ONEWORLD SYSTEMS INC, DEF 14A, 1999-07-22

ONEWORLD SYSTEMS INC
DEF 14A, 1999-07-22
TELEPHONE & TELEGRAPH APPARATUS

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SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
ONEWORLD SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transaction applies:

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

(4) Proposed maximum aggregate value of transaction:

(5) Total fee paid:

[ ] Fee paid previously with preliminary materials:

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:
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ONEWORLD SYSTEMS, INC.
1144 EAST ARQUES AVENUE
SUNNYVALE, CALIFORNIA 94086

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 31, 1999

To the Stockholders of OneWorld Systems, Inc.:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
OneWorld Systems, Inc., a Delaware corporation (the "Company"), will be held on
Tuesday, August 31, 1999 at 9:00 a.m. local time at the Company's headquarters
located at 1144 East Arques Avenue, Sunnyvale, California, for the following
purposes:

1. To elect five (5) directors to hold office until the 2000 Annual
Meeting of Stockholders.

2. To approve the adoption of the 1999 Stock Option Plan and the
reservation of 1,165,000 shares of Common Stock thereunder.

3. To approve an amendment to the Company's 1994 Non-Employee
Directors' Stock Option Plan providing for the acceleration of the
vesting provisions of all outstanding stock options previously
granted to the outside directors of the Company pursuant to such
plan.

4. To ratify the selection of KPMG LLP as independent auditors of the
Company for its fiscal year ending March 31, 2000.

5. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.

The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.

The Board of Directors has fixed the close of business on July 7, 1999,
as the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.

By Order of the Board of Directors

/s/ Marc E. Linden

Marc E. Linden
Secretary

Sunnyvale, California
July 21, 1999

ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU STILL MAY VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.

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ONEWORLD SYSTEMS, INC.
1144 EAST ARQUES AVENUE
SUNNYVALE, CALIFORNIA 94086

PROXY STATEMENT

INFORMATION CONCERNING SOLICITATION AND VOTING

GENERAL

The enclosed proxy is solicited on behalf of the Board of Directors
of OneWorld Systems, Inc., a Delaware corporation (the "Company"), for use at
the Annual Meeting of Stockholders to be held on August 31, 1999, at 9:00 a.m.
local time (the "Annual Meeting"), or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held at the Company's principal
executive offices located at 1144 East Arques Avenue, Sunnyvale, California. The
Company intends to mail this proxy statement and the accompanying proxy card on
or about July 14, 1999, to all stockholders entitled to vote at the Annual
Meeting.

SOLICITATION

The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly, printing and mailing of this proxy statement,
the proxy card and any additional information furnished to stockholders. Copies
of solicitation materials will be furnished to banks, brokerage houses,
fiduciaries and custodians holding in their names shares of Common Stock
beneficially owned by others to forward to such beneficial owners. The Company
may reimburse persons representing beneficial owners of Common Stock for their
costs of forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or other
regular employees for such services.

VOTING RIGHTS AND OUTSTANDING SHARES

Only holders of record of Common Stock and Series A Preferred Stock
at the close of business on July 7, 1999 will be entitled to notice of and to
vote at the Annual Meeting. At the close of business on July 7, 1999, the
Company had outstanding and entitled to vote 4,464,989 shares of Common Stock,
each of which is entitled to one vote on each matter to be voted upon at the
Annual Meeting and 1,162,500 shares of Series A Convertible Preferred Stock,
each of which is entitled to one vote on each matter to be voted upon at the
Annual Meeting.

All votes will be tabulated by the inspector of election appointed
for the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.

REVOCABILITY OF PROXIES

Any person giving a proxy pursuant to this solicitation has the
power to revoke it at any time before it is voted. The proxy may be revoked by
filing with the Secretary of the Company at the Company's principal executive
office, 1144 East Arques Avenue, Sunnyvale, California 94086, a written notice
of revocation or a duly executed proxy bearing a later date, or it may be
revoked by attending the meeting and voting in person. Attendance at the meeting
will not, by itself, revoke a proxy.

STOCKHOLDER PROPOSALS

Proposals of stockholders that are intended to be presented at the
Company's 2000 Annual Meeting of Stockholders must be received by the Company
not later than February 20, 2000 in order to be included in the proxy statement
and proxy relating to that Annual Meeting.

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PROPOSAL 1

ELECTION OF DIRECTORS

There are five nominees for the five Board positions presently
authorized. Each director to be elected will hold office until the next annual
meeting of stockholders and until his successor is elected and has been
qualified or until such director's earlier death, resignation or removal. All of
the nominees listed below are currently directors of the Company.

Shares represented by executed proxies will be voted, if authority
to do so is not withheld, for the election of the five nominees named below. In
the event that any nominee should be unavailable for election as a result of an
unexpected occurrence, such shares will be voted for the election of such
substitute nominee as management may propose. Each person nominated for election
has agreed to serve if elected, and management has no reason to believe that any
nominee will be unable to serve.

Directors are elected by a plurality of the votes present in person
or represented by proxy and entitled to vote.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED
NOMINEE.

NOMINEES

The names of the nominees and certain information about them are set
forth below:

Neil Selvin, age 46, has served as President and Chief Executive
Officer and director of the Company since March 1993. From February 1990 to
March 1993, he was Director of Marketing at Apple Computer for the PowerBook
product family and prior to that for Apple's peripherals product line. From 1985
to 1990, Mr. Selvin was employed by Ampex Corporation, a manufacturer of
electronics products, most recently as Chief Operating Officer of its Video
Systems division and also as business unit general manager and in several
marketing management positions. Prior to joining Ampex Corporation, Mr. Selvin
held marketing, sales and technical management positions at Varian Associates
and Apollo Lasers. Mr. Selvin received a B.A. in physics and mathematics from
Pomona College, an M.S. in physics from Brown University, and an M.B.A. from
Harvard Business School.

Leonard A. Lehmann, age 44, has served as Chairman of the Board of
the Company since its founding in June 1989. From January 1993 to March 1996,
Mr. Lehmann served as Vice President, Advanced Products and has evaluated new
technologies and performed strategic planning for the Company. From March 1992
to January 1993, he served as Vice President, Engineering of the Company. From
June 1989 to March 1992, he served as the Company's Chief Executive Officer. Mr.
Lehmann was also a founder of DigiRad Corporation, a medical imaging company,
and GreenSpring Computers, Inc., an industrial computer manufacturer. Mr.
Lehmann received a B.S. in electrical engineering from Cornell University, and
an M.S. and a Ph.D. in electrical engineering from Stanford University.

Kevin R. Compton, age 40, has been a director of the Company since
July 1992. Since December 1990, Mr. Compton has been a partner of Kleiner
Perkins Caufield & Byers, a venture capital firm. From May 1985 to December
1990, Mr. Compton was the Vice President and General Manager of the network
systems team at Businessland, Inc., a computer retailer, and at AmeriSource
Corporation prior to its acquisition by Businessland. Mr. Compton serves on the
Board of Directors of Citrix Systems, Inc., Rhythms NetConnections, Corsair
Communications and VeriSign and is also a director of several privately-held
companies.

Kenneth A. Goldman, age 50, has been a director of the Company since
July 1996. Mr. Goldman has been Senior Vice President, Finance and Chief
Financial Officer at @Home Corp. since July 1996. From July 1992 through July
1996, he served as Senior Vice President and Chief Financial Officer at Sybase,
Inc. Before joining Sybase, Inc., from September 1989 to July 1992, Mr. Goldman
served as Vice President, Finance and Administration and Chief Financial Officer
for Cypress Semiconductor, Inc., a semiconductor manufacturer. Mr. Goldman is
also a director of several privately held companies.

Roger Roberts, age 54, has been a director of the Company since
April 29, 1999. At Citrix systems, Inc., Mr. Roberts served as the Chief
Executive Officer from June 1990 until December 1998, as President from June
1990 until January 1998, and currently serves as the Vice Chairman. Prior to
joining Citrix Systems, Inc., Mr. Roberts was employed for over twenty years by
Texas Instruments, a diversified electronics company, where he held technical,
marketing and general management positions. Most recently at Texas Instruments,
Mr. Roberts was Director of Marketing for the Peripheral

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Products Division, responsible for the MicroLaser printers and TravelMate
notebooks. Mr. Roberts is a director and employee advisor of Citrix Systems,
Inc.

Officers are appointed by, and serve at the discretion of, the Board
of Directors. There are no family relationships among any directors or executive
officers of the Company.

BOARD COMMITTEES AND MEETINGS

During the fiscal year ended March 31, 1999, the Board of Directors
held 7 meetings. The Board has an Audit Committee, a Compensation Committee, a
Non-Officer Stock Option Committee, and a Nominating Committee.

The Audit Committee, which consists of Kevin Compton and Kenneth
Goldman, met 1 time during fiscal 1999. The Audit Committee makes
recommendations to the Board regarding the selection of independent auditors,
reviews the results and scope of the audit and other services provided by the
Company's independent auditor, reviews the Company's balance sheet, statements
of operations and cash flows and reviews and evaluates the Company's internal
control functions.

The Compensation Committee, which during 1999 consisted of Eugene
Eidenberg and Kenneth Goldman, met 1 time during fiscal 1999. Eugene Eidenberg
resigned from the Board of Directors in April 1999, and was replaced on the
Compensation Committee by Mr. Roberts. The Compensation Committee administers
the Company's 1991 Stock Option Plan and Employee Stock Purchase Plan and makes
recommendations to the Board concerning salaries and incentive compensation for
employees and consultants of the Company.

The Non-Officer Stock Option Committee consists of Kevin Compton,
Leonard Lehmann and Neil Selvin. The Non-Officer Stock Option Committee makes
grants of stock options under the Company's 1991 Stock Option Plan. The
Non-Officer Stock Option Committee met 4 times during fiscal 1999.

During the 1999 fiscal year, Eugene Eidenberg, a member of the Board
of Directors who resigned concurrently with Mr. Roberts' becoming a member of
the Board, attended approximately 63% of the meetings of the Board and of the
committees on which he served. During the fiscal year ended March 31, 1999 each
other board member attended 83% or more of the meetings held by the Board and
its relevant committees on which such person served.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires that directors, executive officers, and persons who own more than 10%
of a registered class of the Company's equity securities file with the SEC
initial reports of their ownership and reports of changes in their ownership of
Common Stock and other equity securities of the Company. Officers, directors and
greater than 10% stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.

To the Company's knowledge, during the 1999 fiscal year, all Section
16(a) filing requirements applicable to its officers, directors and 10%
stockholders were complied with properly, with the exception of one late filing
by Kenneth Goldman of a Form 5 on or about May 16, 1999.

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PROPOSAL 2

APPROVAL OF THE NEW 1999 STOCK OPTION PLAN

The Company currently has in effect its 1991 Stock Option Plan (the
"1991 Plan") which was approved by the Board of Directors and the stockholders
in September 1991, and amended with stockholder approval in August 1998. As of
July 7, 1999, a total of 720,000 shares had been reserved for issuance under the
1991 Plan, of which options to purchase 213,059 shares had been exercised,
options to purchase 338,304 shares were outstanding with a weighted average per
share price of $6.686, and 168,637 shares remained available for future grants.

The Company also currently has in effect its 1994 Non-Employee
Directors' Stock Option Plan (the "1994 Plan") which was approved by the Board
of Directors and the stockholders in February 1994, and amended with stockholder
approval in August 1998. As of July 7, 1999 a total of 20,000 shares had been
reserved for issuance under the 1994 Plan, of which options to purchase 800
shares had been exercised, options to purchase 13,000 shares were outstanding
with a weighted average per share price of $5.012, and 6,200 shares remained
available for future grants.

The Company believes that the ability to grant stock options to
employees and directors is an important factor in attracting and retaining
skilled personnel. The Company uses options to provide incentive to its
employees and to align employees' interests with those of stockholders. In
addition, options are used to reward performance and motivate employees to stay
with the Company and increase stockholder value. Options also play a key role in
the Company's recruiting efforts, where the Company's management believes
options are essential to compete in the labor market in which the Company
operates.

In order to ensure that sufficient options will be available to meet
these objectives over time and to simplify administration of its option plans,
the Company has elected, subject to stockholder ratification, to adopt a new
option plan. On June 23, 1999, the Board of Directors approved the adoption of
the new 1999 Stock Option Plan (the "1999 Plan"), and the reservation of
1,165,000 shares thereunder for future issuance.

The Board of Directors contemplates that eventually the 1999 Plan
will effectively serve as a substitute for both the 1991 Plan and the 1994 Plan.
As shares reserved for future option grants under the 1991 Plan are exhausted,
the new 1999 Plan will be utilized for future grants of options to employees. As
is explained in more detail within the discussion of Proposal 4, the Board of
Directors has resolved not to grant any further options under the 1994 Plan, and
subject to stockholder ratification, all foreseeable future grants of options to
non-employee directors will instead be carried out under the new 1999 Plan. By
approving the 1999 Plan, the stockholders will also give the Board of Directors
the power to make such changes to the 1999 Plan as are reasonably necessary to
make it comply with any applicable laws and regulations.

With the exception of approval of the "evergreen" provision of the
1999 Plan described below, which, so long as the Company's Common Stock is not
listed on the Nasdaq National Market, requires a two-thirds vote of the shares
eligible to vote at the Annual Meeting, the affirmative vote of the holders of a
majority of the shares represented, in person or by proxy, and voting at the
Annual Meeting (which shares voting affirmatively also constitute at least a
majority of the required quorum) will be required to approve the adoption of the
new 1999 Plan. Abstentions will be counted toward the number of shares
represented and voting at the Annual Meeting. Unless otherwise instructed, the
proxy holders will vote the proxies "FOR" Proposal 2.

DESCRIPTION OF THE 1999 EMPLOYEE AND DIRECTOR STOCK OPTION PLAN.

The purpose of the 1999 Plan is to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentives to employees, directors and consultants of the Company and
to promote the success of the Company's business. Pursuant to the 1999 Plan, the
Company may grant or issue incentive stock options to employees and officers and
Nonstatutory (nonqualified) stock options to consultants, employees, officers
and directors. If the stockholders authorize Proposal 2, a total of 1,165,000
shares of Common Stock will be reserved for issuance under the 1999 Plan.

The exercise price of incentive stock options granted under the 1999
Plan must be at least equal to 100% of the fair market value of the Common Stock
subject to the option on the date of grant. The exercise price of Nonstatutory
stock options granted under the 1999 Plan must be at least equal to 85% of the
fair market value of the stock subject to the option on the date of the grant.
The exercise price of any option granted to a holder of 10% or more of the
voting power of the Company's outstanding capital stock must be at least 110% of
the fair market value of the Common Stock subject to the option on the date of
the grant. Options granted under the 1999 Plan become exercisable at a rate of
at least 20% of the

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shares subject to the option per year in not longer than five years commencing
on the date one year after the date of grant of the option, and the Board of
Directors is authorized in its discretion to determine the vesting of options
within these limitations.

The maximum term of a stock option under the 1999 Plan is ten years,
but if a recipient of an option at the time of grant has voting power over more
than 10% of the Company's outstanding capital stock, the maximum term of the
option is five years. No employee, director or consultant is eligible to be
granted options covering more than 600,000 shares of the Company's Common Stock
in any fiscal year of the Company.

The 1999 Plan also contains an "evergreen" provision, which provides
for automatic increases to the number of shares of Common Stock reserved for
issuance under the plan, in order to replenish the supply as options are granted
over time. This provision provides for an annual increase on the first day of
each fiscal year of the Company, beginning on April 1, 2000, equal to the lesser
of 500,000 shares or 5% of the outstanding Common Stock of the Company, measured
as of the last day of the preceding fiscal year.

The 1999 Plan's "evergreen" provision is capped so that automatic
annual increases may not cause the total number of share subject to outstanding
options, plus any shares reserved under Company stock option plans and similar
benefit plans, to exceed 40% of the outstanding capital stock of the Company at
any time. Because this 40% limit is in excess of the amount prescribed in
Section 260.140.45 of Title 10 of the California Code of Regulations, adoption
by a vote of two-thirds of the outstanding shares of stock eligible to vote at
the Annual Meeting will be required to make the "evergreen" provision effective.
This cap will be in effect until such time as the Company's Common Stock is
traded on any established national stock exchange or national market system
(including without limitation, the Nasdaq National Market or the Nasdaq SmallCap
Market of the Nasdaq Stock Market).

Potential Limitation on Company Deductions. As part of the Omnibus
Budget Reconciliation Act of 1993, the U.S. Congress amended the Internal
Revenue Code of 1986, as amended (the "Code") to add Section 162(m), which
denies a deduction to any publicly held corporation for compensation paid to
certain employees in a taxable year to the extent that such compensation exceeds
$1 million for a covered employee. It is possible that compensation attributable
to stock options, when combined with all other types of compensation received by
a covered employee from the Company, may cause this limitation to be exceeded in
any particular year.

Certain kinds of compensation, including qualified
"performance-based compensation," are disregarded for purposes of the deduction
limitation. In accordance with proposed Treasury regulations issued under Code
Section 162(m), compensation attributable to stock options will qualify as
performance-based compensation, provided that: (i) the option plan contains a
per-employee limitation on the number of shares for which options may be granted
during a specific period; (ii) the per-employee limitation is approved by the
stockholders; (iii) the option is granted by a compensation committee comprised
solely of "outside directors" and (iv) either the exercise price of the option
is no less than the fair market value of the stock on the date of grant or the
option is granted (or exercisable) only upon (as certified by the compensation
committee) the achievement of an objective performance goal established by the
compensation committee while the outcome is substantially uncertain.

NON-DISCRETIONARY OPTION GRANTS TO NON-EMPLOYEE DIRECTORS UNDER THE 1999 PLAN

The 1999 Plan also provides for certain automatic grants of
nonqualified options to each of the Company's non-employee directors.
Specifically, upon stockholder approval of the 1999 Plan, each outside director
shall automatically be granted a nonqualified option to purchase 5,000 shares of
Common Stock. Each person newly appointed as an outside director on or after
September 1, 1999 shall receive an equal grant automatically. In addition, each
outside director who has been acting in such capacity for at least three months
prior to March 31st of each calendar year beginning with the year 2000 shall
receive an automatic grant of a nonqualified option to purchase 2,000 shares of
Common Stock as of March 31st of the relevant year.

All nonqualified options granted to outside directors under the 1999
Plan as set forth above shall be fully vested and exercisable upon the date of
such grant. The exercise price of all such nonqualified options shall be at
least equal to 100% of the fair market value of the stock subject to the option
on the date of grant.

The 1999 Plan may be amended at any time by the Board, although
certain amendments require stockholder approval. The 1999 Plan will terminate on
June 23, 2009 unless earlier terminated by the Board.

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ALTERNATIVE 1999 PLAN TERMS CONTINGENT UPON COMMON STOCK BEING LISTED ON A
NATIONAL EXCHANGE

In the event that the Company's Common Stock becomes listed on the
Nasdaq National Market or a similar national securities exchange, certain
alternative provisions to the ones described above will apply, with respect to
vesting and exercise arrangements for options granted under the 1999 Plan.

Specifically, in the event of such a national exchange listing,
rather than requiring at a minimum a vesting schedule of at least 20% per year
over five years, the 1999 Plan provides for no single required vesting schedule.
As options previously granted under the current 1991 Plan generally have become
exercisable at a rate of 20% to 25% of the shares subject to the option on the
first anniversary of the option grant, with the remaining shares subject to the
option becoming exercisable in equal monthly installments over the next three or
four years, the Company would generally follow this practice under the 1999 Plan
as well.

Another effect of such a national exchange listing would be that
with limited exceptions involving a merger or similar transaction in which the
Company is a participant, the exercise price of all stock options granted under
the 1999 Plan would be required to be at least equal to 100% of the fair market
value of the stock subject to the option on the date of grant.

Lastly, provided that the Company's Common Stock is currently listed
on such a national securities exchange, the 1999 Plan provides that in the event
of a merger of the Company into another corporation or a sale of substantially
all the assets of the Company, where the acquiror refuses to assume or provide
substitute options in exchange for all outstanding options previously issued
under the 1999 Plan, the vesting of all such options, including those granted to
the Named Executive Officers, shall accelerate, and such options shall become
immediately exercisable.

TAX TREATMENT

The following discussion of the tax treatment of stock options
relates solely to federal income taxes.

Incentive Stock Options. Incentive stock options granted under the
1999 Plan are intended to be eligible for the favorable federal income tax
treatment accorded "incentive stock options" under the Code. Generally, there
are no regular federal income tax consequences to the optionee or the Company by
reason of the grant or exercise of an incentive stock option. However, the
exercise of an incentive stock option may subject the optionee to alternative
minimum tax.

If an optionee holds stock acquired through exercise of an incentive
stock option for more than two years from the date on which the option is
granted and more than one year from the date on which the shares are transferred
to the optionee upon exercise of the option, any gain or loss on a disposition
of such stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition the optionee will
realize taxable ordinary income equal to the lesser of (i) the excess of the
stock's fair market value on the date of exercise over the exercise price, and
(ii) the amount realized upon the disposition over the exercise price. The
optionee's additional gain, or any loss upon the disqualifying disposition, will
be a capital gain or loss which will be long-term or short-term depending on
whether the stock was held for more than one year. Generally, capital gains
currently are subject to lower tax rates than ordinary income. The maximum
federal capital gains rate for most taxpayers is currently 20% while the maximum
ordinary income rate is effectively 39.6%. Different rules may apply to
optionees who acquire stock subject to certain repurchase options of the Company
or who are subject to Section 16(b) of the Exchange Act.

To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company generally will be entitled (subject to
the requirement of reasonableness and the provisions of Section 162(m) of the
Code) to a corresponding business expense deduction in the tax year in which the
disqualifying disposition occurs.

Nonstatutory Stock Options. Nonstatutory stock options granted under
the 1999 Plan generally have the following federal income tax consequences:

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by the optionee. Upon disposition of the stock, the optionee will recognize a
capital gain or loss equal to the difference between the selling price and the
sum of the amount paid for such stock plus any amount recognized as ordinary
income upon exercise of the option. Such gain or loss will be long or short-term
depending on whether the stock was held for more than one year. Different rules
may apply to optionees who acquire stock subject to certain repurchase options
of the Company or who are subject to Section 16(b) of the Exchange Act.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.

Each member of the Board of Directors has a personal interest in the
approval by the stockholders of Proposal 2, as such approval will result in each
non-employee director receiving non-discretionary option grants under the 1999
Plan as detailed above, and may potentially result in future grants to Mr.
Selvin under the 1999 Plan in his capacity as officer of the Company as well.

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PROPOSAL 3

AMENDMENT TO THE 1994 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

The Company's 1994 Non-Employee Directors' Stock Option Plan (the
"1994 Plan") was approved by the Board of Directors and the stockholders in
February 1994. As of July 7, 1999 a total of 20,000 shares had been reserved for
issuance under the 1994 Plan, of which options to purchase 800 shares had been
exercised, options to purchase 13,000 shares were outstanding with a weighted
average per share price of $5.012, and 6,200 shares remained available for
future grants.

To ensure the continued alignment of non-employee director
compensation with the interests of stockholders and those of the Company, on
June 23, 1999, among other items and subject to stockholder ratification, the
Board of Directors approved an amendment to the 1994 Plan to fully accelerate
the vesting of all outstanding options granted under the 1994 Plan to date,
which prior hereto have been subject to five-year vesting restrictions. The
existing restrictions lapse at a rate of 20% of the shares subject to each such
option per year, in five equal annual installments commencing on the date one
year after the grant date of each such option. The amendment to the 1994 Plan
also reduces various share numbers throughout the plan in order to properly
reflect the effect of the Company's one-for-ten reverse stock split which took
effect on July 6, 1999.

The Board of Directors also resolved on June 23, 1999 to cease
granting options under the 1994 Plan after obtaining stockholder approval for
both the adoption of the 1999 Plan and the acceleration of outstanding options
described above. Please note that the effect of the stockholders approving
Proposal 3 will be to cause an aggregate of 13,000 outstanding options held
individually by Messrs. Lehmann, Compton, Goldman, and Roberts to become
immediately exercisable. In addition, if Proposal 2 is approved by the
stockholders as well, please be advised that an aggregate of an additional
20,000 fully-vested and immediately exercisable options will be granted to these
same parties.

The affirmative vote of the holders of a majority of the shares
represented, in person or by proxy, and voting at the Annual Meeting (which
shares voting affirmatively also constitute at least a majority of the required
quorum) will be required to approve the amendment to the 1994 Plan. Abstentions
will be counted toward the number of shares represented and voting at the Annual
Meeting. Unless otherwise instructed, the proxy holders will vote the proxies
"FOR" the amendment to the 1994 Plan.

DESCRIPTION OF THE 1994 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN.

The 1994 Plan was adopted by the Board of Directors on January 19,
1994, approved by shareholders in February 1994 and amended in July 1996 and
August 1998. The purpose of the 1994 Plan is to secure and retain the services
of non-employee directors and persons capable of serving in such capacity, and
to provide incentives for such persons to exert maximum efforts for the success
of the Company. Pursuant to the 1994 Plan, the Company may grant or issue
nonstatutory stock options to non-employee directors. The stockholders have
authorized a total of 20,000 shares of Common Stock for issuance under the 1994
Plan.

Options granted under the 1994 Plan currently become exercisable at
a rate of 20% of the shares subject to the option per year in five equal annual
installments commencing on the date one year after the date of grant of the
option. The effect of the proposed amendment will be to remove this vesting
requirement, and provide instead that all options granted under the 1994 Plan
are fully-vested and immediately exercisable upon the date of the option grant,
and that all options granted prior to the effective date of the amendment
described above shall be fully accelerated as of that date. The maximum term of
a stock option under the 1994 Plan is ten years. The exercise price of stock
options granted under the 1994 Plan must be at least equal to 100% of the fair
market value of the stock subject to the option on the date of grant. The 1994
Plan provides for the non-discretionary grant of a non-qualified option to
purchase 2,500 shares of the Company's Common Stock upon the initial election of
each non-employee director to the board, and for additional grants to all
non-employee directors on March 31st of each year of a non-qualified option to
purchase 1,000 shares of Common Stock.

The 1994 Plan may be amended at any time by the Board. Stockholder
approval of certain amendments is required within twelve months of the adoption
of any such amendment. The 1994 Plan will terminate in January 2004 unless
earlier terminated by the Board.

-9-
<PAGE> 11

TAX TREATMENT

The following discussion of the tax treatment of stock options
relates solely to federal income taxes.

Nonstatutory Stock Options. Nonstatutory stock options granted under
the Option Plan generally have the following federal income tax consequences:

There are no tax consequences to the optionee or the Company by
reason of the grant of a nonstatutory stock option. Upon exercise of a
nonstatutory stock option, the optionee normally will recognize taxable ordinary
income equal to the excess of the stock's fair market value on the date of
exercise over the option exercise price. Generally, with respect to employees,
the Company is required to withhold from regular wages or supplemental wage
payments an amount based on the ordinary income recognized. Subject to the
requirement of reasonableness and the provisions of Section 162(m) of the Code,
the Company generally will be entitled to a business expense deduction equal to
the taxable ordinary income realized by the optionee. Upon disposition of the
stock, the optionee will recognize a capital gain or loss equal to the
difference between the selling price and the sum of the amount paid for such
stock plus any amount recognized as ordinary income upon exercise of the option.
Such gain or loss will be long or short-term depending on whether the stock was
held for more than one year. Different rules may apply to optionees who acquire
stock subject to certain repurchase options of the Company or who are subject to
Section 16(b) of the Exchange Act.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.

Each of the non-employee directors of the Company has a personal
interest in the approval by the stockholders of the proposed amendment to the
1994 Plan, as such amendment will result in each non-employee director's
currently outstanding but unvested options granted under the 1994 Plan to become
immediately exercisable.

-10-
<PAGE> 12

PROPOSAL 4

RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

The Board of Directors has selected KPMG LLP as the Company's
independent auditors for the fiscal year ending March 31, 2000 and has further
directed that management submit the selection of independent auditors for
ratification by the stockholders at the Annual Meeting. KPMG LLP has been the
Company's auditors since November 1992. Representatives of KPMG LLP are expected
to be present at the Annual Meeting, will have an opportunity to make a
statement if they so desire and will be available to respond to appropriate
questions.

Stockholder ratification of the selection of KPMG LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of KPMG LLP to the
stockholders for ratification as a matter of good corporate practice. If the
stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board at their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.

The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote at the Annual
Meeting will be required to ratify the selection of KPMG LLP.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4.

-11-
<PAGE> 13

SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of July 7, 1999, with
respect to: (i) each person (or group of affiliated persons) who is known by the
Company to own beneficially more than 5% of the Common Stock, (ii) each of the
Company's directors, (iii) each of the Named Executive Officers (as hereinafter
defined in the Summary Compensation Table), and (iv) all directors and executive
officers of the Company as a group. Except as set forth below, the address of
each individual is the address of the Company as set forth herein.

<TABLE>
<CAPTION>
COMMON STOCK AFTER
CONVERSION OF
SERIES A REMAINING SERIES A
PREFERRED STOCK COMMON STOCK PREFERRED STOCK
--------------------------- ------------------------- -----------------------
SHARES PERCENT SHARES PERCENT SHARES PERCENT
BENEFICIALLY OF BENEFICIALLY OF BENEFICIALLY OF
BENEFICIAL OWNER (1) OWNED(1) CLASS(2) OWNED(1) CLASS(3) OWNED(1) CLASS(4)
- ---------------------------------------------------- ------------ --------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Leonard A. Lehmann(5) -- -- 51,298 1.2% 51,298 1.0%
Neil Selvin(6) .................................. -- -- 84,916 1.9% 84,916 1.5%
Kevin R. Compton(7) ............................. 116,250 10.0% 275,295 6.2% 391,545 7.0%
Kenneth A. Goldman(8) ........................... -- -- 900 * 900 *
Marc E. Linden(9)................................ -- -- 26,736 * 26,736 *
Marsha Raulston(10).............................. -- -- 50,600 1.1% 50,600 1.0%
All Directors and Officers
as a group (9 persons)(11) ................... 116,250 10.0% 489,745 10.7% 605,995 10.5%
CERTAIN BENEFICIAL OWNERS:
Hambrecht & Quist(12)............................ 499,532 43.0% 1,178,892 26.5% 1,678,424 29.8%
One Bush Street, San Francisco, CA 94104
Integral Capital Partners (13)................... 523,125 45.0% 1,234,574 27.7% 1,757,699 31.2%
2750 Sand Hill Road, Menlo Park, CA 94025
</TABLE>

- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission that deem share to be beneficially
owned by any person who has or shares voting or investment power with
respect to such shares. Unless otherwise indicated, the persons named in
this table have sole voting and sole investment power with respect to all
shares shown as beneficially owned, subject to community property laws
where applicable. Common Stock subject to options that are currently
exercisable or are exercisable within 60 days of the date of this proxy
statement are deemed to be outstanding and to be beneficially owned by the
person holding such options for the purpose of computing the percentage
ownership of any other person.
(2) Percent of Beneficial Ownership is based upon 1,162,500 shares of Series A
Preferred Stock outstanding as of July 7, 1999.
(3) Percent of Beneficial Ownership is based upon 4,464,989 shares of Common
Stock outstanding as of July 7, 1999.
(4) Percent of Beneficial Ownership is based upon 5,627,489 shares of Common
Stock as of July 7, 1999, assuming a complete conversion of 1,170,365
shares of Series A Preferred Stock into 1,170,365 shares of Common Stock.
(5) Includes 50,798 shares held by the Lehmann family trusts and 500 shares
subject to stock options exercisable within 60 days of July 7, 1999.
(6) Includes 53,979 shares subject to stock options exercisable within 60 days
of July 7, 1999.
(7) Mr. Compton's beneficial ownership includes 116,250 shares of Series A
Preferred Stock convertible into 116,250 shares of Common Stock held by
the Compton Family Trust, April 19, 1996 and 500 shares subject to stock
options exercisable within 60 days of July 7, 1999.
(8) Includes 500 shares subject to stock options exercisable within 60 days of
July 7, 1999.
(9) Includes 26,539 shares subject to stock options exercisable within 60 days
of July 7, 1999.
(10) Includes 50,600 shares subject to stock options exercisable within 60 days
of July 7, 1999.
(11) Includes 357,127 shares held by officers and directors or entities
affiliated with officers and directors of the Company and 132,618 shares
subject to stock options held by officers and directors, exercisable
within 60 days of July 7, 1999.
(12) Based on Schedule 13D filed by Hambrecht & Quist LLC with the Securities
and Exchange Commission, dated March 12, 1999, adjusted for the
one-for-ten reverse stock split with respect to the Common Stock and the
automatic conversion of 62.5% of the Series A Preferred Stock to Common
Stock.
(13) Based on Schedule 13D filed by Integral Capital Partners with the
Securities and Exchange Commission, dated March 12, 1999, adjusted for the
one-for-ten reverse stock split with respect to the Common Stock and the
automatic conversion of 62.5% of the Series A Preferred Stock to Common
Stock.

-12-
<PAGE> 14

SUMMARY COMPENSATION TABLE

The following table shows, as to the Chief Executive Officer, each
of the other two most highly compensated executive officers (other than the
Chief Executive Officer) and one former executive officer (Mr. Oppenheimer) who
would have been among the most highly compensated officers had such former
executive officer been employed by the Company at the end of the 1999 fiscal
year (each, a "Named Executive Officer") information concerning compensation
paid for services to the Company in all capacities during the fiscal year ended
March 31, 1999, as well as the total compensation paid to each such individual
for the Company's previous two fiscal years (if such person was the Chief
Executive Officer or an executive officer, as the case may be, during any part
of such fiscal year).

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
-------------------------------------------------------- COMPENSATION AWARDS
OTHER ANNUAL SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) COMPENSATION($) OPTIONS(#)
- ---------------------------------------------- ------ --------- ------------ --------------- ---------------------
<S> <C> <C> <C> <C> <C>
Neil Selvin................................... 1999 275,007 165,000 -- 78,800 (2)
President and 1998 275,261 190,000 (3) -- --
Chief Executive Officer 1997 275,002 -- -- 37,500 (4)

Marc E. Linden(5)............................. 1999 170,000 80,000 -- 66,100 (6)
Senior Vice President Finance 1998 170,082 20,000 -- 8,500
and Chief Financial Officer 1997 123,081 -- -- 20,000 (7)

Marsha Raulston(8)............................ 1999 140,000 40,000 -- 50,600 (9)
Vice President, Human Resources 1998 140,288 20,000 -- --
and Customer Satisfaction 1997 130,003 -- -- 15,000 (10)

Charles Oppenheimer(11)....................... 1999 198,746 80,000 -- 72,670 (12)
Former Chief Operations 1998 200,149 20,000 -- --
Officer 1997 186,018 -- -- 15,000 (13)
</TABLE>

- -------------------
(1) 1998 and 1999 Bonuses were paid pursuant to achievement of specific
objectives.
(2) Includes 37,500 option shares granted to replace certain options cancelled
due to repricing.
(3) Portions of Mr. Selvin's bonus were accrued in 1998, but not paid until
1999.
(4) Includes 12,500 option shares granted to replace certain options cancelled
due to repricing.
(5) Mr. Linden joined the Company as Vice President, New Business Development
in June 1996 and became Senior Vice President Finance and Chief Financial
Officer in July, 1997.
(6) Includes 20,000 option shares granted to replace certain options cancelled
due to repricing.
(7) Includes 8,500 option shares granted to replace certain options cancelled
due to repricing.
(8) Ms. Raulston joined the Company as Vice President Customer Satisfaction in
January 1994 and became the Vice President, Human Resources and Customer
Satisfaction in July 1997.
(9) Includes 15,000 option shares granted to replace certain options cancelled
due to repricing.
(10) Includes 9,000 option shares granted to replace certain options cancelled
due to repricing.
(11) Mr. Oppenheimer joined the Company as Vice President Marketing in June
1993 and became the Chief Operations Officer in July, 1997. Mr.
Oppenheimer ceased to be employed by the Company in March 1999.
(12) Includes 25,270 option shares granted to replace certain options cancelled
due to repricing.
(13) Includes 2,500 option shares granted to replace certain options cancelled
due to repricing.

-13-
<PAGE> 15

STOCK OPTION GRANTS AND EXERCISES

The following table sets forth each grant of stock options made
during the fiscal year ended March 31, 1999 to each of the Named Executive
Officers:

OPTION GRANTS IN FISCAL YEAR 1999

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENTAGE OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS EXERCISE STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------------
NAME GRANTED(1) FISCAL YEAR(2) ($/SHARE)(3) DATE(4) 5% 10%
- -------------------------- ---------- -------------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Neil Selvin............... 12,500(5) 2.96% $ 7.188 3/16/05 $ 34,983 $ 80,952
25,000(5) 5.92 7.188 3/21/07 95,740 234,181
41,300 9.79 7.188 6/25/08 186,696 473,125

Marc E. Linden............ 8,500(5) 2.01 7.188 6/24/06 29,232 70,042
3,000(5) .71 7.188 1/16/06 13,561 34,367
8,500(5) 2.01 7.188 7/31/07 38,424 97,374
46,100 10.92 7.188 6/25/08 208,395 528,113

Marsha Raulston........... 9,000(5) 2.13 7.188 1/13/04 20,201 45,310
6,000(5) 1.42 7.188 1/16/07 22,414 54,557
35,600 8.43 7.188 6/25/08 160,930 407,827

Charles Oppenheimer....... 6,770(5) 1.60 7.188 7/14/03 13,653 30,222
2,500(5) .59 7.188 4/23/06 8,378 19,981
11,000(5) 2.61 7.188 1/16/07 41,093 100,022
5,000(5) 1.18 7.188 7/31/07 20,129 49,739
47,400 11.23 7.188 6/25/08 214,271 543,006
</TABLE>

- ----------------
(1) These options have been granted under the 1991 Employee Stock Option Plan.
Mr. Oppenheimer's options were canceled when he ceased to be employed by
the Company.
(2) The Company granted options to purchase 422,185 shares of Common Stock to
employee in fiscal 1999.
(3) These options are granted at fair market value at the time of grant,
defined as the closing market price on the date of grant.
(4) Any of the options that are exercisable on the date of termination of
employment may be exercised until the earlier of 30 days after such
termination and the expiration date unless such termination was a result
of total and permanent disability, in which case they are exercisable
until the earlier of one year after such termination and the expiration
date, or death, in which case they are exercisable until the earlier of 18
months after such termination and the expiration date.
(5) Granted as part of the June 1998 repricing, in order to replace options
which were cancelled. See "Ten-Year Option Repricing Table."

The following table sets forth information for the Named Executive
Officers with respect to (i) the number of securities underlying unexercised
options held as of March 31, 1999 and (ii) the value of unexercised in-the-money
options (i.e., options for which the fair market value of the Common Stock
($3.75 at March 31, 1999) exceeds the exercise price) as of March 31, 1999:

FISCAL YEAR-END OPTION VALUES AND AGGREGATED OPTIONS GRANTS IN FISCAL YEAR 1999

NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT "IN-THE-MONEY" OPTIONS AT
SHARES MARCH 31, 1999 MARCH 31, 1999($)(1)
ACQUIRED ON VALUE ------------------------------ ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE(2) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- ----------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Neil Selvin................... -- $ -- 14,329 78,800 $ 32,241 $ --
Marc E. Linden................ -- -- -- 66,100 -- --
Marsha Raulston............... -- -- -- 50,600 -- --
Charles Oppenheimer(3)........ -- -- -- -- -- --
</TABLE>

- -----------------
(1) Based on the fair market value of the Common Stock as of March 31, 1999,
adjusted for the one-for-ten reverse stock split effective July 6, 1999
($3.75) minus the exercise price, multiplied by the number of shares
underlying the option.
(2) In connection with the repricing of certain of the above stock options,
the above employees agreed that such options would not be exercisable for
a period of one year following the date of the repricing, June 19, 1998.
On June 19, 1999, options for an additional 26,041, 11,906, and 12,624
shares will become exercisable by Neil Selvin, Marc Linden, and Marsha
Raulston, respectively.
(3) Mr. Oppenheimer's options were cancelled when he ceased to be employed by
the Company.

-14-
<PAGE> 16

CHANGE-IN-CONTROL SEVERANCE ARRANGEMENTS

During fiscal 1998, the Board of Directors adopted Change of Control
Severance Agreements with each of the then current Named Executive Officers of
the Company. Under these agreements, if, within twelve months following a change
of control of the Company, the Executive's employment terminates as the result
of an involuntary termination, each Executive would be entitled to (a) a lump
sum severance payment equal to between one hundred and two hundred percent of
their then current base salary and target annual bonus; (b) continuation of
their personal and dependent benefits for up to between twelve and twenty four
months; and (c) immediate vesting of all outstanding unvested options.
Involuntary termination means a termination other than for cause, a significant
reduction in duties or position, a reduction in base salary or target bonus,
certain reductions in benefits, perquisites or facilities, or a relocation of
more than thirty miles. A change in control includes the merger or consolidation
of the Company with another corporation, the acquisition by any person of
beneficial ownership of 50% or more of the Company's stock, liquidation or sale
of substantially all of the Company's assets, and certain changes in the
composition of the Board.

INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON

Each Named Executive Officer and non-employee director of the
Company has a personal interest in the approval by the stockholders of Proposal
2, as each will likely receive future grants of options to purchase shares of
the Company's Common Stock under the 1999 Plan if adopted. In addition, each
non-employee director of the Company has a personal interest in the approval by
the stockholders of Proposal 3, as each will receive an acceleration of all
outstanding unvested options in such event.

-15-
<PAGE> 17

REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS ON EXECUTIVE COMPENSATION

GENERAL

The Company was privately held until February 1994 when the Company
completed its initial public offering. Prior to that time, the Board of
Directors made all decisions with respect to executive compensation, including
the establishment of base salaries, equity grants and the Company's Management
Incentive Plan for determining officer bonuses. All decisions with respect to
executive compensation currently are made by the Compensation Committee of the
Board of Directors.

COMPENSATION PHILOSOPHY

The primary goal of the Company is to align compensation with the
Company's business objectives and performance. The Company's aim is to attract,
retain and reward executive officers and other key employees who contribute to
the long-term success of the Company and to motivate those individuals to
enhance long-term stockholder value. To establish this relationship between
executive compensation and the creation of stockholder value, the Compensation
Committee has adopted a total compensation package comprised of base salary,
bonus and stock option awards. Key elements of this compensation package are:

o The Company pays competitively with leading technology companies
with which the Company competes for talent.

o The Company maintains annual incentive opportunities sufficient
to provide motivation to achieve specific operating goals and to
generate rewards that bring total compensation to competitive
levels.

o The Company provides significant equity-based incentives for
executives and other key employees to ensure that individuals are
motivated over the long term to respond to the Company's business
challenges and opportunities as owners and not just as employees.

EXECUTIVE OFFICER COMPENSATION

The compensation of the Company's executive officers, including
salary and stock option grants, were determined on the basis of negotiations
between the Company and each officer with due regard to such officer's
experience, the Company's needs and market conditions at the time. The Board
also examined a published salary survey of similar companies with a view to
ensuring that the compensation was competitive but reasonable. The salary of the
founding officer was based upon discussions between the Company and such
officer.

Bonuses for all executive officers, including the Chief Executive
Officer, were determined in accordance with the Company's Management Incentive
Program. The Management Incentive Program provides that bonuses will be
determined in accordance with a matrix based upon the degree to which the
Company's total revenues and net income before taxes meet the Company's business
plan. A target bonus as a percentage of base salary was established for each
executive officer.

During fiscal 1998, the Compensation Committee granted bonuses to
certain Named Executive Officers payable upon achievement of specific milestones
in the Company's sale of its modem business to Boca Research, Inc. Mr. Linden's
bonus was paid in fiscal 1999 upon closing this transaction.

During the year the Compensation Committee granted bonuses to
certain Named Executive Officers payable in recognition of the achievement of
certain specific objectives and their ongoing efforts and contributions to the
Company.

-16-
<PAGE> 18

LONG-TERM INCENTIVES

The Company's primary long-term incentive program presently consists
of the 1991 Plan . Although the 1991 Plan has no required vesting schedule,
options previously granted under the 1991 Plan generally have become exercisable
at a rate of 20% to 25% of the shares subject to the option on the first
anniversary of the option grant with the remaining shares subject to the option
becoming exercisable over the next three or four years. Through option grants,
executives receive significant equity incentives to build long-term stockholder
value. The exercise price of incentive options granted under the 1991 Plan
generally is 100% of the fair market value of the underlying stock on the date
of grant. Officers receive value from these grants only if the Company's Common
Stock appreciates.

COMPANY PERFORMANCE AND CHIEF EXECUTIVE OFFICER COMPENSATION

The Chief Executive Officer's salary and stock option grants for
fiscal 1999 were determined on the basis of negotiations between the Company and
the Chief Executive Officer with due regard to his experience, the Company's
needs and market conditions. The Board also has examined a published salary
survey of similar companies. The Chief Executive Officer's bonus was determined
in accordance with the Management Incentive Program that governed the bonuses of
the other executive officers.

CERTAIN TAX CONSIDERATION

Section 162(m) of the Code limits the Company to a deduction for
federal income tax purposes of not more than $1 million of compensation paid to
certain executive officers in a taxable year. Compensation above $1 million may
be deducted if it is "performance-based compensation" within the meaning of the
Code.

The Board believes that at the present time it is unlikely that the
compensation paid to any executive officer in this taxable year will exceed $1
million. Therefore, the Board has not established a policy for determining which
forms of incentive compensation awarded to executive officers shall be designed
to qualify as "performance-based compensation."

STOCK OPTION EXCHANGE

In June 1998, the Board of Directors offered to all employees,
including officers, the opportunity to cancel outstanding stock options with
exercise prices in excess of $7.188 per share (the fair market value of the
common stock at that time, adjusted for the one-for-ten reverse stock split
effective July 6, 1999) in exchange for options exercisable at $7.188 per share
which were otherwise identical to the canceled options. The options received
from the Company in exchange for any options that employees elected to cancel
contained a moratorium on exercise for a period of one year from the date of the
repricing, June 19, 1998.

The option exchange was an acknowledgement of the importance to the
Company of having equity incentives in the hands of employees. Stock options
which are "out-of-the-money" provide no particular compensatory incentive if an
employee is considering alternative opportunities. The Committee decided to
include officers in the exchange because of the importance of their
administrative and technical leadership to the success of the Company's business
and because of the importance of providing incentives for the Company's officers
to stay on with the Company through a difficult period. For all of the above
reasons, the Compensation Committee determined that it is in the best interest
of the Company and its Shareholders to continue to provide equity incentives to
the Company's employees and officers, and that the option exchange was the most
practical method to effect such equity incentives.

-17-
<PAGE> 19

The following table sets forth all exchange and repricings of
officer stock options since the Company's initial public offering in February
1994:

TEN-YEAR OPTION REPRICING TABLE

<TABLE>
<CAPTION>
NUMBER OF MARKET PRICE
SECURITIES OF STOCK AT
UNDERLYING TIME OF NEW LENGTH OF ORIGINAL TERM
OPTIONS REPRICING REPRICING OR EXERCISE REMAINING AT DATE OF
NAME DATE OR AMENDMENT(#) OR AMENDMENT($) PRICE($) REPRICING OR AMENDMENT
- ---------------------------- ------- ----------------- --------------- -------- ------------------------
<S> <C> <C> <C> <C> <C>
Neil Selvin................. 1/16/97 12,500 30.063 30.063 8 years, 59 days
6/19/98 12,500 7.188 7.188 8 years, 211 days
6/19/98 25,000 7.188 7.188 8 years, 275 days
Marc E. Linden.............. 1/16/97 8,500 30.063 30.063 9 years, 159 days
6/19/98 8,500 7.188 7.188 9 years, 42 days
6/19/98 8,500 7.188 7.188 8 years, 211 days
6/19/98 3,000 7.188 7.188 8 years, 211 days
Marsha Raulston............. 1/16/97 9,000 30.063 30.063 6 years, 362 days
6/19/98 9,000 7.188 7.188 8 years, 211 days
6/19/98 6,000 7.188 7.188 8 years, 211 days
Charles Oppenheimer(1)...... 1/16/97 2,500 30.063 30.063 9 years, 97 days
6/19/98 2,500 7.188 7.188 7 years, 308 days
6/19/98 6,770 7.188 7.188 5 years, 25 days
6/19/98 5,000 7.188 7.188 9 years, 42 days
6/19/98 11,000 7.188 7.188 8 years, 211 days
James Brown(2).............. 1/16/97 4,250 30.063 30.063 6 years, 362 days
1/16/97 2,000 30.063 30.063 8 years, 59 days
1/16/97 2,500 30.063 30.063 9 years, 97 days
</TABLE>

- --------------------
(1) Mr. Oppenheimer joined the Company as Vice President Marketing in June
1993 and became the Chief Operations Officer in July, 1997. Mr.
Oppenheimer ceased to be employed by the Company in March 1999.
(2) Mr. Brown joined the Company as Vice President Operations in January 1994
and ceased to be employed by the Company in October 1997.

From the members of the Compensation Committee of the Board of
Directors of OneWorld Systems, Inc. for the 1999 fiscal year:

Kenneth Goldman(1)

- -----------------------
(1) During the 1999 fiscal year the Compensation Committee consisted of Eugene
Eidenberg and Kenneth Goldman. Mr. Eidenberg resigned from the Board of
Directors in April 1999. Roger Roberts replaced Mr. Eidenberg on the
Compensation Committee in April 1999.

-18-
<PAGE> 20
PERFORMANCE MEASUREMENT COMPARISON

The following chart shows the value of an investment of $100 in cash
of (i) the Company's Common Stock at the closing market value on March 31, 1994
of $10.00 per share, (ii) the Nasdaq Stock Market--US Index, and (iii) the
Hambrecht & Quist Technology Index, as if all such investments were made as of
March 31, 1994. All values assume reinvestment of the full amount of all
dividends:

<TABLE>
<CAPTION>
Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
OWLD 100 117.5 148.8 16.41 13.75 3.75
NASDAQ Stock Market - US 100 111.3 151.1 167.8 254.8 342.4
Hambrecht & Quist Technology 100 129.7 176.6 205.2 305.6 427.6
</TABLE>

-19-

<PAGE> 21

OTHER MATTERS

The Board of Directors knows of no other matters that will be
presented for consideration at the Annual Meeting. If any other matters are
properly brought before the meeting, it is the intention of the persons named in
the accompanying proxy to vote on such matters in accordance with their best
judgment.

By Order of the Board of Directors

/s/ Marc E. Linden

Marc E. Linden
Secretary

July 21, 1999

A copy of the Company's Annual Report to the Securities and Exchange
Commission of Form 10-K for the fiscal year ended March 31, 1999 is available
without charge upon written request to: Corporate Secretary, OneWorld Systems,
Inc., 1144 East Arques Avenue, Sunnyvale, California 94086.

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<PAGE> 22

ONEWORLD SYSTEMS, INC.

1999 STOCK PLAN

1. Purposes of the Plan. The purposes of this 1999 Stock Plan are:

o to attract and retain the best available personnel for
positions of substantial responsibility,

o to provide additional incentive to Employees, Directors and
Consultants, and

o to promote the success of the Company's business.

Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.

All share numbers in this Plan reflect the 1-for-10 reverse split
effective July 6, 1999.

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

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

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

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

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

(f) "Common Stock" means the common stock of the Company.

(g) "Company" means OneWorld Systems, Inc., a Delaware
corporation.

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

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

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

<PAGE> 23

(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, then three (3) months after the 91st day of such
leave any Incentive Stock Option held by the Optionee shall cease to be treated
as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment" by
the Company.

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

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

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

(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the day of determination, as
reported in The Wall Street Journal or such other source as the Administrator
deems reliable; or

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

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

(o) "Inside Director" means a Director who is an Employee.

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

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

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

-2-
<PAGE> 24

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

(t) "Option Agreement" means an agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.

(u) "Option Exchange Program" means a program whereby
outstanding Options are surrendered in exchange for Options with a lower
exercise price.

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

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

(x) "Outside Director" means a Director who is not an Employee.

(y) "Plan" means this 1999 Stock Plan.

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

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

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

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

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

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

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

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

3. Stock Subject to the Plan. Subject to the provisions of Section 14
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 1,165,000 Shares, plus an annual increase to be added on
the first day of the Company's fiscal year, beginning April 1, 2000, equal to
the lesser of (i) 500,000 Shares or (ii) 5% of the outstanding Shares on the
last day of the immediately preceding fiscal year; provided, however, that until
such time as the

-3-
<PAGE> 25

Company's Common Stock is traded on any established national stock exchange or
national market system (including without limitation the Nasdaq National Market
or the Nasdaq SmallCap Market of the Nasdaq Stock Market), at no time shall the
total number of shares issuable upon exercise of all outstanding options to
purchase Common Stock of the Company, when aggregated with the total number of
shares provided for under any and all stock bonus or similar plans of the
Company, exceed 40% of the outstanding shares of the Company as calculated in
accordance with the conditions and exclusions of Section 260.140.45 of Title 10
of the California Code of Regulations, based on the shares of the Company which
are outstanding at the time the calculation is made. The Shares may be
authorized, but unissued, or reacquired Common Stock.

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

4. Administration of the Plan.

(a) Procedure.

(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.

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

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

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

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

(i) to determine the Fair Market Value;

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

-4-
<PAGE> 26

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

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

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

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

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

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

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

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

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

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

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

-5-
<PAGE> 27

6. Limitations.

(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

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

(i) No Service Provider shall be granted, in any fiscal
year of the Company, Options to purchase more than 500,000 Shares.

(ii) In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional 100,000
Shares which shall not count against the limit set forth in subsection (i)
above.

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

7. Term of Plan. Subject to Section 20 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 16 of the Plan.

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

9. Option Exercise Price and Consideration.

(a) Exercise Price. The per share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be no less than 100%
of Fair Market Value, as determined by the Administrator. Notwithstanding the
foregoing, Options may be granted with a per Share exercise price of less than
100% of the Fair Market Value per Share on the date of grant pursuant to a
merger or other corporate transaction.

-6-
<PAGE> 28

(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.

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

(i) cash;

(ii) check;

(iii) promissory note;

(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and (B) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;

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

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

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

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

10. Exercise of Option.

(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides in writing
otherwise, vesting of Options granted hereunder shall be tolled during any
unpaid leave of absence. An Option may not be exercised for a fraction of a
Share.

-7-
<PAGE> 29

vote or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 14 of the Plan.

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

(b) Termination of Relationship as a Service Provider. Subject
to Section 14, if an Optionee ceases to be a Service Provider, other than upon
the Optionee's death or Disability, the Optionee may exercise his or her Option
for a period of at least thirty (30) days following Optionee's termination of
service or within such longer period of time as is specified in the Option
Agreement (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement) to the extent that Optionee was
entitled to exercise it at the date of such termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.

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

(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised at any time within eighteen (18) months
following the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant), by the Optionee's
designated beneficiary, provided such beneficiary has been designated prior to
Optionee's death in a form acceptable by the Administrator. If no such
beneficiary has been designated by the Optionee, then each such Option may be
exercised by the executor or administrator of the Optionee's estate, or if none,
by the person(s) entitled to exercise the Option under the Optionee's will or
the laws of descent or distribution. The Option shall be exercisable following
Optionee's death only to the extent the Option is vested on the date of death.
If, at the time of death, the Optionee is not vested as to his or her entire
Option, the Shares covered by the unvested portion of the Option shall
immediately revert to the Plan. If the Option is not so exercised within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.

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

-8-
<PAGE> 30

11. Stock Purchase Rights.

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

(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate or under such
conditions as shall be determined by the Administrator and set forth in the
Restricted Stock Purchase Agreement.

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

-9-
<PAGE> 31

(d) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 14
of the Plan.

12. Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.

13. Formula Option Grants to Outside Directors. Outside Directors shall
be automatically granted Options each year in accordance with the following
provisions:

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

(b) Each person who is serving as an Outside Director on the
date this Option Plan is approved by the Company's stockholders shall
automatically be granted an Option to purchase 5,000 Shares.

(c) Each person who first becomes an Outside Director on or
after September 1, 1999, whether through election by the stockholders of the
Company or appointment by the Board, shall be automatically granted an Option to
purchase 5,000 Shares (the "First Option") on the date he or she first becomes
an Outside Director; provided, however, that an Inside Director who ceases to be
an Inside Director but who remains a Director shall not receive a First Option.

(d) Each Outside Director shall be automatically granted an
Option to purchase 2,000 Shares (a "Subsequent Option") on March 31st of each
calendar year, beginning with March 31, 2000, provided such individual has been
an Outsider Director for at least three (3) months on the date of each such
grant.

(e) Notwithstanding the provisions of subsections (b) and (c)
hereof, any exercise of an Option granted before the Company has obtained
stockholder approval of the Plan in accordance with Section 20 hereof shall be
conditioned upon obtaining such stockholder approval of the Plan in accordance
with Section 20 hereof.

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

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

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

-10-
<PAGE> 32

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

14. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.

(a) Changes in Capitalization. Subject to any required action by
the stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, the number of shares of Common
Stock covered by First Options and Subsequent Options to be granted under the
Plan, the number of shares of Common Stock which have been authorized for
issuance under the Plan but as to which no Options or Stock Purchase Rights have
yet been granted or which have been returned to the Plan upon cancellation or
expiration of an Option or Stock Purchase Right and the number of shares of
Common Stock which may be added to the Plan each fiscal year (pursuant to
Section 3), as well as the price per share of Common Stock covered by each such
outstanding Option or Stock Purchase Right, shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.

(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.

(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable,
provided, however, that this sentence shall have no effect unless the Company's
common stock is traded on any established national stock exchange or national
market system (including without limitation the Nasdaq National Market or the
Nasdaq SmallCap Market of the

-11-
<PAGE> 33

Nasdaq Stock Market). If an Option or Stock Purchase Right becomes fully vested
and exercisable in lieu of assumption or substitution in the event of a merger
or sale of assets, the Administrator shall notify the Optionee in writing or
electronically that the Option or Stock Purchase Right shall be fully vested and
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option or Stock Purchase Right shall terminate upon the expiration of such
period. For the purposes of this paragraph, the Option or Stock Purchase Right
shall be considered assumed if, following the merger or sale of assets, the
option or right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger or sale of assets, the consideration (whether stock, cash, or
other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.

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

16. Amendment and Termination of the Plan.

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

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

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

17. Conditions Upon Issuance of Shares.

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

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<PAGE> 34

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

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

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

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

21. Provisions Contingent Upon Lack of Exchange Listing.
Notwithstanding anything to the contrary contained elsewhere herein, so long as
the Company's common stock is not traded on a established national stock
exchange or national market system (including without limitation the Nasdaq
National Market or the Nasdaq SmallCap Market of the Nasdaq Stock Market), the
additional provisions contained on Schedule A hereto shall apply with full force
and effect as operative provisions of this Plan.

-13-

<PAGE> 35

SCHEDULE A

PROVISIONS CONTINGENT UPON LACK OF EXCHANGE LISTING

TO REPLACE EXISTING SECTIONS 8 THROUGH 12:

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

9. Option Exercise Price and Consideration.

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

(i) In the case of an Incentive Stock Option

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

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

(ii) In the case of a Nonstatutory Stock Option

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

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

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

(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case

-14-
<PAGE> 36

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

10. Exercise of Option.

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

An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 14 of the Plan.

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

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

-15-
<PAGE> 37

not exercise his or her Option within the time specified by the Administrator,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.

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

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

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

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

12. Stock Purchase Rights.

(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically, by means of a Notice of Grant,
of the terms, conditions and restrictions related to the offer, including the
number of Shares that such person shall be entitled to purchase, the price to be
paid, and the time within which such person must accept such offer. The terms of
the offer shall comply in all respects with Section 260.140.42 of Title 10 of
the California Code of Regulations. The offer shall be accepted by execution of
a Restricted Stock Purchase Agreement in the form determined by the
Administrator.

-16-
<PAGE> 38

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

TO BE ADDED AS A NEW SECTION 22:

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

-17-

<PAGE> 39

ONEWORLD SYSTEMS, INC.
1994 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED JANUARY 19, 1994
APPROVED BY SHAREHOLDERS
AMENDED AUGUST 20, 1998
AMENDED AUGUST 31, 1999

1. PURPOSE

(a) The purpose of the 1994 Non-Employee Directors' Stock Option Plan, as
amended (the "Plan") is to provide a means by which each director of
OneWorld Systems, Inc. (the "Company") who is not otherwise an
employee of the Company or of any Affiliate of the Company (each such
person being hereafter referred to as a "Non-Employee Director") will
be given an opportunity to purchase stock of the Company.

(b) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company as those terms are defined in
Sections 424(e) and (f), respectively, of the Internal Revenue Code of
1986, as amended from time to time (the "Code").

(c) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to
secure and retain the services of persons capable of serving in such
capacity, and to provide incentives for such persons to exert maximum
efforts for the success of the Company

2. ADMINISTRATION.

(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates
administration to a committee, as provided in subparagraph 2(b).

(b) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the
"Committee"). If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of the
Plan, the powers theretofore possessed by the Board, subject, however,
to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the
administration of the Plan.

-1-
<PAGE> 40

3. SHARES SUBJECT TO THE PLAN.

(a) Subject to the provisions of paragraph 10 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to options
granted under the Plan shall not exceed in the aggregate Twenty
Thousand (20,000) shares of the Company's common stock. If any option
granted under the Plan shall for any reason expire or otherwise
terminate without having been exercised in full, the stock not
purchased under such option shall again become available for the Plan.

(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.

4. ELIGIBILITY.

(a) Options shall be granted only to Non-Employee Directors of the
Company.

5. NON-DISCRETIONARY GRANTS.

(a) Upon the effective date of the Company's initial public offering (the
"Effective Date"), each person who is then a Non-Employee Director
shall be granted an option to purchase One Thousand (1,000) shares of
common stock of the Company on the terms and conditions set forth
herein.

(b) Each person who is, after the Effective Date, elected for the first
time to be a Non-Employee Director shall, upon the date of his initial
election to be a Non-Employee Director by the Board or stockholders of
the Company, be granted an option to purchase Two Thousand, Five
Hundred (2,500) shares of common stock of the Company on the terms and
conditions set forth herein.

(c) On March 31 of each year, commencing with March 31, 1995, each person
who is then a Non-Employee Director and has been a Non-Employee
Director for at least three (3) months shall be granted an option to
purchase One Thousand (1,000) shares of common stock of the Company on
the terms and conditions set forth herein.

(d) On August 20, 1998, each person who is then a Non-Employee Director
shall voluntarily cancel their outstanding options in exchange for a
new grant equivalent to that received upon initial election (Two
Thousand, Five Hundred (2,500) shares of common stock of the Company)
on the terms and conditions set forth herein.

6. OPTION PROVISIONS.

Each option shall contain the following terms and conditions:

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<PAGE> 41

(a) The term of each option commences on the date it is granted and,
unless sooner terminated as set forth herein, expires on the date
("Expiration Date") ten (10) years from the date of grant. If the
optionee's service as a Non-Employee Director of the Company
terminates for any reason or for no reason, the option shall terminate
on the earlier of the Expiration Date or the date six (6) months
following the date of termination of service; provided, however, that
if such termination of service is due to the optionee's death, the
option shall terminate on the earlier of the Expiration Date or Six
(6) months following the date of the optionee's death. In any and all
circumstances, an option may be exercised following termination of the
optionee's service as a Non-Employee Director of the Company only as
to that number of shares as to which it was exercisable on the date of
termination of such service under the provisions of subparagraph 6(e).

(b) Subject to subparagraph 4(b), the exercise price of each option shall
be one hundred percent (100%) of the fair market value of the stock
subject to such option on the date such option is granted.

(c) Payment of the exercise price of each option is due in full in cash
upon any exercise when the number of shares being purchased upon such
exercise is less than 100 shares; but when the number of shares being
purchased upon an exercise is 100 or more shares, the optionee may
elect to make payment of the exercise price under one of the following
alternatives:

(i) Payment of the exercise Price per share in cash at the time of
exercise; or

(ii) Provided that at the time of the exercise the Company's common
stock is publicly traded and quoted regularly in the Wall
Street Journal, payment by delivery of shares of common stock
of the Company already owned by the optionee, held for the
period required to avoid a charge to the Company's reported
earnings, and owned free and clear of any liens, claims,
encumbrances or security interest, which common stock shall be
valued at fair market value on the date preceding the date of
exercise; or

(iii) Payment by a combination of the methods of payment specified in
subparagraph 6(c)(i) and 6(c)(ii) above.

Notwithstanding the foregoing, this option may be exercised pursuant
to a program developed under Regulation T as promulgated by the
Federal Reserve Board which results in the receipt of cash (or check)
by the Company prior to the issuance of shares of the Company's common
stock.

(d) An option shall not be transferable except by will or by the laws of
descent and distribution, unless

(i) the Board shall be advised by counsel that such transfer will
not jeopardize the Plan's exemption from Section 16(b) of the
Securities Exchange Act of 1934, and

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<PAGE> 42

(ii) the Board shall have specifically provided in such option that
it shall be transferable. An option shall be exercisable
during the lifetime of the person to whom the option is
granted only by such person or by his guardian, legal
representative or permitted transferee.

(e) The option shall be fully vested and exercisable as to 100% of the
shares of common stock of the Company subject to the option on the
date of its grant. In addition, all options previously granted under
this Plan and not yet fully vested as of August 31, 1999 shall become
fully vested and exercisable as to 100% of the shares of common stock
subject to such options on August 31, 1999.

(f) The Company may require any optionee, or any person to whom an option
is transferred under subparagraph 6(d), as a condition of exercising
any such option:

(i) to give written assurances satisfactory to the Company as to the
optionee's knowledge and experience in financial and business
matters; and

(ii) 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

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,

(i) 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.

(ii) Notwithstanding anything to the contrary contained herein, an
option may not be exercised unless the shares issuable upon
exercise of such option are then registered under the Securities
Act or, if such shares are not then so registered, the Company
has determined that such exercise and issuance would be exempt
from the registration requirements of the Securities Act.

7. COVENANTS OF THE COMPANY

(a) During the terms of the options granted under the Plan, the Company
available at all times the number of shares of stock required to
satisfy such options.

-4-
<PAGE> 43

(b) 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 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.

8. 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.

9. MISCELLANEOUS.

(a) Neither an optionee nor any Person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to
have any of the rights of a 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.

(b) 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 and such other information regarding the Company
as the holder of such option may reasonably request.

(c) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in
the service of the Company or any Affiliate or shall affect any right
of the Company, its Board or stockholders or any Affiliate to
terminate the service of any Non-Employee Director with or without
cause.

(d) No Non-Employee Director, individually or as a member of a group, and
no beneficiary or other person claiming under or through him, shall
have any right, title or interest in or to any option reserved for the
purposes of the Plan except as to such shares of common stock, if any,
as shall have been reserved for him pursuant to an option granted to
him.

-5-
<PAGE> 44

(e) In connection with each option made pursuant to the Plan, it shall be
a condition precedent to the Company's obligation to issue or transfer
shares to a Non-Employee Director, or to evidence the removal of any
restrictions on transfer, that such Non-Employee Director make
arrangements satisfactory to the Company to insure that the amount of
any federal or other withholding tax required to be withheld with
respect to such sale or transfer, or such removal or lapse is made
available to the Company for timely payment of such tax.

10. ADJUSTMENTS UPON CHANGES IN STOCK.

(a) 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), the Plan and outstanding options will be appropriately
adjusted in the class(es) and maximum number of shares subject to the
Plan and the class(es) and number of shares and price per share of
stock subject to outstanding options.

(b) In the event of: (1) a merger or consolidation in which the Company is
not the surviving corporation; (2) a reverse merger in which the
Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are convened
by virtue of the merger into other property, whether in the form of
securities, cash or otherwise; or (3) any other capital reorganization
in which more than fifty percent (50%) of the shares of the Company
entitled to vote are exchanged the time during which options
outstanding under the Plan may be exercised shall be accelerated and
the options terminated if not exercised prior to such event.

11. AMENDMENT OF THE PLAN.

(a) The Board at any time, and from time to time, may amend the Plan,
provided, however, that the Board shall not amend the plan more than
once every six months, with respect to the provisions of the plan
which relate to the amount, price and timing of grants, other than to
comport with changes in the Code, the Employee Retirement Income
Security Act, or the rules thereunder. Except as provided in paragraph
10 relating to adjustments upon changes in stock, no amendment shall
be effective unless approved by the stockholders of the Company within
twelve (12) months before or after the adoption of the amendment,
where the amendment will:

(i) Increase the number of shares which may be issued under the
Plan;

(ii) Modify the requirements as to eligibility for participation in
the Plan (to the extent such modification requires stockholder
approval in order for the Plan to comply with the requirements
of Rule 16-b3); or

-6-
<PAGE> 45

(iii) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to comply with the
requirements of Rule 16-b3.

(b) Rights and obligations under any option granted before any amendment
of the Plan shall not be altered or impaired by such amendment unless

(i) the Company requests the consent of the person to whom the
option was granted and

(ii) such person consents in writing.

12. TERMINATION OR SUSPENSION OF THE PLAN.

(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on January 10, 2004. No options
may be granted under the Plan while the Plan is suspended or after it
is terminated.

(b) Rights and obligations under any option granted while the Plan is in
effect shall not be altered or impaired by suspension or termination
of the Plan, except with the consent of the person to whom the option
was granted.

13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.

(a) The Plan shall become effective upon adoption by the Board of
Directors, subject to the condition subsequent that the Plan is
approved by the stockholders of the Company.

(b) No option granted under the Plan shall be exercised or exercisable
unless and until the condition of subparagraph 13(a) above has been
met.

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<PAGE> 46

PROXY
ONEWORLD SYSTEMS, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY FOR THE AUGUST 31, 1999 ANNUAL MEETING OF STOCKHOLDERS

The undersigned stockholder of OneWorld Systems, Inc., a Delaware corporation,
hereby acknowledges receipt of the Notice of Special Meeting of Stockholders and
the Proxy Statement, each dated July 21, 1999, and hereby appoints Neil Selvin
and Marc E. Linden and each of them, proxies and attorneys-in-fact, with full
power to each of substitution, on behalf and in the name of the undersigned, to
represent the undersigned at the Annual Meeting of Stockholders of OneWorld
Systems, Inc., to be held on August 31, 1999 at 9:00 a.m., local time, at the
Company's headquarters located at 1144 East Arques Avenue, Sunnyvale,
California, and at any adjournment or postponement thereof, and to vote all
shares of Common Stock and Series A Preferred Stock which the undersigned would
be entitled to vote, if then and there personally present, on the matters set
forth below.

Please mark
[ X ] votes as in this
example.

THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
IT WILL BE VOTED FOR PROPOSALS 1 THROUGH 4 AND IN THE DISCRETION OF THE PROXIES
AS TO SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.

<TABLE>
<S> <C> <C> <C> <C>
For Against Abstain
[ ] [ ] [ ]
1. To elect five (5) directors to hold 2. To approve the adoption of the 1999 Stock Option
office until the 2000 Annual Meeting Plan and the reservation of 1,165,000 shares of
of Stockholders. Common Stock thereunder.

[ ] [ ] [ ]
Nominees: Selvin, Lehmann, 3. To approve an amendment to the Company's 1994
Compton, Goldman and Non-Employee Directors' Stock Option Plan providing
Roberts for the acceleration of the vesting provisions of
FOR WITHHELD all outstanding stock options previously granted to
ALL [ ] [ ] FROM ALL the outside directors of the Company pursuant to
NOMINEES NOMINEES such plan.

[ ] [ ] [ ]
4. To ratify the selection of KPMG LLP as independent
auditors of the Company for its fiscal year ending
[ ] ______________________________________ March 31, 2000.
For all nominees except as noted above
Grant Withhold
[ ] [ ]
5. To transact such other business as may properly
come before the meeting or any adjournment or
postponement thereof.

MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]

PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE

(Please sign exactly as your name appears hereon. All holders
must sign. When signing in a fiduciary capacity, please
indicate full title as such. If a corporation of partnership,
please sign in full corporate or partnership name by authorized
person.)

Signature: _________________________ Date: ____________________ Signature: _________________________ Date: ____________________
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