will
align the economic interests of the participants with those of the shareholders.

I.      Administration

        A.      Board. The Plan shall be administered and interpreted by the
                Board or by a committee (the "Committee") appointed by the
                Board. After an initial public offering of the Company's stock
                as described in Section XIXB of the Plan (a "Public Offering"),
                the Plan shall be administered by a Committee, which may consist
                of "outside directors" as defined under Section 162(m) of the
                Internal Revenue Code of 1986, as amended (the "Code"), and
                related Treasury regulations and "non-employee directors" as
                defined under Rule 16b-3 under the Securities Exchange Act of
                1934, as amended (the "Exchange Act"). However, the Board may
                ratify or approve any grants as it deems appropriate. If a
                Committee is appointed, references in the Plan to the "Board,"
                as they relate to Plan administration, shall be deemed to refer
                to the Committee.

        B.      Board Authority. The Board shall have the sole authority to (i)
                determine the individuals to whom grants shall be made under the
                Plan, (ii) determine the type, size and terms of the grants to
                be made to each such individual, (iii) determine the time when
                the grants will be made and the duration of any applicable
                exercise or restriction period, including the criteria for
                exercisability and the acceleration of exercisability and (iv)
                deal with any other matters arising under the Plan.

                                      A-1
<PAGE>   2

        C.      Board Determinations. The Board shall have full power and
                authority to administer and interpret the Plan, to make factual
                determinations and to adopt or amend such rules, regulations,
                agreements and instruments for implementing the Plan and for the
                conduct of its business as it deems necessary or advisable, in
                its sole discretion. The Board's interpretations of the Plan and
                all determinations made by the Board pursuant to the powers
                vested in it hereunder shall be conclusive and binding on all
                persons having any interest in the Plan or in any awards granted
                hereunder. All powers of the Board shall be executed in its sole
                discretion, in the best interest of the Company, and in keeping
                with the objectives of the Plan and need not be uniform as to
                similarly situated individuals.

II.     Grants

        Awards under the Plan may consist of grants of incentive stock options
as described in Section V of the Plan ("Incentive Stock Options"), nonqualified
stock options as described in Section V of the Plan ("Nonqualified Stock
Options") (Incentive Stock Options and Nonqualified Stock Options are
collectively referred to as "Options") and restricted stock as described in
Section VI of the Plan ("Restricted Stock") (hereinafter "Options" and
"Restricted Stock" are collectively referred to as "Grants"). All Grants shall
be subject to the terms and conditions set forth herein and to such other terms
and conditions consistent with this Plan as the Board deems appropriate and as
are specified in writing by the Board to the individual in a grant instrument or
an amendment to the grant instrument (the "Grant Instrument"). The Board shall
approve the form and provisions of each Grant Instrument. Grants under a
particular Section of the Plan need not be uniform as among the grantees.

III.    Shares Subject to the Plan

        A.      Shares Authorized. Subject to the adjustment specified below,
                the aggregate number of shares of common stock of the Company
                ("Company Stock") that may be issued or transferred under the
                Plan is the sum of (i) 472,080 shares, plus (ii) as of each
                December 31 after December 31, 1997, an additional positive
                number equal to 15% of the shares of Company Stock (as defined
                below) issued by the Company during the preceding one-year
                period; provided, however, in no event may the number of shares
                for which Incentive Stock Options may be granted during the term
                of the Plan exceed 1,500,000 shares. As used in item (ii) above,
                "Company Stock" shall mean any (i) common stock and (ii) common
                stock issuable upon conversion or exercise of any Preferred
                Stock, warranty or other security into common stock.

                                      A-2
<PAGE>   3

        B.      Adjustments. If there is any change in the number or kind of
                shares of Company Stock outstanding (i) by reason of a stock
                dividend, spinoff, recapitalization, stock split, or combination
                or exchange of shares, (ii) by reason of a merger,
                reorganization or consolidation in which the Company is the
                surviving corporation, (iii) by reason of a reclassification or
                change in par value, or (iv) by reason of any other
                extraordinary or unusual event affecting the outstanding Company
                Stock as a class without the Company's receipt of consideration,
                or if the value of outstanding shares of Company Stock is
                substantially reduced as a result of a spinoff or the Company's
                payment of an extraordinary dividend or distribution, the
                maximum number of shares of Company Stock available for Grants,
                the maximum number of shares of Company Stock that any
                individual participating in the Plan may be granted in any year,
                the number of shares covered by outstanding Grants, the kind of
                shares issued under the Plan, and the price per share or the
                applicable market value of such Grants shall be appropriately
                adjusted by the Board to reflect any increase or decrease in the
                number of, or change in the kind or value of, issued shares of
                Company Stock to preclude, to the extent practicable, the
                enlargement or dilution of rights and benefits under such
                Grants; provided, however, that any fractional shares resulting
                from such adjustment shall be eliminated. Any adjustments
                determined by the Board shall be final, binding and conclusive.

IV.     Eligibility for Participation

        A.      Eligible Persons. All employees of the Company and its
                subsidiaries ("Employees"), including Employees who are officers
                or members of the Board, and members of the Board who are not
                Employees ("Non-Employee Directors") shall be eligible to
                participate in the Plan. Consultants and advisors who perform
                services to the Company or any of its subsidiaries ("Key
                Advisors") shall be eligible to participate in the Plan if the
                Key Advisors render bona fide services and such services are not
                in connection with the offer or sale of securities in a
                capital-raising transaction.

        B.      Selection of Grantees. The Board shall select the Employees,
                Non-Employee Directors and Key Advisors to receive Grants and
                shall determine the number of shares of Company Stock subject to
                a particular Grant in such manner as the Board determines.
                Employees, Key Advisors and Non-Employee Directors who receive
                Grants under this Plan shall hereinafter be referred to as
                "Grantees".

V.      Granting of Options

        A.      Number of Shares. The Board shall determine the number of shares
                of Company Stock that will be subject to each Grant of Options
                to Employees, Non-Employee

                                      A-3
<PAGE>   4

                Directors and Key Advisors.

        B.      Type of Option and Price.

                (i)     The Board may grant Incentive Stock Options that are
                intended to qualify as "incentive stock options" within the
                meaning of Section 422 of the Code or Nonqualified Stock Options
                that are not intended so to qualify or any combination of
                Incentive Stock Options and Nonqualified Stock Options, all in
                accordance with the terms and conditions set forth herein.
                Incentive Stock Options may be granted only to Employees.
                Nonqualified Stock Options may be granted to Employees,
                Non-Employee Directors and Key Advisors.

                (ii)    The purchase price (the "Exercise Price") of Company
                Stock subject to an Option shall be determined by the Board and
                may be equal to, greater than, or less than the Fair Market
                Value (as defined below) of a share of Company Stock on the date
                the Option is granted; provided, however, that (a) the Exercise
                Price of a Nonqualified Stock Option shall not be less than 85%
                of the Fair Market Value of a share of Company Stock on the date
                of grant (unless clause (d) below applies), (b) the Exercise
                Price of an Incentive Stock Option shall be equal to, or greater
                than, 100% of the Fair Market Value of a share of Company Stock
                on the date the Incentive Stock Option is granted, (c) an
                Incentive Stock Option not be granted to an Employee who, at the
                time of grant, owns stock possessing more than 10 percent of the
                total combined voting power of all classes of stock of the
                Company or any parent or subsidiary of the Company, unless the
                Exercise Price per share is not less than 110% of the Fair
                Market Value of Company Stock on the date of grant, and (d) to
                the extent required by applicable law, a Nonqualified Stock
                Option may not be granted to a person who, at the time of grant,
                owns stock possessing more than 10 percent of the total combined
                voting power of all classes of stock of the Company or any
                parent or subsidiary of the Company, unless the Exercise Price
                per share is not less than 110% of the Fair Market Value of
                Company Stock on the date of grant.

                (iii)   If the Company Stock is publicly traded, then the Fair
                Market Value per share shall be determined as follows: (a) if
                the principal trading market for the Company Stock is a national
                securities exchange or the NASDAQ National Market, the last
                reported sale price thereof on the relevant date or (if there
                were no trades on that date) the latest preceding date upon
                which a sale was reported, or (b) if the Company Stock is not
                principally traded on such exchange or market, the mean between
                the last reported "bid" and "asked" prices of Company Stock on
                the relevant date, as reported on NASDAQ or, if not so reported,
                as reported by the National Daily Quotation Bureau, Inc. or as
                reported in a customary financial reporting service, as

                                      A-4
<PAGE>   5

                applicable and as the Board determines. If the Company Stock is
                not publicly traded or, if publicly traded, is not subject to
                reported transactions or "bid" or "asked" quotations as set
                forth above, the Fair Market Value per share shall be as
                determined by the Board. If required by applicable law, the
                Company will provide Grantees with financial statements of the
                Company at least annually.

        C.      Option Term. The Board shall determine the term of each Option.
                The term of any Option shall not exceed ten years from the date
                of grant. However, an Incentive Stock Option that is granted to
                an Employee who, at the time of grant, owns stock possessing
                more than 10 percent of the total combined voting power of all
                classes of stock of the Company, or any parent or subsidiary of
                the Company, may not have a term that exceeds five years from
                the date of grant.

        D.      Exercisability of Options. Options shall become exercisable in
                accordance with such terms and conditions, consistent with the
                Plan, as may be determined by the Board and specified in the
                Grant Instrument. Options shall vest over a period of not more
                than five years and at a rate of not less than 20% per year. The
                Board may accelerate the exercisability of any or all
                outstanding Options at any time for any reason.

        E.      Termination of Employment, Disability or Death.

                (i)     Except as provided below, an Option may only be
                exercised while the Grantee is employed by, or providing service
                to, the Company as an Employee, Key Advisor or member of the
                Board. In the event that a Grantee ceases to be employed by, or
                provide service to, the Company for any reason other than
                "disability" or death, any Option which is otherwise exercisable
                by the Grantee shall terminate unless exercised within 90 days
                after the date on which the Grantee ceases to be employed by, or
                provide service to, the Company (or within such other period of
                time as may be specified by the Board), but in any event no
                later than the date of expiration of the Option term. Any of the
                Grantee's Options that are not otherwise exercisable as of the
                date on which the Grantee ceases to be employed by, or provide
                service to, the Company shall terminate as of such date.

                (ii)    In the event the Grantee ceases to be employed by, or
                provide service to, the Company because the Grantee is
                "disabled", any Option which is otherwise exercisable by the
                Grantee shall terminate unless exercised within one year after
                the date on which the Grantee ceases to be employed by, or
                provide service to, the Company (or within such other period of
                time as may be specified by the Board), but in any event no
                later than the date of expiration of the Option term. Any of the
                Grantee's Options which are not otherwise exercisable as of the
                date on which the

                                      A-5
<PAGE>   6

                Grantee ceases to be employed by, or provide service to, the
                Company shall terminate as of such date.

                (iii)   If the Grantee dies while employed by, or providing
                service to, the Company or within 90 days after the date on
                which the Grantee ceases to be employed or provide service on
                account of a termination specified in Section V.E.(i) above (or
                within such other period of time as may be specified by the
                Board), any Option that is otherwise exercisable by the Grantee
                shall terminate unless exercised within one year after the date
                on which the Grantee ceases to be employed by, or provide
                service to, the Company (or within such other period of time as
                may be specified by the Board), but in any event no later than
                the date of expiration of the Option term. Any of the Grantee's
                Options that are not otherwise exercisable as of the date on
                which the Grantee ceases to be employed by, or provide service
                to, the Company shall terminate as of such date.

                (iv)    For purposes of this Section V.E. and Section VI.E. of
                the Plan:

                        (a)     The term "Company" shall mean the Company and
                        its parent and subsidiary corporations.

                        (b)     "Employed by, or provide service to, the
                        Company" shall mean employment or service as an
                        Employee, Key Advisor or member of the Board (so that,
                        for purposes of exercising Options and satisfying
                        conditions with respect to Restricted Stock, a Grantee
                        shall not be considered to have terminated employment or
                        service until the Grantee ceases to be an Employee, Key
                        Advisor and member of the Board), unless the Board
                        determines otherwise.

                        (c)     "Disability" shall mean a Grantee's becoming
                        disabled within the meaning of Section 22(e)(3) of the
                        Code.

        F.      Exercise of Options. A Grantee may exercise an Option that has
                become exercisable, in whole or in part, by delivering a notice
                of exercise to the Company with payment of the Exercise Price.
                The Grantee shall pay the Exercise Price for an Option as
                specified by the Board (i) in cash, (ii) with the approval of
                the Board, by delivering shares of Company Stock owned by the
                Grantee (including Company Stock acquired in connection with the
                exercise of an Option, subject to such restrictions as the Board
                deems appropriate) and having a Fair Market Value on the date of
                exercise equal to the Exercise Price or (ii) by such other
                method as the Board may approve, including after a Public
                Offering payment through a broker in accordance with procedures

                                      A-6
<PAGE>   7

                permitted by Regulation T of the Federal Reserve Board. Shares
                of Company Stock used to exercise an Option shall have been held
                by the Grantee for the requisite period of time to avoid adverse
                accounting consequences to the Company with respect to the
                Option. The Grantee shall pay the Exercise Price and the amount
                of any withholding tax due (pursuant to Section VII of the Plan)
                at the time of exercise.

        G.      Limits on Incentive Stock Options. Each Incentive Stock Option
                shall provide that, if the aggregate Fair Market Value of the
                stock on the date of the grant with respect to which Incentive
                Stock Options are exercisable for the first time by a Grantee
                during any calendar year, under the Plan or any other stock
                option plan of the Company or a parent or subsidiary, exceeds
                $100,000, then the option, as to the excess, shall be treated as
                a Nonqualified Stock Option. An Incentive Stock Option shall not
                be granted to any person who is not an Employee of the Company
                or a parent or subsidiary (within the meaning of Section 424(f)
                of the Code).

                                      A-7
<PAGE>   8

        VI.     Restricted Stock Grants

                The Board may issue or transfer shares of Company Stock to an
                Employee, Non-Employee Director or Key Advisor under a Grant of
                Restricted Stock, upon such terms as the Board deems
                appropriate. The following provisions are applicable to
                Restricted Stock:

        A.      General Requirements. Shares of Company Stock issued or
                transferred pursuant to Restricted Stock Grants may be issued or
                transferred for such consideration as may be determined by the
                Board. The Board may establish conditions under which
                restrictions on shares of Restricted Stock shall lapse over a
                period of time or according to such other criteria as the Board
                deems appropriate. The period of time during which the
                Restricted Stock will remain subject to restrictions will be
                designated in the Grant Instrument as the "Restriction Period

        B.      Number of Shares. The Board shall determine the number of shares
                of Company Stock to be issued or transferred pursuant to a
                Restricted Stock Grant and the restrictions applicable to such
                shares.

        C.      Requirement of Employment or Service. If the Grantee ceases to
                be employed by, or provide service to, the Company (as defined
                in Section V.E. of the Plan) during a period designated in the
                Grant Instrument as the Restriction Period, or if other
                specified conditions are not met, the Restricted Stock Grant
                shall terminate as to all shares covered by the Grant as to
                which the restrictions have not lapsed, and those shares of
                Company Stock must be immediately returned to the Company. The
                Board may, however, provide for complete or partial exceptions
                to this requirement as it deems appropriate.

        D.      Restrictions on Transfer and Legend on Stock Certificate. During
                the Restriction Period, a Grantee may not sell, assign,
                transfer, pledge or otherwise dispose of the shares of
                Restricted Stock except to a Successor Grantee under Section
                VIII.A. of the Plan. Each certificate for a share of Restricted
                Stock shall contain a legend giving appropriate notice of the
                restrictions in the Grant. The Grantee shall be entitled to have
                the legend removed from the stock certificate covering the
                shares subject to restrictions when all restrictions on such
                shares have lapsed. The Board may determine that the Company
                will not issue certificates for shares of Restricted Stock until
                all restrictions on such shares have lapsed, or that the Company
                will retain possession of certificates for shares of Restricted
                Stock until all restrictions on such shares have lapsed.

        E.      Right to Vote and to Receive Dividends. Unless the Board
                determines otherwise,

                                      A-8
<PAGE>   9

                during the Restriction Period, the Grantee shall have the right
                to vote shares of Restricted Stock and to receive any dividends
                or other distributions paid on such shares, subject to any
                restrictions deemed appropriate by the Board.

        F.      Lapse of Restrictions. All restrictions imposed on Restricted
                Stock shall lapse upon the expiration of the applicable
                Restriction Period and the satisfaction of all conditions
                imposed by the Board. The Board may determine, as to any or all
                Restricted Stock Grants, that the restrictions shall lapse
                without regard to any Restriction Period.

VII.    Withholding of Taxes

        A.      Required Withholding. All Grants under the Plan shall be subject
                to applicable federal (including FICA), state and local tax
                withholding requirements. The Company shall have the right to
                deduct from all Grants paid in cash, or from other wages paid to
                the Grantee, any federal, state or local taxes required by law
                to be withheld with respect to such Grants. In the case of
                Options and other Grants paid in Company Stock, the Company may
                require the Grantee or other person receiving such shares to pay
                to the Company the amount of any such taxes that the Company is
                required to withhold with respect to such Grants, or the Company
                may deduct from other wages paid by the Company the amount of
                any withholding taxes due with respect to such Grants.

        B.      Election to Withhold Shares. If the Board so permits, a Grantee
                may elect to satisfy the Company's income tax withholding
                obligation with respect to an Option or Restricted Stock paid in
                Company Stock by having shares withheld up to an amount that
                does not exceed the Grantee's minimum applicable withholding tax
                rate for federal (including FICA), state and local tax
                liabilities. The election must be in a form and manner
                prescribed by the Board and shall be subject to the prior
                approval of the Board.

VIII.   Transferability of Grants

        A.      Nontransferability of Grants. Except as provided below, only the
                Grantee may exercise rights under a Grant during the Grantee's
                lifetime, and a Grantee may not transfer those rights except by
                will or by the laws of descent and distribution. When a Grantee
                dies, the personal representative or other person entitled to
                succeed to the rights of the Grantee ("Successor Grantee") may
                exercise such rights. A Successor Grantee must furnish proof
                satisfactory to the Company of his or her right to receive the
                Grant under the Grantee's will or under the applicable laws of
                descent and

                                      A-9
<PAGE>   10

                distribution.

        B.      Transfer of Nonqualified Stock Options. Notwithstanding the
                foregoing, if permitted by applicable law, the Board may
                provide, in a Grant Instrument, that a Grantee may transfer
                Nonqualified Stock Options to family members, one or more trusts
                for the benefit of family members, or one or more partnerships
                of which family members are the only partners, according to such
                terms as the Board may determine; provided that the Grantee
                receives no consideration for the transfer of an Option and the
                transferred Option shall continue to be subject to the same
                terms and conditions as were applicable to the Option
                immediately before the transfer.

IX.     Right of First Refusal

        A.      Offer. Prior to a Public Offering, if at any time an individual
                desires to sell, encumber, or otherwise dispose of shares of
                Company Stock that were distributed to him under this Plan and
                that are transferable, the individual shall first offer the
                shares to the Company by giving the Company written notice
                disclosing: (a) the name of the proposed transferee of the
                Company Stock; (b) the certificate number and number of shares
                of Company Stock proposed to be transferred or encumbered; (c)
                the proposed price; (d) all other terms of the proposed
                transfer; and (e) a written copy of the proposed offer. Within
                60 days after receipt of such notice, the Company shall have the
                option to purchase all or part of such Company Stock at the then
                current Fair Market Value (as defined in Section V.B. of the
                Plan and may pay such price in installments over a period not to
                exceed four years, at the discretion of the Board.

        B.      Sale. In the event the Company (or a shareholder, as described
                below) does not exercise the option to purchase Company Stock,
                as provided above, the individual shall have the right to sell,
                encumber, or otherwise dispose of his shares of Company Stock on
                the terms of the transfer set forth in the written notice to the
                Company, provided such transfer is effected within 15 days after
                the expiration of the option period. If the transfer is not
                effected within such period, the Company must again be given an
                option to purchase, as provided above.

        C.      Pass Through of Rights. The Board, in its sole discretion, may
                waive the Company's right of first refusal pursuant to this
                Section IX and the Company's repurchase right pursuant to
                Section X of the Plan. If the Company's right of first refusal
                or repurchase right is so waived, the Board may, in its sole
                discretion, pass through such right to the remaining
                shareholders of the Company in the same proportion that each
                shareholder's stock ownership bears to the stock ownership of
                all the shareholders of

                                      A-10
<PAGE>   11

                the Company, as determined by the Board. To the extent that a
                shareholder has been given such right and does not purchase his
                or her allotment, the other shareholders shall have the right to
                purchase such allotment on the same basis.

        D.      Public Offering. On and after a Public Offering, the Company
                shall have no further right to purchase shares of Company Stock
                under this Section IX and Section X of the Plan, and their
                limitations shall be null and void.

        E.      Shareholder's Agreement. Notwithstanding the foregoing, the
                Board may require that a Grantee execute a shareholder's
                agreement, with such terms as the Board deems appropriate, with
                respect to any Company Stock distributed pursuant to this Plan,
                in which case the provisions of this Section IX and Section X of
                the Plan shall not apply to such Company Stock.

X.      Purchase by the Company

        Prior to a Public Offering, if a Grantee ceases to be employed by, or
provide service to, the Company, the Company shall have the right to purchase
all or part of any Company Stock distributed to him or her under this Plan at
its then current Fair Market Value (as defined in Section V.B. of the Plan) or
at such other price as may be established in the Grant Instrument; provided,
however, that such repurchase shall be made in accordance with applicable
accounting rules to avoid adverse accounting treatment.

XI.     Change of Control of the Company

        As used herein, a "Change of Control" shall be deemed to have occurred
if:

        A.      Any "person" (as such term is used in Sections 13(d) and 14(d)
                of the Exchange Act), other than the those persons who are
                shareholders of the Company on the date the Plan is adopted,
                becomes a "beneficial owner" (as defined in Rule 13d-3 under the
                Exchange Act), directly or indirectly, of securities of the
                Company representing more than 50% of the voting power of the
                then outstanding securities of the Company, provided that a
                Change of Control shall not be deemed to occur as a result of a
                change of ownership resulting from the death of a shareholder;
                or

        B.      The shareholders of the Company approve (or, if shareholder
                approval is not required, the Board approves) an agreement
                providing for (i) the merger or consolidation of the Company
                with another corporation where the shareholders of the Company,
                immediately prior to the merger or consolidation, will not
                beneficially own, immediately after the merger or consolidation,
                shares entitling such

                                      A-11
<PAGE>   12

                shareholders to more than 50% of all votes to which all
                shareholders of the surviving corporation would be entitled in
                the election of directors, (ii) the sale or other disposition of
                all or substantially all of the assets of the Company, or (iii)
                a liquidation or dissolution of the Company;

XII.    Consequences of a Change of Control

        A.      Notice and Acceleration. Upon a Change of Control, unless the
                Board determines otherwise, (i) the Company shall provide each
                Grantee with outstanding Grants written notice of such Change of
                Control, (ii) all outstanding Options shall automatically
                accelerate and become fully exercisable, and (iii) the
                restrictions and conditions on all outstanding Restricted Stock
                shall immediately lapse.

        B.      Assumption of Grants. Upon a Change of Control where the Company
                is not the surviving corporation (or survives only as a
                subsidiary of another corporation), unless the Board determines
                otherwise, all outstanding Options that are not exercised shall
                be assumed by, or replaced with comparable options or rights by,
                the surviving corporation.

        C.      Other Alternatives. Notwithstanding the foregoing, subject to
                subsection D below, in the event of a Change of Control, the
                Board may take one or both of the following actions: the Board
                may (i) require that Grantees surrender their outstanding
                Options in exchange for a payment by the Company, in cash or
                Company Stock as determined by the Board, in an amount equal to
                the amount by which the then Fair Market Value of the shares of
                Company Stock subject to the Grantee's unexercised Options
                exceeds the Exercise Price of the Options, or (ii) after giving
                Grantees an opportunity to exercise their outstanding Options,
                terminate any or all unexercised Options at such time as the
                Board deems appropriate. Such surrender or termination shall
                take place as of the date of the Change of Control or such other
                date as the Board may specify.

        D.      Limitations. Notwithstanding anything in the Plan to the
                contrary, in the event of a Change of Control, the Board shall
                not have the right to take any actions described in the Plan
                (including without limitation actions described in subsection C
                above) that would make the Change of Control ineligible for
                pooling of interests accounting treatment or that would make the
                Change of Control ineligible for desired tax treatment if, in
                the absence of such right, the Change of Control would qualify
                for such treatment and the Company intends to use such treatment
                with respect to the Change of Control.

                                      A-12
<PAGE>   13

XIII.   Requirements for Issuance or Transfer of Shares

        A.      Shareholder's Agreement. The Board may require that a Grantee
                execute a shareholder's agreement, with such terms as the Board
                deems appropriate, with respect to any Company Stock issued or
                distributed pursuant to this Plan.

        B.      Limitations on Issuance or Transfer of Shares. No Company Stock
                shall be issued or transferred in connection with any Grant
                hereunder unless and until all legal requirements applicable to
                the issuance or transfer of such Company Stock have been
                complied with to the satisfaction of the Board. The Board shall
                have the right to condition any Grant made to any Grantee
                hereunder on such Grantee's undertaking in writing to comply
                with such restrictions on his or her subsequent disposition of
                such shares of Company Stock as the Board shall deem necessary
                or advisable as a result of any applicable law, regulation or
                official interpretation thereof, and certificates representing
                such shares may be legended to reflect any such restrictions.
                Certificates representing shares of Company Stock issued or
                transferred under the Plan will be subject to such stop-transfer
                orders and other restrictions as may be required by applicable
                laws, regulations and interpretations, including any requirement
                that a legend be placed thereon.

XIV.    Amendment and Termination of the Plan

        A.      Amendment. The Board may amend or terminate the Plan at any
                time; provided, however, that the Board shall not amend the Plan
                without shareholder approval if such approval is required by
                Section 422 of the Code or, after a Public Offering, Section
                162(m) of the Code or any Securities law for Exchange Listings
                requirements.

        B.      Termination of Plan. The Plan shall terminate on the day
                immediately preceding the tenth anniversary of its effective
                date, unless the Plan is terminated earlier by the Board or is
                extended by the Board with the approval of the shareholders.

        C.      Termination and Amendment of Outstanding Grants. A termination
                or amendment of the Plan that occurs after a Grant is made shall
                not materially impair the rights of a Grantee unless the Grantee
                consents or unless the Board acts under Section XX.B. of the
                Plan The termination of the Plan shall not impair the power and
                authority of the Board with respect to an outstanding Grant.
                Whether or not the Plan has terminated, an outstanding Grant may
                be terminated or amended under Section XX.B. of the Plan or may
                be amended by agreement of the Company and the Grantee

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<PAGE>   14

                consistent with the Plan.

        D.      Governing Document. The Plan shall be the controlling document.
                No other statements, representations, explanatory materials or
                examples, oral or written, may amend the Plan in any manner. The
                Plan shall be binding upon and enforceable against the Company
                and its successors and assigns.

XV.     Funding of the Plan

        This Plan shall be unfunded. The Company shall not be required to
        establish any special or separate fund or to make any other segregation
        of assets to assure the payment of any Grants under this Plan. In no
        event shall interest be paid or accrued on any Grant, including unpaid
        installments of Grants.

XVI.    Rights of Participants

        Nothing in this Plan shall entitle any Employee, Key Advisor,
        Non-Employee Director or other person to any claim or right to be
        granted a Grant under this Plan. Neither this Plan nor any action taken
        hereunder shall be construed as giving any individual any rights to be
        retained by or in the employ of the Company or any other employment
        rights.

XVII.   No Fractional Shares

        No fractional shares of Company Stock shall be issued or delivered
        pursuant to the Plan or any Grant. The Board shall determine whether
        cash, other awards or other property shall be issued or paid in lieu of
        such fractional shares or whether such fractional shares or any rights
        thereto shall be forfeited or otherwise eliminated.

XVIII.  Headings

        Section headings are for reference only. In the event of a conflict
        between a title and the content of a Section, the content of the Section
        shall control.

XIX.    Effective Date of the Plan.

        C.      Effective Date. Subject to approval by the Company's
                shareholders, the Plan shall be effective on June 10, 1998.

        D.      Public Offering. The provisions of the Plan that refer to a
                Public Offering, or that refer to, or are applicable to persons
                subject to, Section 16 of the Exchange Act or

                                      A-14
<PAGE>   15

                Section 162(m) of the Code, shall be effective, if at all, upon
                the initial registration of the Company Stock under Section
                12(g) of the Exchange Act, and shall remain effective thereafter
                for so long as such stock is so registered.

XX.     Miscellaneous

        A.      Grants in Connection with Corporate Transactions and Otherwise.
                Nothing contained in this Plan shall be construed to (I) limit
                the right of the Board to make Grants under this Plan in
                connection with the acquisition, by purchase, lease, merger,
                consolidation or otherwise, of the business or assets of any
                corporation, firm or association, including Grants to employees
                thereof who become Employees of the Company, or for other proper
                corporate purposes, or (ii) limit the right of the Company to
                grant stock options or make other awards outside of this Plan.
                Without limiting the foregoing, the Board may make a Grant to an
                employee of another corporation who becomes an Employee by
                reason of a corporate merger, consolidation, acquisition of
                stock or property, reorganization or liquidation involving the
                Company or any of its subsidiaries in substitution for a stock
                option or restricted stock grant made by such corporation. The
                terms and conditions of the substitute grants may vary from the
                terms and conditions required by the Plan and from those of the
                substituted stock incentives. The Board shall prescribe the
                provisions of the substitute grants.

        B.      Compliance with Law. The Plan, the exercise of Options and the
                obligations of the Company to issue or transfer shares of
                Company Stock under Grants shall be subject to all applicable
                laws and to approvals by any governmental or regulatory agency
                as may be required. With respect to persons subject to Section
                16 of the Exchange Act, after a Public Offering, it is the
                intent of the Company that the Plan and all transactions under
                the Plan comply with all applicable provisions of Rule 16b-3 or
                its successors under the Exchange Act. In addition, it is the
                intent of the Company that the Plan and applicable Grants under
                the Plan comply with the applicable provisions of Section 162(m)
                (after a Public Offering) and Section 422 of the Code. To the
                extent that any legal requirement of Section 16 of the Exchange
                Act or Section 162(m) or 422 of the Code as set forth in the
                Plan ceases to be required under Section 16 of the Exchange Act
                or Section 162(m) or 422 of the Code, that Plan provision shall
                cease to apply. The Board may revoke any Grant if it is contrary
                to law or modify a Grant to bring it into compliance with any
                valid and mandatory government regulation. The Board may also
                adopt rules regarding the withholding of taxes on payments to
                Grantees. The Board may, in its sole discretion, agree to limit
                its authority under this Section of the Plan.

        C.      Governing Law. The validity, construction, interpretation and
                effect of the Plan and

                                      A-15
<PAGE>   16

                Grant Instruments issued under the Plan shall exclusively be
                governed by and determined in accordance with the law of the
                State of California.

        D.      Code, Exchange Act Sections. Copies of any section(s) of the
                Code and/or Exchange Act referenced in the Grant Instrument or
                Plan are available from the Company General Counsel.

                                [END OF DOCUMENT]

                                      A-16

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