CONDUCTUS INC, DEF 14A, 2000-04-20

CONDUCTUS INC
DEF 14A, 2000-04-20
ELECTRONIC COMPONENTS, NEC

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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

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Filed by a Party other than the Registrant / /

Check the appropriate box:
/ / 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 Under Rule 14a-12

CONDUCTUS, INC.
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(Name of Registrant as Specified In Its Charter)

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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
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Payment of Filing Fee (Check the appropriate box):

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[CONDUCTUS, INC. LOGO]

CONDUCTUS, INC.

April 21, 2000

Dear Stockholder,

You are cordially invited to attend the Conductus, Inc. Annual Meeting of
Stockholders to be held on Thursday, May 25, 2000 at 3:00 p.m., local time, at
the Company's offices located at 965 West Maude Avenue, Sunnyvale, California
94086.

At the Annual Meeting, in addition to electing five directors and approving
the appointment of PricewaterhouseCoopers LLC as our independent accountants, we
will ask you to approve proposals relating to our Certificate of Incorporation,
Stock Option/Stock Issuance Plan and Employee Stock Purchase Plan. We believe
these proposals to be in the best interests of the Company and its stockholders.

PROPOSAL TWO asks you to approve an amendment to our Certificate of
Incorporation to increase the number of authorized shares of common stock. The
stockholders last approved an increase in the number of authorized shares of
common stock in May 1998. At that time, approximately eight million shares were
outstanding or reserved, and the number of shares authorized was increased to
20 million shares. Since then, we have raised over $35 million in three rounds
of equity financing, in September 1998, December 1999 and January 2000, giving
us approximately $26 million in cash at the end of February 2000. Mainly as a
result of these financings, the number of shares outstanding or reserved has
increased to approximately 17.3 million, leaving fewer than 3 million in
reserve. If Proposals Three and Six are approved, approximately 19,500,000
shares of the authorized 20,000,000 shares of common stock will have been
reserved, leaving a reserve of only about 500,000 shares.

We believe that it is prudent to increase the number of authorized shares of
common stock to the proposed levels in order to provide a reserve of shares
available for issuance to meet possible future business needs including
financings, establishment of strategic relationships, providing equity
incentives to employees, officers or directors or effecting stock splits or
dividends.

In addition to the proposal to increase the number of authorized shares of
common stock, we are proposing amendments to the 1992 Stock Option/Stock
Issuance Plan (the "Stock Option Plan") and the Employee Stock Purchase Plan
(the "Stock Purchase Plan").

We believe that equity participation motivates high levels of performance
and provides an effective means of recognizing employee contributions to our
success. New employee stock option grants, together with stock purchases through
payroll deductions under our Stock Purchase Plan, have resulted in broad-based
employee equity ownership at Conductus, linking compensation to Conductus'
performance. When we perform well, the employees are rewarded along with the
other stockholders.

Proposals Three through Six are asking you to approve amendments to the
Stock Option Plan and Stock Purchase Plan. As of March 3, 2000, a total of
126,767 and 282,219 shares remain available for issuance under the Stock Option
Plan and Stock Purchase Plan, respectively. As our business grows, we must
attract quality new employees and motivate and retain current employees and we
believe that equity participation is an important component of the compensation
package offered to our employees. To address the immediate need for stock for
our Stock Option Plan and Stock Purchase Plan, we propose to increase the number
of shares of common stock reserved for future grants under the Stock Option Plan
by 2,000,000 shares, from 2,580,000 to 4,580,000 shares (PROPOSAL THREE) and to
increase the number of shares of common stock reserved for future purchases
under the Stock Purchase Plan by 200,000 shares from 550,000 to 750,000 shares.
(PROPOSAL SIX). If approved, the Stock Option Plan will have 2,000,000 shares
reserved for issuance in addition to the 126,767 shares previously authorized
but unissued and the Stock Purchase Plan will have a total of 482,219 shares
available for future issuance.

In order to reduce the need for annual plan amendments to increase the
amount of reserved stock under the Stock Option Plan as Conductus grows, we
propose to amend the Stock Option Plan to include an evergreen feature to
provide for automatic annual replenishing of the number of shares reserved and
available for issuance (PROPOSAL FOUR). This evergreen feature will provide for
an automatic increase of the shares reserved and available for issuance under
the Stock Option Plan by an amount equal to 4.0% of our outstanding stock. The
increase will be limited if a balance of 1.0% or more exists in the reserve
prior to the increase, so that the reserve will not equal 5.0% or more of
outstanding shares at any time without additional stockholder approval. We
believe that this evergreen feature will provide Conductus and its stockholders
a consistent and predictable measure of employee equity participation in line
with comparable businesses with which Conductus competes to attract and retain
highly skilled employees. If approved, the 2,000,000 share increase described
above will serve to fund the Stock Option Plan until its first evergreen
increase in January 2001.

Finally, we propose to amend the Automatic Option Grant Program under the
Stock Option Plan, which provides for the grant of non-statutory options to
purchase shares of common stock to non-employee Board members (PROPOSAL FIVE).
The proposal would increase the number of shares granted to new non-employee
Board members from the current level of 15,000 shares upon appointment and 3,000
shares at each Annual Meeting of Stockholders to 24,000 and 8,000 shares,
respectively. We consider this increase necessary to ensure we remain
competitive in attracting and retaining qualified Board members. Additionally,
the Company proposes to change the vesting of all future grants of options to
such directors to provide that such options would vest over a four-year term, as
compared to the current vesting term, which provides for full vesting after
three years (Annual Automatic Grant) or five years (Initial Automatic Grant).
The purpose of the change in the vesting term is to have the vesting term of
options granted to outside directors correspond with the vesting term of options
granted to employees of the Company.

We hope you will be able to attend the Company's Annual Meeting on May 25th
to receive a report on the status of the Company's business and performance
during 1999. You will have an opportunity to meet the Company's Directors and
Officers and ask questions. Whether or not you plan to attend the meeting,
please sign and return the enclosed proxy card to ensure your representation at
the meeting.

Very truly yours,
CHARLES E. SHALVOY
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
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[CONDUCTUS, INC. LOGO]

CONDUCTUS, INC.

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 25, 2000

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TO THE STOCKHOLDERS OF CONDUCTUS, INC.:

NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders of
CONDUCTUS, INC. (the "Company"), will be held on Thursday, May 25, 2000, at
3:00 p.m. local time (the "Annual Meeting"), at the Company's administrative
offices located at 965 West Maude Avenue, Sunnyvale, California 94086 for the
following purposes, as more fully described in the Proxy Statement accompanying
this Notice:

1. To elect directors of the Company;

2. To approve an amendment to and restatement of the Company's Restated
Certificate of Incorporation to increase the number of shares of Common
Stock that the Company is authorized to issue from 20,000,000 to
25,000,000;

3. To approve an amendment to the Company's 1992 Stock Option/Stock
Issuance Plan to increase to the number of shares available for issuance
thereunder, as set forth in the accompanying Proxy Statement;

4. To approve an amendment to the Company's 1992 Stock Option/Stock
Issuance Plan to provide for an automatic annual increase in the number
of shares available for issuance thereunder, as set forth in the
accompanying Proxy Statement;

5. To approve an amendment to the Company's 1992 Stock Option/Stock
Issuance Plan to amend the automatic grant program, as set forth in the
accompanying Proxy Statement;

6. To approve an amendment to the Company's Employee Stock Purchase Plan to
increase the number of shares available for issuance thereunder, as set
forth in the accompanying Proxy Statement;

7. To ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent auditors for the fiscal year ending December 31, 2000; and

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

Only stockholders of record at the close of business on April 7, 2000, are
entitled to notice of and to vote at the Annual Meeting. The stock transfer
books will not be closed between the record date and the date of the Annual
Meeting. A list of stockholders entitled to vote at the Annual Meeting will be
available for inspection at the executive offices of the Company for a period of
ten days before the Annual Meeting.

All stockholders are cordially invited to attend the Annual Meeting in
person. Whether or not you plan to attend, please sign and return the enclosed
Proxy as promptly as possible in the envelope enclosed for your convenience.
Should you receive more than one proxy because your shares are registered in
different names and addresses, each proxy should be signed and returned to
ensure that all your shares will be voted. You may revoke your proxy at any time
prior to the Annual Meeting. If you attend the Annual Meeting and vote by
ballot, your proxy will be revoked automatically and only your vote at the
Annual Meeting will be counted.

BY ORDER OF THE BOARD OF DIRECTORS
Charles E. Shalvoy
PRESIDENT AND CHIEF EXECUTIVE OFFICER

April 21, 2000

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE.
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PROXY STATEMENT

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ITEM PAGE
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<S> <C>
PROXY STATEMENT............................................. 1

MATTERS TO BE CONSIDERED AT ANNUAL MEETING.................. 2

PROPOSAL ONE--ELECTION OF DIRECTORS....................... 2

PROPOSAL TWO--AMENDMENT TO AND RESTATEMENT OF THE
COMPANY'S RESTATED CERTIFICATE OF INCORPORATION......... 5

PROPOSAL THREE--APPROVAL OF AMENDMENT TO 1992 STOCK
OPTION/ STOCK ISSUANCE PLAN TO INCREASE THE NUMBER OF
SHARES AVAILABLE FOR ISSUANCE UNDER THE PLAN............ 6

PROPOSAL FOUR--APPROVAL OF AMENDMENT TO THE 1992 STOCK
OPTION/ STOCK ISSUANCE PLAN TO PROVIDE FOR AUTOMATIC
INCREASES IN THE NUMBER OF SHARES AVAILABLE UNDER THE
PLAN.................................................... 6

PROPOSAL FIVE--APPROVAL OF AMENDMENTS TO THE 1992 STOCK
OPTION/ STOCK ISSUANCE PLAN TO INCREASE THE NUMBER OF
SHARES GRANTED TO OUTSIDE DIRECTORS UNDER THE AUTOMATIC
GRANT PROVISIONS OF THE PLAN AND CHANGE VESTING
SCHEDULE................................................ 7

PROPOSAL SIX--APPROVAL OF AMENDMENT TO 1994 EMPLOYEE STOCK
PURCHASE PLAN........................................... 13

PROPOSAL SEVEN--RATIFICATION OF INDEPENDENT AUDITORS...... 17

OTHER MATTERS............................................. 17

OWNERSHIP OF SECURITIES..................................... 18

EXECUTIVE COMPENSATION AND RELATED INFORMATION.............. 20

SUMMARY COMPENSATION TABLE................................ 20

OPTION GRANTS IN LAST FISCAL YEAR......................... 21

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUE..................................... 22

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
ARRANGEMENTS AND CHANGE IN CONTROL AGREEMENTS........... 22

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION............................................. 22

CERTAIN TRANSACTIONS........................................ 23

COMPENSATION COMMITTEE REPORT............................... 23

COMPARISON OF STOCKHOLDER RETURN............................ 26

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
OF 1934................................................... 27

ANNUAL REPORT............................................... 27

FORM 10-K................................................... 27

DIRECTIONS.................................................. 28

EXHIBIT A................................................... A-1
</TABLE>
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[CONDUCTUS, INC. LOGO]

CONDUCTUS, INC.

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PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 25, 2000

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The enclosed proxy ("Proxy") is solicited on behalf of the Board of
Directors of CONDUCTUS, INC., a Delaware corporation (the "Company"), for use at
the 2000 Annual Meeting of Stockholders to be held on May 25, 2000 (the "Annual
Meeting"). The Annual Meeting will be held at 3:00 p.m. PST at the Company's
administrative offices located at 965 West Maude Avenue, Sunnyvale, California
94086. These proxy solicitation materials were mailed on or about April 21,
2000, to all stockholders entitled to vote at the Annual Meeting.

VOTING

The specific proposals to be considered and acted upon at the Annual Meeting
are summarized in the accompanying Notice of Annual Meeting of Stockholders and
are described in more detail in this Proxy Statement. On April 7, 2000, the
record date for determination of stockholders entitled to notice of and to vote
at the Annual Meeting, 11,255,094 shares of the Company's common stock, $.0001
par value ("Common Stock") and 375,000 shares of the Company's Series C
preferred stock, $.0001 par value ("Preferred Stock") were issued and
outstanding. Each stockholder is entitled to one vote for each share of Common
Stock and ten votes for each share of Preferred Stock held by such stockholder
on April 7, 2000. Directors are elected by a plurality vote of the affirmative
votes cast by those shares present in person, or represented by proxy, and
entitled to vote at the Annual Meeting. The five nominees for director receiving
the highest number of affirmative votes will be elected. Abstentions and broker
non-votes will not be counted toward a nominee's total. Stockholders may not
cumulate votes in the election of directors. Approval of the amendment to and
restatement of the Company's Restated Certificate of Incorporation requires
(1) the affirmative vote of a majority of the Company's Common Stock issued and
outstanding and entitled to vote at the Annual Meeting and (2) the affirmative
vote of a majority of the Preferred Stock issued and outstanding and entitled to
vote at the Annual Meeting. Abstentions and broker non-votes will be treated as
votes against the proposal. Approval of amendments to the Company's 1992 Stock
Option/Stock Issuance Plan and Employee Stock Purchase Plan requires the
affirmative vote of (1) a majority of those Common Stock shares present in
person, or represented by proxy, and entitled to vote at the Annual Meeting and
(2) a majority of those Preferred Stock shares present in person, or represented
by proxy, and entitled to vote at the Annual Meeting. Abstentions will be
treated as votes against the proposal. Broker non-votes will be treated as not
entitled to vote on this matter and thus will have no effect on the outcome of
the vote. Ratification of the appointment of PricewaterhouseCoopers LLP as the
Company's independent public accountants for the fiscal year ending
December 31, 2000, requires the affirmative vote of (1) a majority of those
Common Stock shares present in person, or represented by proxy, and entitled to
vote at the Annual Meeting and (2) a majority of those Preferred Stock shares
present in person, or represented by proxy, and entitled to vote at the Annual
Meeting. Abstentions will be treated as votes against the proposal. Broker
non-votes will be treated as not entitled to vote on this matter and thus will
have no effect on the outcome of the vote.

REVOCABILITY OF PROXIES

Whether or not you are able to attend the Company's Annual Meeting, you are
urged to complete and return the enclosed proxy, which is solicited by the
Company's Board of Directors and which will
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be voted as you direct on your proxy when properly completed. In the event no
directions are specified, such proxies will be voted FOR the Nominees of the
Board of Directors (as set forth in Proposal No. 1), FOR Proposals Nos. 2, 3, 4,
5, 6 and 7, and in the discretion of the proxy holders as to other matters that
may properly come before the Annual Meeting. You may revoke or change your Proxy
at any time before the Annual Meeting by filing with the Secretary of the
Company, at the Company's principal executive offices, a notice of revocation or
another signed Proxy with a later date. You may also revoke your Proxy by
attending the Annual Meeting and voting in person.

SOLICITATION

The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional soliciting materials furnished to stockholders. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
so that they may forward these solicitation materials to such beneficial owners.
In addition, the Company may reimburse such persons for their costs in
forwarding these solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by a solicitation by
telephone, telegram, or other means by the Company's directors, officers or
employees. No additional compensation will be paid to these individuals for any
such services. Except as described above, the Company does not presently intend
to solicit proxies other than by mail.

DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS

The Bylaws require that proposals of stockholders of the Company that are
intended to be presented by such stockholders at the Company's 2001 Annual
Meeting of Stockholders must be received by the Company at its principal
executive offices no later than February 24, 2001, to be considered at the
Annual Meeting. Proposals must be received before December 22, 2000, for
inclusion in the proxy statement and form of proxy relating to that meeting.

MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL ONE--ELECTION OF DIRECTORS

GENERAL

The Company currently has five directors. All directors hold office until
the next annual meeting of stockholders or until their successors are duly
elected and qualified. The officers serve at the discretion of the Board of
Directors (the "Board").

The Board has selected five nominees, all of whom are currently serving as
directors of the Company. The names of the persons who are nominees for director
and their positions with the Company as of March 30, 2000 are set forth in the
table below. Each person nominated for election has agreed to serve, if elected,
and management has no reason to believe that any nominee will be unavailable to
serve. In the event any nominee is unable or declines to serve as a director at
the time of the Annual Meeting, the proxies will be voted for any nominee who
may be designated by the present Board to fill the vacancy. Unless otherwise
instructed, the proxy holders will vote the proxies received by them FOR the
nominees named below. The five candidates receiving the highest number of
affirmative votes of the shares represented and voting on this particular matter
at the Annual Meeting will be elected directors of the Company, to serve their
respective terms and until their successors have been elected and qualified.

2
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NOMINEES FOR TERM ENDING UPON THE 2001 ANNUAL STOCKHOLDERS' MEETING

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<CAPTION>
NOMINEE AGE POSITIONS AND OFFICES HELD WITH THE COMPANY
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<S> <C> <C>
John F. Shoch, Ph.D(1)(2)................. 51 Chairman of the Board
President, Chief Executive Officer and
Charles E. Shalvoy........................ 52 Director
Martin Cooper(1).......................... 71 Director
Robert M. Janowiak........................ 63 Director
Martin J. Kaplan(2)....................... 62 Director
</TABLE>

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(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

BUSINESS EXPERIENCE OF DIRECTORS

DR. SHOCH has served as Chairman of the Board since our inception in 1987.
As a founder, Dr. Shoch served as President from 1987 to 1988. Since 1985, he
has been a general partner of AMC Partners 84, which is the general partner of
Asset Management Associates 1984, a venture capital investment fund and a
principal stockholder. Dr. Shoch holds a B.S. in political science and an M.S.
and Ph.D. in computer science from Stanford University.

MR. COOPER has served as a director since January 1995. Since 1992,
Mr. Cooper has served as Chairman and Chief Executive Officer of
ArrayComm, Inc., a company he co-founded that manufactures intelligent antennas
for wireless applications. Previously he was co-founder, Chairman, Chief
Executive Officer and President of Cellular Business Systems, Inc., a provider
of management information software to the cellular industry that was purchased
by Cincinnati Bell in 1983. Mr. Cooper worked for 29 years at Motorola Inc.,
where he started out as a Senior Development Engineer in 1954 and advanced to
Corporate Director of Research and Development in 1983. Mr. Cooper earned a B.S.
and M.S. in Electrical Engineering from the Illinois Institute of Technology.

MR. JANOWIAK has served as a director since December 1996. Since 1982, he
has served as the Executive Director of the International Engineering
Consortium. Prior to that, he was President of Federal Signal Corporation's
Signal Group, a provider of public safety products and systems. Mr. Janowiak
also held positions with ITT Research and Rockwell, where he advanced to
Vice-President, General Manager of the Information Products Division.
Mr. Janowiak earned a B.S.E.E. from the University of Illinois, an M.S.E.E. from
Illinois Institute of Technology and an M.B.A. from the University of Chicago.

MR. KAPLAN has served as a director since July 1996. Since 1997, Mr. Kaplan
has served as an Executive Vice-President of Pacific Telesis Group. Prior to
that he was President--Network Services Group of Pacific Bell, and its
successor, Pacific Telesis, for 38 years in various senior management positions.
Mr. Kaplan earned a B.S. in engineering from California Institute of Technology.

MR. SHALVOY joined us in June 1994 as President, Chief Executive Officer and
Director. From 1988 to 1994, he was President and Chief Operating Officer of
Therma-Wave, Inc., a manufacturer of semiconductor production equipment. Prior
to that he was employed by Aehr Test Systems, Emerson Electric Corp. and Raychem
Corporation in a variety of senior management positions. Mr. Shalvoy holds a
B.S. in Mechanical Engineering from the University of Notre Dame and an M.B.A.
from Stanford University.

There are no family relationships among executive officers or directors of
the Company.

3
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BOARD COMMITTEES AND MEETINGS

During the fiscal year ended December 31, 1999 the Board held six meetings.
The Board has an Audit Committee and a Compensation Committee. Except for
Mr. Cooper and Mr. Kaplan, who attended 50% and 67% of the meetings,
respectively, each of the directors attended or participated in 75% or more of
the total meetings of the Board during the past fiscal year.

The Audit Committee currently consists of two directors, Dr. Shoch and
Mr. Cooper, and is primarily responsible for approving the services performed by
the Company's independent auditors and reviewing their reports regarding the
Company's accounting practices and systems of internal accounting controls. The
Audit Committee held two meetings during the last fiscal year.

The Compensation Committee currently consists of two directors, Dr. Shoch
and Mr. Kaplan, who are primarily responsible for reviewing and approving the
Company's general compensation policies and setting compensation levels for the
Company's executive officers. The Compensation Committee held one meeting during
the last fiscal year.

DIRECTOR COMPENSATION

In January 1992, each non-employee director was granted a non-qualified
stock option to purchase Common Stock (at an exercise price of $8.00 per share)
as follows: Dr. Shoch--7,813 shares. The options were canceled in August 1992 in
exchange for a new option to purchase the same number of shares of Common Stock
at an exercise price of $0.56 per share. In January 1995, several non-employee
directors were granted options, under the Automatic Grant Program (as described
in Proposal Five), as follows: Mr. Cooper--15,000 shares and Dr. Shoch--15,000
shares. Each new option was granted at an exercise price of $4.93 per share. In
July 1996, Mr. Kaplan was granted a non-qualified stock option to purchase
15,000 shares of Common Stock at an exercise price of $11.25 per share under the
Automatic Grant Program. This option was canceled in November 1997 in exchange
for a new option to purchase 15,000 shares of Common Stock at a purchase price
of $6.50. In December 1996, Mr. Janowiak was granted a non-qualified stock
option to purchase 15,000 shares of Common Stock at an exercise price of $6.56
per share under the Automatic Grant Program. In April 1999, each non-employee
director was granted a non-qualified stock option to purchase 15,000 shares of
Common Stock at an exercise price of $1.25 per share.

Beginning in October 1996, and thereafter at the close of each annual
meeting, each non-employee director was granted options to purchase 3,000 shares
of Common stock. To date, the annual Automatic Grants are as follows:

<TABLE>
<CAPTION>
YEAR PRICE PER SHARE RECIPIENTS
- ---- --------------- --------------------------------------------------------
<C> <C> <S>
1996.. $8.000 Messrs. Shoch, Cooper and Kaplan
1997.. 7.125 Messrs. Shoch, Janowiak, Cooper and Kaplan
1998.. 3.625 Messrs. Shoch, Janowiak, Cooper and Kaplan
1999.. 2.563 Messrs. Shoch, Janowiak, Cooper and Kaplan
</TABLE>

Except for the foregoing option grants and for reimbursement of certain
expenses in connection with attendance at Board and committee meetings,
directors receive no compensation for attending meetings of and for serving on
the Board of Directors.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE ELECTION OF
EACH OF THE ABOVE NOMINEES.

4
<PAGE>
PROPOSAL TWO--AMENDMENT TO AND RESTATEMENT OF THE COMPANY'S RESTATED CERTIFICATE
OF INCORPORATION

The Board of Directors has determined that it is in the best interests of
the Company and its stockholders to amend and restate the Company's Restated
Certificate of Incorporation to increase the number of shares of Common Stock
that the Company is authorized to issue from 20,000,000 to 25,000,000.
Accordingly, the Board of Directors has unanimously approved the proposed
Amended and Restated Certificate of Incorporation, in substantially the form
attached hereto as EXHIBIT A (the "Restated Certificate"), and hereby solicits
the approval of the Company's stockholders of the Restated Certificate. If the
stockholders approve the Restated Certificate, the Board of Directors currently
intends to file the Restated Certificate with the Secretary of State of the
State of Delaware as soon as practicable following such stockholder approval. If
the stockholders do not approve the Restated Certificate, the existing
Certificate of Incorporation will continue in effect.

The objective of the increase in the authorized number of shares of Common
Stock is to ensure that the Company has sufficient shares available for future
equity issuances. As of March 3, 2000, there were 11,119,359 shares of Common
Stock outstanding. Also as of March 3, 2000, there were 3,750,000 shares of
Common Stock reserved for conversion of Series C Preferred Stock, 1,693,277
shares of Common Stock reserved for issuance pursuant to outstanding stock
options and 1,246,088 shares of Common Stock reserved for issuance under
outstanding warrants. If the stockholders approve Proposals Three and Six, an
additional 2,000,000 shares and 200,000 shares, respectively will be reserved
for the respective plans. Thus, approximately 19,500,000 shares of the
authorized 20,000,000 shares of Common Stock will have been reserved, leaving a
reserve of less than 500,000 shares. The Board of Directors believes that it is
prudent to increase the authorized number of shares of Common Stock to the
proposed levels in order to provide a reserve of shares available for issuance
to meet business needs as they arise. Such future activities may include,
without limitation, financings, establishing strategic relationships with
corporate partners, providing equity incentives to employees, officers or
directors, or effecting stock splits or dividends.

The additional shares of Common Stock authorized may also be used to acquire
or invest in complementary businesses or products or to obtain the right to use
complementary technologies. Although the Company has no present obligation to
issue additional shares of Common Stock (except pursuant to employee stock
incentive plans), the Company may continue to evaluate potential acquisitions of
or investments with third parties. However, the Company currently has no
specific plans to enter into any such transaction.

POSSIBLE EFFECT OF THE PROPOSED AMENDMENT TO AND RESTATEMENT OF THE RESTATED
CERTIFICATE.

If the stockholders approve the proposed Restated Certificate, the Board of
Directors may cause the issuance of additional shares of Common Stock without
further vote of the stockholders of the Company, except as provided under
Delaware corporate law or under the rules of any securities exchange on which
shares of Common Stock of the Company are then listed. Current holders of Common
Stock have no preemptive or similar rights, which means that current
stockholders do not have a prior right to purchase any new issue of capital
stock of the Company in order to maintain their appropriate ownership thereof.
The issuance of additional shares of Common Stock would decrease the
proportionate equity interest of the Company's current stockholders and,
depending upon the price paid for such additional shares, could result in
dilution to the Company's current stockholders.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE
AMENDMENT TO AND RESTATEMENT OF THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION.

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PROPOSAL THREE--APPROVAL OF AMENDMENT TO 1992
STOCK OPTION/STOCK ISSUANCE PLAN TO INCREASE THE NUMBER OF SHARES AVAILABLE
FOR ISSUANCE UNDER THE PLAN

Stockholders are being asked to vote on a proposal to approve an amendment
to the Company's 1992 Stock Option/Stock Issuance Plan (the "Plan") to increase
the number of shares of Common Stock reserved for future grants under the Plan
by 2,000,000 shares, from 2,580,000 to 4,580,000 shares. This request for
additional shares, as part of our overall stock option program, is consistent
with the Company's philosophy of maximizing shareholder value over time and is
considered necessary given the projected growth in our employee base in Fiscal
2000 and 2001. Our primary goal is to closely align the interests of our
employees with those of our shareholders and we believe that equity
participation motivates high levels of performance and provides an effective
means of recognizing employee contributions to the success of the Company. See
Proposal Five for a summary of the Plan and the effect of the proposed
amendments.

NEW PLAN BENEFITS

Awards under the Plan are discretionary. Therefore, it is not possible to
determine the benefits that will be received in the future by participants in
the Plan. To date, no grants have been made under the Plan with respect to the
additional 2,000,000 shares that are subject to the approval of Proposal Three.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF
THE AMENDMENT TO THE 1992 STOCK OPTION/STOCK ISSUANCE PLAN TO INCREASE THE
NUMBER OF SHARES AVAILABLE FOR ISSUANCE UNDER THE PLAN.

PROPOSAL FOUR--APPROVAL OF AMENDMENT TO THE 1992 STOCK OPTION/STOCK ISSUANCE
PLAN TO PROVIDE FOR AUTOMATIC INCREASES IN THE NUMBER OF SHARES AVAILABLE UNDER
THE PLAN

We propose to amend the Plan to provide for an automatic increase in shares
of Common Stock available for grant of stock options as follows: effective on
the first day of each year of the Company, beginning on January 1, 2001, the
number of shares of Common Stock available shall automatically be increased by
an amount, rounded to the nearest whole share (the "Annual Increase Shares"),
equal to four percent (4%) of the aggregate number of shares of Common Stock
outstanding as of such date ("Outstanding Shares") or such lessor number of
shares as determined by the Board; provided that, with respect to each such
increase effective on the first day of each year of the Company beginning on
January 1, 2001, the number of Annual Increase Shares shall be reduced by the
number of shares of Common Stock subject to the Plan that are not then-issued
and are not subject to the then-outstanding option grants as of such effective
date (the "Available Shares"), provided that, no reduction shall be made if the
Available Shares equal one percent (1%) or less of the aggregate number of
Outstanding Shares as of such effective date. See Proposal Five for a summary of
the Plan and the effect of the proposed amendments.

EFFECT OF THE PROPOSED AMENDMENT

If the stockholders approve Proposal Four, additional shares of Common Stock
available for issuance under the Plan may be increased without further vote of
the stockholders of the Company, except as provided under the Company's Amended
and Restated Certificate of Incorporation, Delaware Corporate Law or under the
rules of any securities exchange on which shares of Common Stock of the Company
are then listed.

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THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF
THE AMENDMENT TO THE 1992 STOCK OPTION/STOCK ISSUANCE PLAN TO PROVIDE FOR
AUTOMATIC INCREASES IN THE NUMBER OF SHARES AVAILABLE UNDER THE PLAN

PROPOSAL FIVE--APPROVAL OF AMENDMENTS TO THE 1992 STOCK OPTION/STOCK ISSUANCE
PLAN TO INCREASE THE NUMBER OF SHARES GRANTED TO OUTSIDE DIRECTORS UNDER THE
AUTOMATIC GRANT PROVISIONS OF THE PLAN AND CHANGE VESTING SCHEDULE

We propose to amend the Automatic Option Grant Program under the Plan, which
provides for the grant of non-statutory options to purchase shares of Common
Stock to non-employee Board members ("Outside Director"). Under the current
terms of the Plan, a new non-employee Board member will automatically be
granted, at the time of his of her initial election or appointment, an option to
purchase 15,000 shares of Common Stock ("Initial Automatic Option Grant").
Additionally, each Outside Director who has served in that capacity for the
immediately proceeding 90 days and continues to so serve will receive an option
to purchase 3,000 shares of Common Stock at each Annual Meeting of Stockholders
("Annual Automatic Option Grant"). The Initial Automatic Option currently vests
as to 20% after twelve months of service and thereafter in 48 equal monthly
installments. The Annual Automatic Option Grant currently vests as to 33 1/3%
after twelve months from the date of grant and thereafter in 24 equal monthly
installments. We propose to amend the Plan such that (1) the Initial Automatic
Option Grant is increased to 24,000 shares, (2) the Annual Automatic Option
Grant is increased to 8,000 shares, and (3) all Automatic Option Grants will
vest as to 25% after twelve months from the date of grant and thereafter in
36 monthly installments.

We believe that this change is desirable to remain competitive in attracting
and retaining new Board members. With the increase in the number of shares
outstanding, the relative participation in ownership of the Board members has
decreased. The vesting change would bring the Outside Director vesting schedule
into line with that of the employees.

The following is a summary of the principal features of the Plan. The
summary, however, does not purport to be a complete description of all the
provisions of the Plan. Any stockholder of the Company who wishes to obtain a
copy of the actual plan document may do so by written request to the Corporate
Secretary at the Company's principal executive offices.

HISTORY AND PURPOSE

The Board of Directors adopted the Plan in January 1992 and the stockholders
approved the Plan in April 1992 as a successor to the Company's 1987 and 1989
Stock Option Plans. The Plan is intended to promote the interests of the Company
by providing eligible individuals with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Company as an
incentive for them to remain in the service of the Company. The Automatic Option
Grant provisions were added in 1995 and amended in 1996. Various other
amendments were made in 1993 through 1998.

EQUITY INCENTIVE PROGRAMS

The Plan includes three separate equity incentive programs: (1) a
Discretionary Option Grant Program, under which eligible individuals may be
granted options to purchase shares of Common Stock, (2) an Automatic Option
Grant Program, under which non-employee Board members are automatically granted
options to purchase shares of Common Stock, and (3) a Stock Issuance Program,
under which eligible individuals may be issued shares of Common Stock directly,
through the immediate purchase of the shares or as a bonus tied to the
performance of services or the Company's attainment of financial objectives.

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Options granted under the Discretionary Option Grant Program may be either
incentive stock options designed to meet the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or non-statutory options
not intended to satisfy such requirements.

SHARE RESERVE

Subject to the approval of Proposal Three by the stockholders, 4,580,000
shares of the Company's Common Stock have been reserved for issuance under the
Plan. Subject to the approval of Proposal Four, beginning on January 1, 2001,
the number of shares of Stock available shall automatically be increased by an
amount, rounded to the nearest whole share (the "Annual Increase Shares"), equal
to four percent (4%) of the aggregate number of shares of Stock outstanding as
of such date ("Outstanding Shares") or such lessor number of shares as
determined by the Board; provided that, with respect to each such increase
effective on the first day of each fiscal year of the Company beginning on
January 1, 2001, the number of Annual Increase Shares shall be reduced by the
number of shares of Common Stock subject to the Plan that are not then-issued
and are not subject to the then-outstanding option grants as of such effective
date (the "Available Shares"), provided that, no reduction shall be made if the
Available Shares equal to one percent (1%) or less of the aggregate number of
Outstanding Shares as of such effective date.

The issuable shares may be made available from either the Company's
authorized but unissued shares of Common Stock or from re-acquired shares of
Common Stock, including shares repurchased by the Company on the open market.
Should an option expire or terminate for any reason prior to exercise in full
(including options canceled in accordance with the cancellation/regrant
provisions of the Plan), the shares subject to the unexercised portion of the
option will be available for subsequent issuance under the Plan. Shares subject
to any option surrendered in accordance with the stock appreciation right
provisions of the Plan and all share issuances under the Plan, whether or not
the shares are subsequently re-acquired by the Company pursuant to its
repurchase rights under the Plan, will reduce on a share-for-share basis the
number of shares of Common Stock available for subsequent issuance.

No individual participating in the Plan may be granted stock options and
direct stock issuances for more than 750,000 shares of Common Stock in any
single calendar year.

As of March 3, 2000, options covering 1,678,277 shares were outstanding
under the Plan, and 126,767 shares remained available for future option grants.
The expiration dates for such options range from August 18, 2002 to March 1,
2010.

PLAN ADMINISTRATION

A Plan Administrator consisting of two outside directors (the "Plan
Administrator") administers the Plan. The Plan Administrator has discretion,
subject to the provisions of the Plan, to authorize stock option grants and
direct stock issuances.

ELIGIBILITY

Officers, directors, other employees, and independent consultants and
advisors to the Company (or any parent or subsidiary company) are eligible to
participate in the Plan.

As of March 3, 2000, approximately five executive officers, four outside
directors and fifty-nine other employees were eligible to participate in the
Plan. Additionally, one independent consultant currently participates in the
Plan.

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VALUATION OF STOCK

The fair market value per share of Common Stock on any relevant date under
the Plan is the closing selling price per share on that date on the Nasdaq Stock
Market. If there is no reported selling price for such date, then the closing
selling price for the last previous date for which such quotation exists is
determinative of fair market value. The fair market value of Common Stock on
March 3, 2000, as reported on the Nasdaq Stock Market, was $54.375 per share.

DISCRETIONARY OPTION GRANT PROGRAM

Under the Discretionary Option Grant Program, the exercise price per share
of Common Stock subject to an incentive stock option may not be less than 100%
of the fair market value per share on the grant date. The exercise price per
share of the Common Stock subject to a non-statutory option may not be less than
85% of such fair market value. No option may have a term in excess of 10 years
measured from the grant date. The Plan Administrator has discretion to grant
options that (a) are immediately exercisable for vested shares, (b) are
immediately exercisable for unvested shares subject to the Company's repurchase
rights or (c) become exercisable in installments for vested shares over the
optionee's period of service.

The exercise price may be paid in cash or in shares of Common Stock valued
at fair market value on the exercise date. The option may also be exercised for
vested shares through a same-day sale program pursuant to which the purchased
shares are to be sold immediately and a portion of the sale proceeds are to be
applied to the payment of the exercise price on the settlement date.

Any option held by the optionee at the time of cessation of service will
normally not remain exercisable beyond the limited period designated by the Plan
Administrator at the time of the option grant. During that period, the option
will generally be exercisable only for the number of shares in which the
optionee is vested at the time of cessation of service. The Plan Administrator
may extend the period following the optionee's cessation of service during which
his or her outstanding options may be exercised and/or accelerate the
exercisability of such options in whole or in part. Such discretion may be
exercised at any time while the options remain outstanding.

Any unvested shares of Common Stock will be subject to repurchase by the
Company, at the original exercise price paid per share, upon the optionee's
cessation of service prior to vesting in these shares. The Plan Administrator
will have complete discretion in establishing the vesting schedule for any such
unvested shares and will have full authority to waive the Company's outstanding
repurchase rights with respect to these shares in whole or in part.

The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program that have
exercise prices in excess of the then-current market price of Common Stock and
to issue replacement options with an exercise price based on the market price of
Common Stock at the time of the new grant.

Options are not assignable or transferable other than by will or by the laws
of inheritance following the optionee's death, and the option may, during the
optionee's lifetime, be exercised only by the optionee.

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OPTION/VESTING ACCELERATION

In the event of a Corporate Transaction, all outstanding options under the
Plan will become exercisable in full for vested shares, unless the options are
assumed by the successor corporation (or its parent company) or replaced with
comparable options or a comparable cash incentive plan. In addition, the Plan
Administrator may grant options that automatically accelerate in the event of a
Corporate Transaction or that accelerate if the optionee's service terminates
following the Corporate Transaction, whether or not the options are assumed or
replaced. "Corporate Transaction" means any of the following
stockholder-approved transactions:

- A merger or consolidation in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to
change the State of the Company's incorporation,

- The sale, transfer or other disposition of all or substantially all of the
assets of the Company in liquidation or dissolution of the Company, or

- A reverse merger in which the Company is the surviving entity but in which
securities possessing more than 50% of the total combined voting power of
the Company's outstanding securities are transferred to holders different
from those who held such securities immediately prior to the merger.

The Plan Administrator may also grant options that will become exercisable
in full for vested shares in the event of a Change in Control or that will
accelerate if the optionee's service terminates following the Change in Control.
"Change in Control" means either of the following transactions:

- Any person or related group of persons (other than the Company or a person
that directly or indirectly controls, is controlled by, or is under common
control with, the Company) directly or indirectly acquires beneficial
ownership within the meaning of Rule 13d-3 under the Securities Exchange
Act of 1934, as amended (the "1934 Act"), of securities possessing more
than 50% of the total combined voting power of the Company's outstanding
securities pursuant to a tender or exchange offer made directly to the
Company's stockholders that the Board does not recommend to such
stockholders to accept, or

- A change in the composition of the Board over a period of 24 consecutive
months or less such that a majority of the Board members (rounded up to
the next whole number) ceases, by reason of one or more proxy contests for
the election of Board members, to be comprised of individuals who either
(a) have been Board members continuously since the beginning of such
period or (b) have been elected or nominated for election as Board members
during such period by at least a majority of the Board members described
in clause (a) who were still in office at the time such election or
nomination was approved by the Board.

The acceleration of options or vesting of shares in the event of a Corporate
Transaction or Change in Control may be seen as an anti-takeover provision and
may have the effect of discouraging a merger proposal, a takeover attempt or
other efforts to gain control of the Company.

HOSTILE TAKE-OVERS

One or more officers of the Company may, in the Plan Administrator's sole
discretion, be granted limited stock appreciation rights in connection with
their outstanding options under the Plan. Upon the occurrence of a Hostile
Take-Over, each outstanding option with such a limited stock appreciation right
in effect for at least six months will automatically be canceled, to the extent
such option is at the time exercisable for fully vested shares of Common Stock.
The Optionee will in return be entitled to a cash distribution from the Company
in an amount equal to the excess of (a) the Take-Over Price of the vested shares
of Common Stock at the time subject to the canceled option (or cancelled portion
of

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such option) over (b) the aggregate exercise price payable for such shares.
Neither the approval of the Plan Administrator nor the consent of the Board will
be required in connection with such option cancellation and cash distribution.

A "Hostile Take-Over" will be deemed to occur in the event that (a) any
person or related group of persons (other than the Company or a person that
directly or indirectly controls, is controlled by, or is under common control
with the Company) directly or indirectly acquires beneficial ownership, within
the meaning of Rule 13d-3 under the 1934 Act, of securities possessing more than
50% of the total combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the Company's
stockholders that the Board does not recommend to such stockholders to accept
and (b) more than 50% of the securities so acquired in such tender or exchange
offer are accepted from holders other than officers and directors of the Company
subject to the short-swing profit restrictions of Section 16 of the 1934 Act.

The "Take-Over Price" per share will be deemed to be equal to the greater of
(a) the fair market value per share on the date of cancellation, as determined
pursuant to the regular valuation provisions of the Plan, or (b) the highest
reported price per share paid in effecting such Hostile Take-Over. However, if
the canceled option is an incentive stock option, the Take-Over Price will not
exceed the clause (a) price per share.

CHANGES IN CAPITALIZATION

In the event that any change is made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, recapitalization, combination
of shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Company's receipt of consideration, then
appropriate adjustments will be made to (a) the number and/or class of shares
issuable under the Plan, (b) the number and/or class of shares and price per
share in effect under each outstanding option under the Plan, (c) the number
and/or class of shares for which any one individual may be granted stock options
and direct share issuances in each calendar year and (d) the number and/or class
of shares for which non-employee Board members are granted stock options under
the Automatic Option Grant Program.

FINANCIAL ASSISTANCE

The Plan Administrator may institute a loan program in order to assist one
or more optionees in financing their exercise of outstanding options under the
Discretionary Option Grant Program or the purchase of shares under the Stock
Issuance Program. The form in which such assistance is to be made available
(including loans or installment payments) and the terms upon which such
assistance is to be provided will be determined by the Plan Administrator.
However, the maximum amount of financing provided any participant may not exceed
the amount of cash consideration payable for the issued shares plus all
applicable Federal, State and local income and employment taxes incurred in
connection with the acquisition of the shares. Any such financing may be subject
to forgiveness in whole or in part, at the discretion of the Plan Administrator,
over the participant's period of service.

AUTOMATIC OPTION GRANT PROGRAM

The Automatic Option Grant Program under the Plan provides for the grant of
non-statutory options to purchase shares of Common Stock to non-employee Board
members. Subject to the approval of Proposal Six by the stockholders, each
Outside Director will automatically be granted, at the time of his or her
initial election or appointment, an option to purchase 24,000 shares of Common
Stock ("Initial Automatic Option Grant") and each Outside Director who has
served in that capacity for the immediately preceding 90 days and continues to
so serve will receive an option to purchase 8,000 shares of Common Stock at each
Annual Meeting of Stockholders ("Annual Automatic Option Grant").

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The option price per share for each automatic grant will be the fair market
value per share of Common Stock on the date of grant. The option price for
purchased shares will be payable in cash or shares of Common Stock held for at
least six months, or through a same-day sale program.

Automatic option grants have a term of 10 years from the date of grant and
are immediately exercisable. However, the Company will have repurchase rights
with respect to the shares purchased under the options. If Proposal Six is
approved by the stockholders, repurchase rights under both the Initial Automatic
Option and the Annual Automatic Option Grants will terminate as to one-fourth of
the shares one year after the grant date and with respect to the balance in 36
equal monthly installments over the following three years, provided the
non-employee Board member remains a member of the Board.

If the optionee ceases to serve as a Board member, the option may be
exercised to the extent then exercisable and within its term for a period of
three months after the date of cessation (12 months if due to disability and
three years if due to death). In the case of death, the option may be exercised
within such period by the estate or heirs of the optionee.

In the event of a Corporate Transaction or Change in Control, as defined
above, each outstanding Automatic Option Grant will vest in full and will be
exercisable for fully-vested shares of Common Stock. Upon the occurrence of a
Hostile Take-Over, the optionee will have a 30-day period in which to surrender
to the Company each Automatic Option Grant held by him or her under the Plan for
a period of at least six months. The optionee will in return be entitled to a
cash distribution from the Company in an amount equal to the excess of (a) the
Take-Over Price of the shares of Common Stock at the time subject to the
surrendered option (whether or not the optionee is otherwise at the time vested
in those shares) over (b) the aggregate exercise price payable for such shares.
Such cash distribution will be paid within five days following the surrender of
the option to the Company. No approval or consent of the Board will be required
in connection with such option surrender and cash distribution.

STOCK ISSUANCE PROGRAM

Shares may be sold under the Stock Issuance Program at a price per share not
less than 85% of fair market value, payable in cash or through a promissory note
payable to the Company, or as a bonus for past services. Shares issued under the
Stock Issuance Program may either be vested upon issuance or subject to a
vesting schedule tied to the participant's period of service or the attainment
of designated performance goals. Unvested shares will be subject to certain
transfer restrictions and to repurchase or cancellation by the Company upon
either the participant's cessation of service prior to vesting in those shares
or the non-attainment of the applicable performance goals. The Plan
Administrator has discretion to accelerate the vesting of any issued shares in
whole or in part at any time. The Plan Administrator may also grant shares that
will vest in full in the event of a Corporate Transaction or a Change in Control
or that will accelerate if the optionee's service terminates following the
Change in Control. Individuals holding shares under the Stock Issuance Program
will have full stockholder rights with respect to those shares, whether the
shares are vested or unvested.

AMENDMENT AND TERMINATION

The Board may amend or modify the Plan in any or all respects whatsoever.
However, no such amendment may adversely affect the rights of existing optionees
or holders of unvested shares without their consent. In addition, the Board may
not, without the approval of the Company's stockholders, (a) materially increase
the maximum number of shares issuable under the Plan or the maximum number of
shares for which any one individual may be granted options or direct stock
issuances, except to reflect certain changes in the Company's capital structure,
or (b) materially modify the eligibility requirements for option grants or share
issuances.

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The Board may terminate the Plan at any time, and the Plan will terminate on
January 10, 2002, if not extended. Each stock option or unvested share issuance
outstanding at the time of such termination will remain in force in accordance
with the provisions of the instruments evidencing such grant or issuance.

FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS

The following is a general description of certain federal income tax
consequences of the Option Plan. This description does not purport to be
complete.

Neither the optionee nor the Company incurs any federal tax consequences as
a result of the grant of an option. The optionee has no taxable income upon
exercising an incentive stock option (except that the alternative minimum tax
may apply), and the Company receives no deduction when an incentive stock option
is exercised. Upon exercising a non-statutory stock option, the optionee
generally must recognize ordinary income equal to the "spread" between the
exercise price and the fair market value of Common Stock on the date of
exercise; the Company ordinarily will be entitled to a deduction for the same
amount. In the case of an employee, the option spread at the time a
non-statutory stock option is exercised is subject to income tax withholding,
but the optionee generally may elect to satisfy the withholding tax obligation
by having shares of Common Stock withheld from those purchased under the
non-statutory stock option. The tax treatment of a disposition of option shares
acquired under the Plan depends on how long the shares have been held and on
whether such shares were acquired by exercising an incentive stock option or a
non-statutory stock option. The Company is not entitled to a deduction in
connection with a disposition of option shares, except in the case of a
disposition of shares acquired under an incentive stock option before the
applicable incentive stock option holding periods have been satisfied.

If the exercisability of an option is accelerated as a result of a change of
control, all or a portion of the value of the option right at that time may be a
parachute payment for purposes of the excess parachute provisions of the Code.
Those provisions generally provide that if parachute payments exceed three times
an employee's average compensation for the five tax years preceding the change
of control, the Company loses its deduction and the recipient is subject to a
20% excise tax for the amount of the parachute payments in excess of one times
such average compensation.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF
THE AMENDMENT TO THE 1992 STOCK OPTION/STOCK ISSUANCE PLAN TO INCREASE THE
NUMBER OF SHARES GRANTED TO OUTSIDE DIRECTORS UNDER THE AUTOMATIC GRANT
PROVISIONS AND TO AMEND THE VESTING PROVISIONS OF THE PLAN.

PROPOSAL SIX--APPROVAL OF AMENDMENT TO
1994 EMPLOYEE STOCK PURCHASE PLAN

Stockholders are being asked to vote on a proposal to approve an amendment
to the Company's 1994 Employee Stock Purchase Plan (the "Purchase Plan") to
increase the number of shares of Common Stock reserved for future purchases
under the Plan by 200,000 shares, from 550,000 to 750,000 shares.

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HISTORY AND PURPOSE

The Board adopted the Purchase Plan in July of 1994 and the stockholders
approved the Purchase Plan in May 1995. The Purchase Plan was amended in 1999 to
increase the number of shares reserved for issuance thereunder to 550,000
shares. The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to meet the requirements of an "employee stock purchase
plan" as defined in Section 423 of the Code.

The purpose of the Purchase Plan is to provide employees of the Company and
designated parent or subsidiary corporations (collectively, the "Participating
Companies") an opportunity to participate in the ownership of the Company by
purchasing shares of Common Stock of the Company through payroll deductions. The
Purchase Plan is intended to benefit the Company as well as its stockholders and
employees. The Purchase Plan gives employees an opportunity to purchase shares
of Common Stock at a favorable price. The Company believes that the stockholders
will correspondingly benefit from the increased interest on the part of
participating employees in the profitability of the Company. Finally, the
Company will benefit from the periodic investments of equity capital provided by
participants in the Purchase Plan. The Purchase Plan was amended in 1999 to
increase the number of shares reserved for issuance thereunder to 550,000
shares.

ADMINISTRATION

A committee of the Board (the "Committee") administers the Purchase Plan.
All costs and expenses incurred in plan administration will be paid by the
Company without charge to participants. All cash proceeds received by the
Company from payroll deductions under the Purchase Plan will be credited to a
non-interest bearing book account.

SHARE RESERVE

The stock issuable under the Purchase Plan is the Company's authorized but
unissued or re-acquired Common Stock. The maximum number of shares of Common
Stock that may be issued in the aggregate under the Purchase Plan is 482,219
(including the shares subject to this proposal), adjusted as described below.
Common Stock subject to a terminated purchase right will be available for
purchase pursuant to purchase rights subsequently granted.

If any change in the Common Stock occurs (through recapitalization, stock
dividend, stock split, combination of shares, exchange of shares, or other
change affecting the outstanding Common Stock as a class without the Company's
receipt of consideration), appropriate adjustments will be made by the Company
to the class and maximum number of shares subject to the Purchase Plan, to the
class and maximum number of shares purchasable by each participant on any one
purchase date, and the class and number of shares and purchase price per share
subject to outstanding purchase rights in order to prevent the dilution or
enlargement of benefits thereunder.

ELIGIBILITY

Generally, any individual who is customarily employed by a Participating
Company more than 20 hours per week and for more than five months per calendar
year is eligible to participate in the Purchase Plan after completing 90 days of
employment. Approximately 59 employees (including five executive officers) were
eligible to participate in the Purchase Plan as of March 31, 2000.

OFFERING PERIODS

The Purchase Plan is implemented by offering periods that have a duration of
12 months or less; each offering period is comprised of one or two successive
purchase periods, which have a duration of six months. The participant will have
a separate purchase right for each offering period in which he or

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she participates. The purchase right will be granted on the participant's entry
date into an offering period and will be automatically exercised in successive
installments on the last day of each purchase period within the offering period.

PURCHASE PRICE

The purchase price per share under the Purchase Plan is 85% of the lower of
(a) the fair market value of a share of Common Stock on the first day of the
applicable offering period or, if later, the participant's entry date into the
offering period, or (b) the fair market value of a share of Common Stock on the
purchase date. If a participant's entry date is on a day other than the first
day of an offering period, the clause (a) amount will in no event be less than
the fair market value of the shares on the first day of such offering period.
Generally, the fair market value of the Common Stock on a given date is the
closing price of the Common Stock, as reported by the Nasdaq Stock Market.

LIMITATIONS

The plan imposes certain limitations upon a participant's rights to acquire
Common Stock, including the following:

- No purchase right will be granted to any person who immediately thereafter
would own, directly or indirectly, stock or hold outstanding options or
rights to purchase stock possessing five percent or more of the total
combined voting power or value of all classes of stock of the Company or
any of its parent or subsidiary corporations.

- In no event will a participant be permitted to purchase more than 2,500
shares on any one purchase date.

- The right to purchase Common Stock under the Purchase Plan (or any other
employee stock purchase plan that the Company or any of its subsidiaries
may establish) may not accrue at a rate that exceeds $25,000 in fair
market value of such Common Stock (determined at the time such purchase
right is granted) for any calendar year in which such purchase right is
outstanding.

PAYMENT OF PURCHASE PRICE

Payment for shares by participants will be by accumulation of after-tax
payroll deductions during the purchase period. The deductions may not exceed 10%
of a participant's cash compensation paid during a purchase period. Cash
compensation includes regular base pay, any pre-tax contributions made by a
participant to any Code section 401(k) plan or section 125 cafeteria benefit
program, overtime payments, bonuses, commissions, profit-sharing distributions
and other incentive-type payments.

The participant will receive a purchase right for each offering period in
which he or she participates to purchase up to the number of shares of Common
Stock determined by dividing such participant's payroll deductions accumulated
prior to the purchase date by the applicable purchase price. No fractional
shares may be purchased. Any payroll deductions accumulated in a participant's
account that are not sufficient to purchase a full share will be retained in the
participant's account for the subsequent purchase period.

CORPORATE TRANSACTION

In the event of a merger, reorganization, sale or liquidation of the Company
(a "Corporate Transaction"), each purchase right under the Purchase Plan will
automatically be exercised immediately before consummation of the Corporate
Transaction as if such date were the last purchase date of the offering period,
unless the purchase right is assumed by the surviving corporation or its parent
or subsidiary.

15
<PAGE>
AMENDMENT AND TERMINATION

The Board may at any time amend, suspend or terminate the Purchase Plan,
provided that, without the approval of the stockholders, no such action may
(a) materially modify the eligibility requirements under the Purchase Plan,
(b) materially increase the number of shares issuable under the Purchase Plan or
the maximum number of shares purchasable per participant or (c) materially
increase the benefits accruing to participants under the Purchase Plan.

FEDERAL INCOME TAX CONSEQUENCES

The following is a general description of certain federal income tax
consequences of the Purchase Plan. This description does not purport to be
complete.

The Purchase Plan is intended to qualify as an "employee stock purchase
plan" under section 423 of the Code. No income is recognized by a participant at
the time a right to purchase shares is granted. Likewise, no taxable income is
recognized at the time of the purchase, even though the purchase price reflects
a discount from the market value of the shares at that time.

A participant must recognize taxable income upon a disposition of shares
acquired under the Purchase Plan. The tax treatment may be more favorable if the
disposition occurs after the holding-period requirements of section 423 have
been satisfied (a "qualifying disposition"). To satisfy the holding-period
requirements of section 423, shares acquired under the Purchase Plan cannot be
disposed of within two years after the first day of the offering period during
which the shares were purchased (or within two years after the participant's
entry date, if that date is later than the beginning of the offering period) nor
within one year after the shares were purchased. The U.S. income tax
consequences of a qualifying disposition are follows:

- The participant recognizes ordinary income equal to the lower of (a) the
excess of the fair market value of the shares on the date of the
disposition over the purchase price or (b) 15% of the fair market value of
the shares on the first day of the applicable offering period (or on the
participant's entry date, if that date is later than the first day of the
offering period and if the market value is higher on that date). The
Company will not be entitled to any deduction under these circumstances.

- The excess, if any, of the fair market value of the shares on the date of
the disposition over the sum of the purchase price plus the amount of
ordinary income recognized (as described above) will be taxed as a
long-term capital gain. If a taxable disposition produces a loss (i.e.,
the fair market value of the shares on the date of the disposition is less
than the purchase price) and the disposition involves certain unrelated
parties, then the loss will be a long-term capital loss.

A participant who disposes of shares acquired under the Purchase Plan
without meeting the holding-period requirements makes a disqualifying
disposition of such shares. The U.S. income tax consequences of a disqualifying
disposition are as follows:

- The entire difference between the purchase price and the market value of
the shares on the date of purchase will be taxed to the participant as
ordinary income in the year of disposition. The Company will be entitled
to a deduction for the same amount, subject to certain conditions.

- The excess, if any, of the market value of the shares on the date of
disposition over their market value on the date of purchase will be taxed
as a capital gain (long-term or short term, depending on how long the
shares have been held). If the value of the shares on the date of
disposition is less than their value on the date of purchase, then the
difference will result in a capital loss (long-term or short-term,
depending on the holding period), provided the disposition involves
certain unrelated parties. Any such loss will not affect the ordinary
income recognized upon the disposition.

16
<PAGE>
NEW PURCHASE PLAN BENEFITS

Since purchase rights are subject to discretion, including an employee's
decision not to participate in the Purchase Plan, awards under the Purchase Plan
for the current fiscal year are not determinable. No purchase rights have been
granted with respect to the additional 200,000 shares for which approval is
requested.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF
THE AMENDMENT TO THE 1994 EMPLOYEE STOCK PURCHASE PLAN TO INCREASE THE NUMBER OF
SHARES AVAILABLE FOR ISSUANCE UNDER THE PLAN.

PROPOSAL SEVEN--RATIFICATION OF INDEPENDENT AUDITORS

The Board of Directors has appointed the firm of PricewaterhouseCoopers LLP,
independent public auditors for the Company during fiscal year 1999, to serve in
the same capacity for the fiscal year ending December 31, 2000, and is asking
the stockholders to ratify this appointment. The affirmative vote of a majority
of the shares of Common Stock represented and voting at the Annual Meeting is
required to ratify the selection of PricewaterhouseCoopers LLP.

In the event the stockholders fail to ratify the appointment, the Board will
reconsider its selection. Even if the selection is ratified, the Board in its
discretion may direct the appointment of a different independent auditing firm
at any time during the year if the Board believes that such a change would be in
the best interests of the Company and its stockholders.

A representative of PricewaterhouseCoopers LLP is expected to be present at
the Annual Meeting and will have the opportunity to make a statement if he or
she so desires. Such representative will be available to respond to appropriate
questions.

THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE RATIFICATION OF THE
SELECTION OF PRICEWATERHOUSECOOPERS LLP. TO SERVE AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.

OTHER MATTERS

The Company knows of no other matters to be presented for consideration at
the Annual Meeting. If any other matters properly come before the meeting, it is
the intention of the persons named in the enclosed form of proxy to vote the
shares they represent as the Board of Directors may recommend.

17
<PAGE>
OWNERSHIP OF SECURITIES

The following table sets forth certain information known to the Company with
respect to the beneficial ownership as of March 3, 2000 by (i) all persons who
are beneficial owners of 5% or more of the outstanding shares of the Company's
Common Stock or Series C Preferred Stock, (ii) each director and nominee,
(iii) the Company's Chief Executive Officer and each of the four other most
highly paid current executive officers and (iv) all current directors and
executive officers as a group.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENT BENEFICIALLY
5% STOCKHOLDERS, DIRECTORS, EXECUTIVE OFFICERS & OFFICERS AND DIRECTORS AS A GROUP OWNED(1) OWNED
- ---------------------------------------------------------------------------------- ------------------- --------------------
<S> <C> <C>
COMMON STOCK (2)
Entities associated with Alloy Ventures, Inc.(3) ...................... 1,784,448 16.05
480 Cowper Street, 2(nd) Floor
Palo Alto, CA 9430
Palo Alto Investors ................................................... 1,103,794 9.93
470 University Avenue
Palo Alto, CA 94301
Agilent Technologies, Inc. and ........................................ 558,212 5.02
Hewlett-Packard Company "H-P"(4)
3000 Hanover Street
Palo Alto, CA 94303
John F. Shoch(5)....................................................... 1,840,260 14.99
Martin Cooper(6)....................................................... 42,000 *
Robert Janowiak(7)..................................................... 39,000 *
Martin Kaplan(8)....................................................... 46,000 *
Charles E. Shalvoy(9).................................................. 575,769 4.93
Lawrence R. Burgess(10)................................................ 84,600 *
James R. Simmons, Jr.(11).............................................. 105,750 *
Randy W. Simon(12)..................................................... 163,939 1.45
Ron Wilderink(13)...................................................... 98,250 *
All directors and officers as a group (9 persons)(14).................. 2,995,568 24.39
SERIES C PREFERRED STOCK............................................... (15)
ACI Capitol ........................................................... 25,000 6.67%
65 East 55(th) St., 18(th) Floor
New York, NY 1002
Entities associated with Alloy Ventures, Inc. ......................... 40,000 10.67
480 Cowper Street, 2(nd) Floor
Palo Alto, CA 94301
Entities Associated with Steve Feinberg ............................... 75,000 20.00
Cerberus Group
450 Park Avenue, 28(th) Floor,
New York, NY 10022
Entities associated with Jonathan Gallen .............................. 86,500 22.95
Pequod Group
450 Park Avenue, 28(th) Floor
New York, NY 10022
Charles L. Grimes ..................................................... 30,000 8.00
P.O. Box 136
Mendenhall, PA
</TABLE>

18
<PAGE>

- ------------------------

* Less than 1%

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes sole or shared
voting or investment power with respect to securities. Shares of Common
Stock subject to options, warrants or shares of convertible preferred stock
currently exercisable or convertible, or exercisable or convertible within
60 days of March 3, 2000 are deemed outstanding for purposes of computing
the percentage ownership of the person holding such option or warrant but
are not outstanding for purposes of computing the percentage of any other
person. Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
beneficially owned.

(2) Percentage of beneficial ownership is calculated assuming 11,119,359 shares
of Common Stock were outstanding on March 3, 2000. This percentage also
includes Common Stock of which such individual or entity has the right to
acquire beneficial ownership within sixty days of March 3, 2000, including,
but not limited to, the exercise of an option; however such Common Stock
shall not be deemed outstanding for the purposes of computing a percentage
owned by any other shareholder.

(3) Includes 542,632 and 1,241,816 directly owned by AMA84 and AMA96,
respectively. AMC Partners 1996, L.P. ("AMCP96"), is the general partner of
Asset Management Associates 1996, L.P. AMC Partners 1984 ("AMCP84") is the
general partner of Asset Management Partners. Dr. Shoch, the Chairman of
the Board, is: a general partner of AMCP84 and AMCP96, which are the
general partners of AMA84 and AMA96, respectively, a managing member of
Alloy Ventures 1998, LLC; and may be deemed to have shared power to dispose
of or vote these shares. Dr. Shoch and Messrs. Sanders, Kelly, DiBona and
Taylor disclaim beneficial ownership of any such shares except to the
extent of their pecuniary interests therein.

(4) H-P and Agilent Technologies, Inc. share voting and dispositive power (as
reported on Schedule 13G).

(5) Includes 49,812 shares held in the form of immediately exercisable options.
Includes 542,632 shares held by Asset Management Associates 1984, and
1,241,816 shares held by Asset Management Associates 1996, L.P., as to
which Dr. Shoch disclaims beneficial ownership except to the extent of his
pecuniary interest therein.

(6) Includes 42,000 shares in the form of immediately exercisable options held
by Mr. Cooper.

(7) Includes 39,000 shares in the form of immediately exercisable options held
by Mr. Janowiak.

(8) Includes 2,500 shares held in trust for minor children and 42,000 shares in
the form of immediately exercisable options held by Mr. Kaplan.

(9) Includes 10,307 shares held in the Shalvoy Family Trust, 6,600 shares held
in trust for minor children and 558,862 shares held in the form of
immediately exercisable options by Mr. Shalvoy.

(10) Includes 84,600 shares held in the form of immediately exercisable options
by Mr. Burgess.

(11) Includes 88,250 shares held in the form of immediately exercisable options
by Mr. Simmons.

(12) Includes 159,374 shares in the form of immediately exercisable options
held by Dr. Simon.

(13) Includes 98,250 shares held in the form of immediately exercisable options
by Mr. Wilderink.

(14) Includes 1,162,148 shares in the form of options exercisable within
60 days of March 3, 2000. See Notes (5) through (13).

(15) Percentage of beneficial ownership is calculated assuming 375,000 shares
of Series C Preferred Stock outstanding on March 3, 2000. Each share is
convertible, on or after June 10, 2000, to ten shares of common stock.

19
<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION
SUMMARY COMPENSATION TABLE

The table below provides certain summary information concerning the
compensation earned by Charles E. Shalvoy, our Chief Executive Officer, and each
of our other four most highly compensated executive officers whose earned
compensation was in excess of $100,000 for fiscal 1999. These five individuals
will be referred to as the "named officers." The salary figures below include
amounts deferred under our 401(k) plan.

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------
ANNUAL COMPENSATION AWARDS SECURITIES
------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) OPTIONS (#)
- --------------------------- -------- ---------- ------------ -----------------
<S> <C> <C> <C> <C>
Charles E. Shalvoy.............................. 1999 $214,294 $120,750 292,200
President and Chief Executive Officer 1998 185,929 17,150 275,000(2)
1997 197,088 11,000 --

Lawrence R. Burgess............................. 1999 $ 96,640 $ 12,300(3) 84,600
Vice President, Engineering 1998 -- -- --
1997 -- -- --

James P. Simmons, Jr............................ 1999 $155,967 $ 13,500 30,750
Vice President, Marketing and Sales 1998 5,770 -- 75,000
1997 -- -- --

Randy W. Simon, Ph.D............................ 1999 $141,861 $ 10,000 83,505
Vice President, Technology 1998 120,850 2,500 30,000(4)
1997 125,908 5,000 60,000(5)

Ron Wilderink................................... 1999 $151,704 $ 55,000(6) 45,750
Vice President, Finance, Chief Financial 1998 13,642 -- 60,000
Officer and Secretary 1997 -- -- --
</TABLE>

- ------------------------

(1) Bonuses earned in each fiscal year are determined and paid at the beginning
of each subsequent year.

(2) Includes options granted for 225,000 shares in exchange for cancellation of
an equal number of shares under a repricing program.

(3) Includes $5,000 sign-on bonus received in 1999.

(4) Includes options for 20,000 shares granted in exchange for cancellation of
an equal number of shares under a repricing program.

(5) Includes options for 40,000 shares granted in exchange for cancellation of
an equal number of shares under a repricing program.

(6) Includes $10,000 sign-on bonus received in 1999.

20
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR

The figures in the right-hand columns regarding potential realizable option
values are based on assumed rates of stock appreciation of 5% and 10%,
compounded annually. These rates of appreciation do not represent estimates of
our future stock price, and we provide no assurance that our stock will
appreciate at these rates.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------- POTENTIAL REALIZABLE VALUE AT ASSUMED
NUMBER OF PERCENT OF RATES OF STOCK PRICE APPRECIATION FOR
SECURITIES TOTAL OPTIONS OPTION TERM
UNDERLYING GRANTED TO EXERCISE --------------------------------------
OPTIONS EMPLOYEES IN PRICE EXPIRATION 0%
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE ($/SH) 5% ($) 10% ($)
- ---- ----------- ------------- -------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Charles E. Shalvoy...... 123,149 13.1 5.50 12/21/09 -- 425,963 1,079,473
49,051 5.2 5.50 12/21/09 -- 169,664 429,961
107,275 11.4 1.25 04/06/09 84,330 213,711
12,725 1.4 1.25 04/06/09 10,003 25,350

Lawrence R. Burgess..... 60,000 6.4 1.56 04/28/09 -- 58,978 149,461
24,600 2.6 5.50 12/21/09 -- 85,089 215,633

James P. Simmons, Jr.... 30,750 3.3 5.50 12/21/09 -- 106,362 269,542

Randy W. Simon, Ph.D.... 30,000 3.2 1.25 04/06/09 -- 23,584 59,765
2,276 .2 5.50 12/21/09 -- 7,873 19,950
51,229 5.4 5.50 12/21/09 -- 177,197 449,052

Ron Wilderink........... 15,000 1.6 1.72 05/14/09 -- 16,216 41,095
30,750 3.3 5.50 12/21/09 -- 106,362 269,542
</TABLE>

21
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

The table below sets forth information concerning option exercises and
option holdings of the named officers at the end of fiscal 1999. No stock
appreciation rights were exercised during fiscal 1999, nor were any stock
appreciation rights outstanding at the end of fiscal 1999.

All of the option shares listed below, with the exceptions noted, are
immediately exercisable. However, we have the right to repurchase any such
option shares if the optionee ceases service before vesting in such shares.
Specifically, 25,004 and 12,668 options are not immediately exercisable by
Mr. Shalvoy, and Mr. Simon, respectively.

The "value of in-the-money options" figures in the right-hand columns were
calculated on the basis of the fair market of our common stock on December 31,
1999, $11.75 per share, minus the exercise price of the options.

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
SHARES UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
ON VALUE YEAR END (#) FISCAL YEAR END ($)
EXERCISE REALIZED ------------------- -----------------------
NAME (#) ($) VESTED UNVESTED VESTED UNVESTED
- ---- -------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Charles E. Shalvoy.......................... -- -- 231,661 335,539 1,882,246 2,688,380
Lawrence R. Burgess......................... -- -- -- 84,600 -- 764,970
James P. Simmons, Jr........................ 5,000 46,248 11,250 89,500 116,010 789,018
Randy W. Simon, Ph.D........................ -- -- 80,077 102,974 719,388 793,706
Ron Wilderink............................... -- -- 13,000 92,750 134,056 827,317
</TABLE>

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT ARRANGEMENTS AND CHANGE IN
CONTROL AGREEMENTS

None of our executive officers, other than Charles E. Shalvoy, have
employment agreements, and their employment may be terminated at any time at the
discretion of our board of directors. We entered into an agreement with
Mr. Shalvoy, our President and Chief Executive Officer, on May 3, 1994, which
provides for accelerated vesting of his option shares as if he remained employed
for one additional year in the event that his employment is terminated without
cause following certain mergers, acquisitions or sales of all or substantially
all of our assets.

The vesting of options or shares held by any of our named officers may be
accelerated in the event of a Corporate Transaction or a Change in Control. See
Plan summary under "Proposal Five--Approval of Amendment to 1992 Stock
Option/Stock Issuance Plan."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

John F. Shoch and Martin Kaplan are the members of the Compensation
Committee. Dr. Shoch served as Chief Executive Officer of the Company from
September 1987 until October 1988. See "Certain Transactions" for a description
of insider participation by Dr. Shoch and Mr. Kaplan in 1999. No member of the
Compensation Committee or executive officer of the Company has a relationship
that would constitute an interlocking relationship with officers or directors of
another entity.

22
<PAGE>
CERTAIN TRANSACTIONS

In December 1999, we issued a total of 375,000 shares of Series C preferred
stock for $40.00 per share, and issued warrants to purchase 750,000 shares of
common stock at a price of $4.00 per share, for a total of $15,000,000. Each
share of Series C preferred stock is convertible into 10 shares of common stock.
Mr. Charles L. Grimes, a holder of more than 5% of our outstanding capital stock
at that time, purchased 30,000 shares and 60,000 warrants. Mr. Martin A. Kaplan,
a member of our Board of Directors, purchased 2,500 shares and 5,000 warrants.
Entities associated with Alloy Ventures, Inc., a holder of more than 5% of our
outstanding stock purchased 40,000 shares and 80,000 warrants. Alloy Management
Partners LLC is the general partner of AMA98 Partners, LP, AMA98 Ventures, LP,
AMA98 Corporate, LP and AMA98 Investors, LP. Dr. Shoch, the Chairman of the
Board, is a Managing Member of Alloy Management Partners LLC and a limited
partner of AMA98 Partners, LP. ACI Capital purchased 25,000 shares. Entities
Associated with Steve Feinberg, Cerberus Group, purchased 75,000 shares and
150,000 warrants. Entities associated with Jonathan Gallen, Pequod Group,
purchased 86,050 shares and 172,100 warrants.

For information concerning grants of options to certain non-employee members
of the Board of Directors, including Dr. Shoch and Messrs. Cooper, Kaplan and
Janowiak, see "Proposal One--Election of Directors--Director Compensation."

The Company has entered into separate indemnification agreements with its
directors and officers. These agreements require the Company, among other
things, to indemnify them against certain liabilities that may arise by reason
of their status or service as directors or officers (other than liabilities
arising from actions not taken in good faith or in a manner the indemnitee
believed to be opposed to the best interest of the Company) to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified and to obtain director's and officers' insurance if
available on reasonable terms.

Notwithstanding anything to the contrary set forth in any of the Company's
previous fillings under the Securities Act of 1933 or the 1934 Act that might
incorporate future filings' including this Proxy in whole or in part, the
following report and the Performance Graph which follows shall not be deemed to
be incorporated by reference into any such filings.

COMPENSATION COMMITTEE REPORT

Decisions on compensation of the Company's Chief Executive officer, Charles
E. Shalvoy, and its other executive officers are generally made by the
Compensation Committee of the Company's Board of Directors. At the time of this
report, the Compensation Committee consists of Dr. Shoch and Mr. Kaplan, two of
the Company's outside directors. All decisions by the Compensation Committee are
reviewed by the full Board of Directors, except for decisions about awards under
the Company's 1992 Stock Option/Stock Issuance Plan, which decisions must be
made solely by the Plan Administrator, which consists of Messers Kaplan and
Janowiak, for awards under such plan to satisfy Rule 16b-3 under the 1934 Act.
The Compensation Committee has furnished the following report on the 1999
compensation of Charles E. Shalvoy and the Company's other executive officers.

In setting the compensation levels, the Compensation Committee considers the
standard practices in the superconductor industry, including data from surveys,
as well as the practices of companies with whom the Company competes for
executive talent. The Company believes that its total executive compensation
package is near the median among its peers making the transition from the
development stage, although it is low when compared to companies at a more
advanced stage with whom the Company competes for talent.

It is the current philosophy of the Company to keep the base salary of
executives between the 25(th) and 50(th) percentiles based on the RADFORD
ASSOCIATES MANAGEMENT TOTAL COMPENSATION PLAN 1994--

23
<PAGE>
OVERALL COMPANIES LESS THAN $40M (Radford), so that more of their compensation
depends on bonuses, which are contingent upon Company and individual
performance. The Radford surveys include some but not all companies included in
the Performance Graph. See "Comparison of Stockholder Return." The executives
are thus motivated to enhance stockholder value.

As the Company is just beginning to commercialize products, the Compensation
Committee believes that corporate performance is not appropriately measured by
traditional financial performance criteria such as profitability and earnings
per share. Rather, the Compensation Committee believes that corporate
performance is appropriately measured by analyzing the degree to which the
Company has achieved certain goals established by the Compensation Committee and
approved by the Board.

Under the Executive Compensation Bonus Plan (ECP), an executive's annual
incentive award depends on improved revenues, profit/loss results, milestone
accomplishments and the executive's specific contribution. The current
philosophy of the Company is to keep total compensation, including bonuses, for
executives between the 50(th) and 75(th) percentiles of the companies in the
Radford survey. The performance goals for the Company are derived from the
Company's business plans that include critical individual performance targets
relating to strategic product positioning, revenue growth, profit/ loss for the
fiscal year and key milestones. The ECP is based on a formula comprised of a
Company Performance Ratio (CPR) multiple times an Individual Performance Ratio
(IPR) multiple. The CPR is based on the ratio of actual versus plan performance
for revenues and profit/loss and can range from 50% to 150%. The IPR is tied to
achievement of goals during the year that are established in advance and may
have a range from 0%--100%. Multiplying the two, CPR X IPR then quantifies the
executives' bonuses based on a predetermined target of 30% to 50% of base
salary. The incentive target is set at a higher percentage for more senior
officers, with the result that the more senior executive officers have a higher
percentage of their potential cash compensation at risk. If the CPR is 150% and
IPR equals 130%, executives can earn up to a maximum of 45% to 75% of their base
salaries. The Committee annually reviews and approves specific bonus targets,
maximums, and performance criteria for all executives.

STOCK OPTIONS

The 1992 Stock Option Plan Administrator grants stock options under the Plan
to foster executive ownership and to provide direct linkage with stockholder
interests. The Plan Administrator considers current level of equity holdings in
the Company, stock options previously granted, industry practices, the
executive's accountability level, and assumed potential stock value when
determining stock option grants. The Plan Administrator relies upon competitive
guideline ranges of retention-effective, target-gain objectives to be derived
from option gains based upon relatively aggressive assumptions relating to
planned growth and earnings. In this manner, potential executive gains parallel
those of other stockholders over the long term. Therefore, the stock option
program serves as the Company's primary long-term incentive and retention tool
for executives and other key employees. The exercise prices of stock options
granted to the executive officers are equal to the market value of the stock on
the date of grant.

CEO COMPENSATION

Mr. Shalvoy commenced employment with the Company effective June 6, 1994. In
general, the factors utilized in determining Mr. Shalvoy's compensation are the
same as those applied to the other executive officers in the manner described in
the preceding paragraphs, although achievement of Company financial performance
goals has a greater impact on his total compensation.

In establishing Mr. Shalvoy's base salary, it was the Committee's intent to
provide him with a level of stability and certainty each year. His base salary
for the 1999 fiscal year approximates the 30(th) percentile of reported base
salaries for Chief Executive Officers based on Radford.

24
<PAGE>
The annual bonus component of Mr. Shalvoy's compensation package was based
on the Company's financial performance and individual goal achievement, as
described above. Based upon Mr. Shalvoy's IPR and CPR multiples; his resultant
bonus for 1999 was $120,750.

COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)

Section 162 (m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction for compensation exceeding $1 million paid to certain
of the corporation's executive officers. It is not expected that the
compensation to be paid to the Company's executive officers for fiscal 1999 will
exceed the $1 million limit per officer. The Company's 1992 Stock Option/Stock
Issuance Plan is structured so that any compensation deemed paid to an executive
officer when he/she exercises an outstanding option under the Plan with an
exercise price equal to the fair market value of the option shares on the grant
date will qualify as performance-based compensation; which will not be subject
to the $1 million limitation. The Compensation Committee will defer any decision
on whether or not to limit the dollar amount of all other compensation payable
to the Company's executive officers to the $1 million limitation, should the
individual compensation of any executive officer ever approach that level.

In summary, it is the opinion of the committee that the adopted executive
compensation policies and plans provide the necessary total remuneration program
to properly align the Company's performance and the interest of the Company's
stockholders with competitive and equitable executive compensation in a balanced
and reasonable manner, for both the short and long-term.

JOHN F. SHOCH, Ph.D.
Chairman, Compensation Committee

MARTIN KAPLAN
Member, Compensation Committee

25
<PAGE>
COMPARISON OF STOCKHOLDER RETURN

The graph depicted below reflects a comparison of the cumulative total
return (change in stock price plus reinvestment dividends) of the Company's
Common Stock together with the cumulative total returns of the Nasdaq Stock
Market, U.S. Index and the Hambrecht & Quist Technology Index for the five-year
period beginning December 31, 1994.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG CONDUCTUS, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE HAMBRECHT & QUIST TECHNOLOGY INDEX

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
HAMBRECHT &
CONDUCTUS, INC. NASDAQ STOCK MARKET (U.S.) QUIST TECHNOLOGY
<S> <C> <C> <C>
Dec-94 100 100 100
Dec-95 138 141 150
Dec-96 130 174 186
Dec-97 101 213 218
Dec-98 31 300 339
Dec-99 235 556 757
</TABLE>

*$100 INVESTED ON 12/31/94 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.

(1) The graph assumes that $100 was invested on December 31, 1994. in the
Company's Common Stock and in each index and that all dividends were
reinvested. No cash dividends have been declared on the Company's Common
Stock.

(2) Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.

(3) The performance graph and all of the material in the Compensation Committee
Report is not deemed filed with the Securities and Exchange Commission, and
is not incorporated by reference to any filing of the Company under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
whether made before or after the date of this Proxy Statement and
irrespective of any general incorporation language in any such filing.

26
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the 1934, Act, requires the Company's executive officers
and directors, and persons who own more than 10% of the Company's Common Stock
to file certain reports of ownership with the Securities and Exchange Commission
("SEC") and with the National Association of Securities Dealers. Such officers,
directors and stockholders are also required by SEC rules to furnish the Company
with copies of all Section 16(a) forms that they file. Based upon (i) the copies
of Section 16(a) reports which the Company received from such persons for their
1999 fiscal year transactions and (ii) the written representations received from
one or more of such persons that no annual Form 5 reports were required to be
filed for them for the 1999 fiscal year, the Company believes that all
Section 16(a) filing requirements applicable to such officers, directors and 10%
beneficial owners were complied with, except as follows: Mr. Martin Kaplan did
not timely file a report on Form 5 with respect to two acquisitions of stock;
Mr. Charles E. Shalvoy did not timely file a report on Form 5 with respect to
one stock option grant; Mr. Larry Burgess did not timely file a report on
Form 5 with respect to one stock option grant; Mr. James P. Simmons, Jr. did not
timely file a report on Form 5 with respect to one stock option grant;
Mr. Randy Simon did not timely file a report on Form 5 with respect to one stock
option grant; and Mr. Ron Wilderink did not timely file a report on Form 5 with
respect to one stock option grant.

ANNUAL REPORT

A copy of the Annual Report of the Company for the fiscal year ended
December 31, 1999 has been mailed concurrently with this Proxy Statement to all
stockholders entitled to notice of and to vote at the Annual Meeting.

FORM 10-K

The Company filed an Annual Report on Form 10K with the SEC. Stockholders
may obtain a copy of this report, without charge, by writing to Ronald
Wilderink, Chief Accounting Officer, at the Company's executive offices at 969
West Maude Avenue, Sunnyvale, California 94086.

THE BOARD OF DIRECTORS
OF CONDUCTUS, INC.

27
<PAGE>
DIRECTIONS TO:
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 25, 2000

FROM SAN FRANCISCO AIRPORT

Follow signs to 101 South - Take 101 South approximately 35 miles to
Mathilda Avenue South Exit - Take Mathilda South to Maude Avenue - Turn right
onto Maude Avenue - Go down two traffic lights - Conductus' administrative
offices are located at 965 West Maude Avenue on the right just before the third
stoplight (Macara Avenue).

FROM SAN JOSE AIRPORT

Follow signs to 101 North - Take 101 North approximately 8 miles to Mathilda
Avenue South Exit - Take Mathilda South to Maude Avenue - Turn right onto Maude
Avenue - Go down two traffic lights - Conductus' administrative offices are
located at 965 West Maude Avenue on the right just before the third stoplight
(Macara Avenue).

28
<PAGE>
EXHIBIT A

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF CONDUCTUS, INC.
A DELAWARE CORPORATION
(PURSUANT TO SECTIONS 242 AND 245 OF THE
DELAWARE GENERAL CORPORATION LAW)

Conductus, Inc. (the "Corporation"), a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "General
Corporation Law") does hereby certify that:

FIRST: The name of the Corporation is Conductus, Inc. and that the
Corporation was originally incorporated on September 1, 1987 pursuant to the
General Corporation Law; and

SECOND: The following resolutions amending and restating the Corporation's
Restated Certificate of Incorporation, as amended, were approved by the Board of
Directors of the Corporation by unanimous written consent effective as of
April 7, 2000 and were duly adopted by the stockholders of the Corporation in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law at a meeting of the stockholders held in accordance with
Section 228 of the General Corporation Law:

"Now, therefore, be it resolved that the Restated Certificate of
Incorporation of the Corporation, as amended, be amended and restated in its
entirety as follows:

ARTICLE I

The name of the Corporation (herein called the "Corporation") is
CONDUCTUS, INC.

ARTICLE II

The address of the registered office of the Corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, Delaware
19805. The name of its registered agent at such address is The Corporation
Service Company.

ARTICLE III

The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.

ARTICLE IV

A. CLASSES OF STOCK. The Corporation is authorized to issue two classes of
stock to be designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares that the Corporation is authorized to issue is
Thirty-Five Million (35,000,000) shares. Thirty Million (30,000,000) shares, par
value of one hundredths of a cent ($.0001) per share, shall be Common Stock, and
Five Million (5,000,000) shares, par value of one hundredth of a cent ($.0001)
per share, shall be Preferred Stock.

B. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The Preferred
Stock authorized by this Restated Certificate of Incorporation may be issued
from time to time in one or more series. The Board of Directors is hereby
authorized to fix or alter the rights, preferences, privileges and restrictions
granted to or imposed upon any series of Preferred Stock, and the number of
shares constituting any such series and the designation thereof, or of any of
them. Subject to compliance with applicable protective voting rights that have
been or may be granted to the Preferred Stock or series thereof in Certificates
of Determination or the Corporation's Certificate of Incorporation ("Protective
Provisions"), but notwithstanding any other rights of the Preferred Stock or any
series thereof, the rights, privileges, preferences and restrictions of any such
additional series may be subordinated to, PARI
<PAGE>
PASSU with (including, without limitation, inclusion in provisions with respect
to liquidation and acquisition preferences, redemption and/or approval of
matters by vote or written consent), or senior to any of those of any present or
future class or series of Preferred or Common Stock. Subject to compliance with
applicable Protective Provisions, the Board of Directors is also authorized to
increase or decrease the number of shares of any series, prior or subsequent to
the issue of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status that they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.

C. COMMON STOCK.

1. DIVIDEND RIGHTS. Subject to any preferential dividend rights
applicable to the shares of the Preferred Stock, the holders of shares of
the Common Stock shall be entitled to receive such dividends as may be
declared from time to time by the Board of Directors.

2. LIQUIDATION RIGHTS. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, after
distribution in full of the preferential amounts to be distributed to the
holders of shares of the Preferred Stock, the holders of shares of the
Common Stock shall be entitled to receive all of the remaining assets of the
Corporation available for distribution to its stockholders, ratably in
proportion to the number of shares of the Common Stock held by them.

3. REDEMPTION. The Common Stock is not redeemable.

4. VOTING RIGHTS. The holders of shares of Common Stock shall be
entitled to vote on all matters at all meetings of the stockholders of the
Corporation and shall be entitled to one vote for each share of Common Stock
entitled to vote at such meeting.

ARTICLE V

Except as otherwise provided in this Restated Certificate of Incorporation,
in furtherance and not in limitation of the powers conferred by statute, the
Board of Directors is expressly authorized to make, repeal, alter, amend and
rescind any or all of the Bylaws of the Corporation.

ARTICLE VI

The number of directors of the Corporation shall be fixed from time to time
by a bylaw or amendment thereof duly adopted by the Board of Directors or by the
stockholders of the Corporation.

ARTICLE VII

Elections of directors need not be by written ballot unless the Bylaws of
the Corporation shall so provide.

ARTICLE VIII

Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.

ARTICLE IX

No action may be taken by the stockholders of the Corporation without a
meeting, and no consents in lieu of a meeting may be taken pursuant to
Section 228 of the Delaware General Corporation Law.

A-2
<PAGE>
ARTICLE X

A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is hereafter amended
to authorize, with the approval of a corporation's stockholders, further
reductions in the liability of the Corporation's directors for breach of
fiduciary duty, then a director of the Corporation shall not be liable for any
such breach to the fullest extent permitted by the Delaware General Corporation
Law as so amended. Any repeal or modification of the foregoing provisions of
this Article X by the stockholders of the Corporation shall not adversely affect
any right or protection of a director of the Corporation existing at the time of
such repeal or modification.

ARTICLE XI

The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Restated Certificate of Incorporation, in the manner
now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.

IN WITNESS WHEREOF, CONDUCTUS, INC. has caused this Amended and Restated
Certificate of Incorporation to be signed by its President and attested to by
its Secretary this day of , 1998.

<TABLE>
<S> <C>
--------------------------------------------
CHARLES E. SHALVOY, President and Chief
Executive Officer

ATTEST:

- --------------------------------------------
RON WILDERINK
Vice President of Finance, Chief Financial
Officer and Secretary
</TABLE>

A-3
<PAGE>
APPENDIX A

CONDUCTUS, INC.
1992 STOCK OPTION/STOCK ISSUANCE PLAN
(AMENDED AND RESTATED EFFECTIVE MAY 25, 2000)(1)

ARTICLE ONE
GENERAL

I. PURPOSE OF THE PLAN

A. This 1992 Stock Option/Stock Issuance Plan (the "Plan") is intended to
promote the interests of Conductus, Inc., a Delaware corporation (the
"Corporation"), by providing eligible individuals with the opportunity to
acquire a proprietary interest, or otherwise increase their proprietary
interest, in the Corporation as an incentive for them to remain in the service
of the Corporation (or its parent or subsidiary corporations).

B. The Plan serves as the successor to the Corporation's 1987 Stock Option
Plan and 1989 Stock Option Plan (collectively, the "Predecessor Plans"), and no
further option grants shall be made under the Predecessor Plans. All options
outstanding under the Predecessor Plans have been incorporated into this Plan
and shall accordingly be treated as outstanding options under this Plan.

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

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

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

- ------------------------
(1) The Company intends to register the additional shares contemplated to be
issued pursuant to this amended and restated (name of plan) on Form S-8
promptly after, and subject to, approval of the amended plan by the
Company's stockholders.

<PAGE>

II. STRUCTURE OF THE PLAN

A. The Plan shall be divided into three separate components: the
Discretionary Option Grant Program specified in Article Two, the Automatic
Option Grant Program specified in Article Three, and the Stock Issuance Program
specified in Article Four. Under the Discretionary Option Grant Program,
eligible individuals may be granted options to purchase shares of the
Corporation's common stock (the "Common Stock"). Under the Automatic Option
Grant Program, members of the Corporation's Board of Directors (the "Board") who
are not employees of the Corporation or its subsidiaries (the "Outside
Directors") automatically receive non-statutory options to purchase shares of
Common Stock. The Stock Issuance Program shall allow eligible individuals to
purchase shares of Common Stock; such shares may be issued as fully-vested
shares or as shares vesting over time.

B. The provisions of Articles One and Five of the Plan shall apply to the
Discretionary Option Grant Program, the Automatic Option Grant Program, and the
Stock Issuance Program unless otherwise indicated.

III. ADMINISTRATION OF THE PLAN

A. The Plan shall be administered by a committee (the "Committee") of two
(2) or more Outside Directors appointed by the Board. Members of the Committee
shall serve for such period of time as the Board may determine and shall be
subject to removal by the Board at any time.

B. The Committee, acting as plan administrator (the "Plan Administrator"),
shall have full power and authority (subject to the express provisions of the
Plan) to establish such rules and regulations as it may deem appropriate for the
proper administration of the Plan and to make such determinations under, and
issue such interpretations of, the Plan and any outstanding option grants or
stock issuances as it may deem necessary or advisable. Decisions of the Plan
Administrator shall be final and binding on all parties who have an interest in
the Plan or any outstanding option or stock issuance.

C. Service on the Committee shall constitute service as a Board member, and
members of the Committee shall accordingly be entitled to full indemnification
and reimbursement as Board members for their service on the Committee. No member
of the Committee shall be liable for any act or omission made in good faith with
respect to the Plan or any option granted under the Plan.

IV. OPTION GRANTS AND STOCK ISSUANCES

A. The persons eligible to receive stock issuances under the Stock Issuance
Program (the "Participants") and/or option grants under the Discretionary Option
Grant Program (the "Optionees") are as follows:

A-2
<PAGE>

(1) key employees (including officers and directors) of the Corporation
(or its parent or subsidiary corporations) who render services which
contribute to the management, growth and financial success of the
Corporation (or its parent or subsidiary corporations),

(2) members of the Board, and

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

B. Outside Directors shall receive options in accordance with the Plan's
Automatic Option Grant Program; provided, however, that nothing in the Plan
shall be construed to prevent an Outside Director from declining to receive an
option under this Plan.

C. The Plan Administrator shall have full authority to determine (i) with
respect to the discretionary option grants made under Article Two, which
eligible individuals are to receive option grants, the number of shares to be
covered by each such grant, whether the granted option is to be an incentive
stock option ("Incentive Option") which satisfies the requirements of
Section 422 of the Internal Revenue Code or a non-statutory option not intended
to meet such requirements, the time or times at which each granted option is to
become exercisable and the maximum term for which the option may remain
outstanding and (ii) with respect to stock issuances under the Stock Issuance
Program, which eligible individuals are to be selected for participation, the
number of shares to be issued to each Participant, the vesting schedule (if any)
to be applicable to the issued shares, and the consideration to be paid by the
Participant for such shares.

D. The Plan Administrator shall have the absolute discretion either to grant
options in accordance with Article Two of the Plan or to effect stock issuances
in accordance with Article Four of the Plan.

V. STOCK SUBJECT TO THE PLAN

A. SHARES AVAILABLE

(1) Shares of Common Stock shall be available for issuance under the Plan
and shall be drawn from either the Corporation's authorized but unissued shares
of Common Stock or from reacquired shares of Common Stock, including shares
repurchased by the Corporation on the open market. The maximum number of shares
of Common Stock which may be issued over the term of the Plan shall not exceed
4,580,000(2) shares of Common Stock, subject to adjustment from time to time in
accordance with the provisions of this Section V. To the extent one or more

- ------------------------
(2) Reflects the 300,000-share increase authorized by the Board in January
1996 and approved by the stockholders at the 1996 Annual Stockholders'
Meeting; the 200,000-share increase authorized by the Board in October 1996
and approved by the stockholders at the 1997 Annual Stockholders' Meeting;
the 500,000 share increase authorized by the Board in April 1999 and
approved by the stockholders at the 1999 Annual Stockholders' Meeting and
the 2,000,000-share increase authorized by the Board in April 2000, subject
to approval by the stockholders at the 2000 Annual Stockholders' Meeting.

A-3
<PAGE>

outstanding options under the Predecessor Plans which have been incorporated
into this Plan are subsequently exercised, the number of shares issued with
respect to each such option shall reduce, on a share-for-share basis, the number
of shares available for issuance under this Plan.

(2) Effective on the first day of each fiscal year of the Company, beginning
on January 1, 2001, the number of shares of Stock available shall automatically
be increased by an amount, rounded to the nearest whole share (the "Annual
Increase Shares"), equal to four percent (4%) of the aggregate number of shares
of Stock outstanding as of such date ("Outstanding Shares") or such lessor
number of shares as determined by the Board; provided that, with respect to each
such increase effective on the first day of each fiscal year of the Company
beginning on January 1, 2001, the number of Annual Increase Shares shall be
reduced by the number of shares of Stock subject to the Plan that are not
then-issued and are not subject to the then-outstanding option grants as of such
effective date (the "Available Shares"), provided that, no reduction shall be
made if the Available Shares equal to one percent (1%) or less of the aggregate
number of Outstanding Shares as of such effective date.(3)

B. In no event may any one individual participating in the Plan be granted
stock options and direct stock issuances for more than 750,000 shares of Common
Stock per calendar year, subject to adjustment from time to time in accordance
with the provisions of this Section V.

C. Should one or more outstanding options under this Plan (including
outstanding options under the Predecessor Plans incorporated into this Plan)
expire or terminate for any reason prior to exercise in full (including any
option cancelled in accordance with the cancellation-regrant provisions of
Section IV of Article Two of the Plan), then the shares subject to the portion
of each option not so exercised shall be available for subsequent option grant
or share issuance under the Plan. Shares subject to any option or portion
thereof cancelled in accordance with Section V of Article Two and shares
repurchased by the Corporation pursuant to its repurchase rights under the Plan
or otherwise surrendered for cancellation under Section I(B)(3) of Article Four
shall NOT be available for subsequent option grant or stock issuance under the
Plan. In addition, should the exercise price of an outstanding option under the
Plan (including any option incorporated from the Predecessor Plans) be paid with
shares of Common Stock, then the number of shares of Common Stock available for
issuance under the Plan shall be reduced by the gross number of shares for which
the option is exercised, and not by the net number of shares of Common Stock
actually issued to the option holder.

D. In the event any change is made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, recapitalization, combination
of shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without receipt of consideration, then appropriate adjustments
shall be made to (i) the maximum number and/or class of shares issuable under
the Plan, (ii) the maximum number and/or class of shares for which any one
individual participating in the Plan may be granted stock options and direct
stock issuances per calendar year, (iii) the number and/or class of shares for
which an Outside Director is granted

- ------------------------
(3) Authorized by the Board in April 2000, subject to approval by the
stockholders at the 2000 Anual Stockholders' Meeting.

A-4
<PAGE>

stock options in accordance with the Plan's Automatic Option Grant Program,
(iv) the number and/or class of shares and price per share in effect under
each outstanding option under the Plan and (v) the number and/or class of
shares and price per share in effect under each outstanding option
incorporated into this Plan from the Predecessor Plans. Such adjustments to
the outstanding options are to be effected in a manner which shall preclude
the enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.

E. Common Stock issuable under the Plan, whether under the Discretionary
Option Grant Program or the Stock Issuance Program, may be subject to such
restrictions on transfer, repurchase rights or other restrictions as may be
determined by the Plan Administrator.

A-5
<PAGE>

ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM

I. TERMS AND CONDITIONS OF OPTIONS

Discretionary options granted pursuant to the Plan shall be authorized by
action of the Plan Administrator and may, at the Plan Administrator's
discretion, be either Incentive Options or non-statutory options. Individuals
who are not Employees may only be granted non-statutory options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; PROVIDED, however, that each such instrument shall comply
with the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.

A. OPTION PRICE.

(1) The option price per share shall be fixed by the Plan Administrator. In
no event, however, shall it be less than eighty-five percent (85%) of the fair
market value per share of Common Stock on the date of the option grant.

(2) The option price shall become immediately due upon exercise of the
option and, subject to the provisions of Article Five, Section I, and the
instrument evidencing the grant, shall be payable in one of the following
alternative forms specified below:

(i) payment in cash or check payable to the Corporation,

(ii) payment in shares of Common Stock held for at least six (6) months
and valued at fair market value on the Exercise Date (as such term is
defined below), or

(iii) payment through a broker-dealer sale and remittance procedure
pursuant to which the Optionee shall provide irrevocable written
instructions (A) to a designated brokerage firm to effect the immediate sale
of the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate option price payable for the purchased shares plus all applicable
Federal and State income and employment taxes required to be withheld by the
Corporation in connection with such purchase and (ii) to the Corporation to
deliver the certificates for the purchased shares directly to such brokerage
firm in order to complete the sale transaction.

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

B. FAIR MARKET VALUE. The fair market value per share of Common Stock
shall be determined in accordance with the following provisions:

A-6
<PAGE>

(1) If the Common Stock is not at the time listed or admitted to trading
on any stock exchange but is traded on the Nasdaq National Market, the fair
market value shall be the closing price of one share of Common Stock on the
date in question, as such price is reported by the National Association of
Securities Dealers through its Nasdaq system or any successor system. If
there is no closing price for the Common Stock on the date in question, then
the closing price on the last preceding date for which such quotation exists
shall be determinative of fair market value.

(2) If the Common Stock is at the time listed or admitted to trading on
any national stock exchange, then the fair market value shall be the closing
selling price per share of Common Stock on the date in question on the stock
exchange determined by the Plan Administrator to be the primary market for
the Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no reported sale of Common
Stock on such exchange on the date in question, then the fair market value
shall be the closing selling price on the exchange on the last preceding
date for which such quotation exists.

(3) In all other cases, the fair market value shall be determined by the
Plan Administrator in good faith.

C. TERM AND EXERCISE OF OPTIONS. Each option granted under this Article
Two shall be exercisable at such time or times and during such period as is
determined by the Plan Administrator and set forth in the stock option agreement
evidencing the grant. No such option, however, shall have a maximum term in
excess of ten (10) years from the grant date. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable by the Optionee otherwise than by will or by the laws
of descent and distribution following the Optionee's death.

D. TERMINATION OF SERVICE.

(1) Except to the extent otherwise provided pursuant to Subparagraph
(3) below, the following provisions shall govern the exercise period applicable
to any outstanding options under the Plan which are held by the Optionee at the
time of his or her cessation of Service or death:

(i) Should an Optionee cease to remain in Service for any reason other
than death or permanent disability, then the period for which each
outstanding option held by such Optionee is to remain exercisable shall be
limited to the three (3)-month period following the date of such cessation
of Service.

(ii) In the event such Service terminates by reason of permanent
disability (as defined in Section 22(e)(3) of the Internal Revenue Code),
then the period for which each outstanding option held by an Optionee is to
remain exercisable shall be limited to the twelve (12)-month period
following the date of such cessation of Service.

(iii) Should an Optionee die while in Service or during the three
(3)-month period following his or her cessation of Service, then the period
for which each of his or her outstanding options is to remain exercisable
shall be limited to the three (3)-year period

A-7
<PAGE>

following the date of the Optionee's death. During such limited period, the
option may be exercised by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred
pursuant to the Optionee's will or in accordance with the laws of descent
and distribution.

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

(v) During the limited post-termination period of exercisability, the
option may not be exercised for more than the number of shares for which the
option is exercisable on the date the Optionee's Service terminates. Upon
the expiration of such limited exercise period or (if earlier) upon the
expiration of the option term, the option shall terminate and cease to be
exercisable.

(2) Should (i) the Optionee's Service be terminated for misconduct
(including, but not limited to, any act of dishonesty, willful misconduct, fraud
or embezzlement) or (ii) the Optionee make any unauthorized use or disclosure of
confidential information or trade secrets of the Corporation or its parent or
subsidiaries, then in any such event all outstanding options held by the
Optionee under this Article Two shall terminate immediately and cease to be
outstanding.

(3) The Plan Administrator shall have full power and authority to extend the
period of time for which the option is to remain exercisable following the
Optionee's cessation of Service or death from the limited period provided under
Subparagraph (1) above to such greater period of time as the Plan Administrator
shall deem appropriate under the circumstances. In no event, however, shall such
option be exercisable after the specified expiration date of the option term.

(4) The Plan Administrator shall have complete discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to permit one or more options held by the Optionee under this
Article Two to be exercised, during the limited period of exercisability
provided under Subparagraph (1) above, not only with respect to the number of
shares for which each such option is exercisable at the time of the Optionee's
cessation of Service but also with respect to one or more subsequent
installments of purchasable shares for which the option would otherwise have
become exercisable had such cessation of Service not occurred.

(5) For purposes of the foregoing provisions of this Section I(D) (and for
all other purposes under the Plan):

(i) The Optionee shall (except to the extent otherwise specifically
provided in the applicable option or issuance agreement) be deemed to remain
in the SERVICE of the Corporation for so long as such individual renders
services on a periodic basis to the Corporation (or any parent or subsidiary
corporation) in the capacity of an Employee, an Outside Director or an
independent consultant or advisor.

(ii) The Optionee shall be considered to be an EMPLOYEE for so long as
he or she remains in the employ of the Corporation or one or more parent or
subsidiary

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<PAGE>

corporations, subject to the control and direction of the employer entity
not only as to the work to be performed but also as to the manner and
method of performance.

E. STOCKHOLDER RIGHTS.

An Optionee shall have no stockholder rights with respect to any shares
covered by the option until such individual shall have exercised the option and
paid the option price for the purchased shares.

F. REPURCHASE RIGHTS.

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

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

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

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

II. INCENTIVE OPTIONS

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

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

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<PAGE>

B. DOLLAR LIMITATION. The aggregate fair market value (determined as of
the respective date or dates of grant) of the Common Stock for which one or more
options granted to any Employee under this Plan (or any other option plan of the
Corporation or its parent or subsidiary corporations) may for the first time
become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two or more such options which become exercisable for the first
time in the same calendar year, the foregoing limitation on the exercisability
of such options as Incentive Options shall be applied on the basis of the order
in which such options are granted. Should the number of shares of Common Stock
for which any Incentive Option first becomes exercisable in any calendar year
exceed the applicable One Hundred Thousand Dollar ($100,000) limitation, then
the option may nevertheless be exercised in that calendar year for the excess
number of shares as a non-statutory option under the Federal tax laws.

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

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

III. CORPORATE TRANSACTIONS/CHANGES IN CONTROL

A. In the event of any of the following stockholder-approved transactions to
which the Corporation is a party (a "Corporate Transaction"):

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

(2) the sale, transfer or other disposition of all or substantially all
of the assets of the Corporation in liquidation or dissolution of the
Corporation, or

(3) any reverse merger in which the Corporation is the surviving entity
but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities are
transferred to holders different from those who held such securities
immediately prior to such merger,

then the exercisability of each option outstanding under this Article Two shall
automatically accelerate so that each such option shall, immediately prior to
the specified effective date for the Corporate Transaction, become fully
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for all or any

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<PAGE>

portion of such shares. However, an outstanding option under this Article Two
shall not so accelerate if and to the extent: (i) such option is, in
connection with the Corporate Transaction, to be assumed by the successor
corporation or parent thereof or replaced with a comparable option to
purchase shares of the capital stock of the successor corporation or parent
thereof, (ii) such option is to be replaced by a comparable cash incentive
program of the successor corporation based on the option spread at the time
of the Corporate Transaction, or (iii) the acceleration of such option is
subject to other limitations imposed by the Plan Administrator at the time of
the option grant. The determination of comparability under clause (i) or (ii)
above shall be made by the Plan Administrator, and its determination shall be
final, binding and conclusive. The Plan Administrator shall also have full
power and authority to grant options under the Plan which are to
automatically accelerate in whole or in part immediately prior to the
Corporate Transaction or upon the subsequent termination of the Optionee's
Service, whether or not those options are otherwise to be assumed or replaced
in connection with the consummation of such Corporate Transaction.

B. Upon the consummation of the Corporate Transaction, all outstanding
options under this Article Two shall terminate and cease to be outstanding,
except to the extent assumed by the successor corporation or its parent company.

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

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

E. The Plan Administrator shall have the discretionary authority,
exercisable either in advance of any actually-anticipated Change in Control or
at the time of an actual Change in Control, to provide for the automatic
acceleration of one or more outstanding options under this Article Two (and the
termination of one or more of the Corporation's outstanding repurchase rights
under this Article Two) upon the occurrence of the Change in Control. The Plan
Administrator shall also have full power and authority to condition any such
option acceleration (and the termination of any outstanding repurchase rights)
upon the subsequent termination of the Optionee's Service within a specified
period following the Change in Control.

F. For purposes of this Section III, a Change in Control shall be deemed to
occur in the event:

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<PAGE>

(1) any person or related group of persons (other than the Corporation
or a person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended (the "1934 Act")) of securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept; or

(2) there is a change in the composition of the Board over a period of
twenty-four (24) consecutive months or less such that a majority of the
Board members (rounded up to the next whole number) cease, by reason of one
or more proxy contests for the election of Board members, to be comprised of
individuals who either (i) have been Board members continuously since the
beginning of such period or (ii) have been elected or nominated for election
as Board members during such period by at least a majority of the Board
members described in clause (i) who were still in office at the time such
election or nomination was approved by the Board.

G. Any options accelerated in connection with the Change in Control shall
remain fully exercisable until the expiration or sooner termination of the
option term.

H. The exercisability as incentive stock options under the Federal tax laws
of any options accelerated under this Section III in connection with a Corporate
Transaction or Change in Control shall remain subject to the dollar limitation
of Section II(B) of this Article Two.

IV. CANCELLATION AND REGRANT OF OPTIONS

The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected Optionees, the cancellation
of any or all outstanding options under this Article Two (including outstanding
options under the Predecessor Plans incorporated into this Plan) and to grant in
substitution new options under the Plan covering the same or different numbers
of shares of Common Stock but having an option price per share not less than
eighty-five percent (85%) of the fair market value of the Common Stock on the
new grant date (or one hundred percent (100%) of such fair market value in the
case of an Incentive Option or, in the case of an Incentive Option granted to a
10% Stockholder, not less than one hundred and ten percent (110%) of fair market
value).

V. CASH-OUT OF OPTIONS

A. One or more officers of the Corporation may, in the Plan Administrator's
sole discretion, be granted limited cash-out rights in connection with their
outstanding options under the Plan. Upon the occurrence of a Hostile Take-Over,
each outstanding option with such a limited cash-out right in effect for at
least six (6) months shall automatically be cancelled, to the extent such option
is at the time exercisable for fully-vested shares of Common Stock. The Optionee
shall in return be entitled to a cash distribution from the Corporation in an
amount equal to the excess of (i) the Take-Over Price of the vested shares of
Common Stock at the time subject to the cancelled option (or cancelled portion
of such option) over (ii) the aggregate exercise price

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<PAGE>

payable for such shares. The cash distribution payable upon such cancellation
shall be made within five (5) days following the consummation of the Hostile
Take-Over. Neither the approval of the Plan Administrator nor the consent of
the Board shall be required in connection with such option cancellation and
cash distribution.

B. For purposes of Section V(A), the following definitions shall be in
effect:

(1) A Hostile Take-Over shall be deemed to occur in the event (i) any
person or related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act)
of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to accept
AND (ii) more than fifty percent (50%) of the securities so acquired in such
tender or exchange offer are accepted from holders other than officers and
directors of the Corporation subject to the short-swing profit restrictions
of Section 16 of the 1934 Act.

(2) The Take-Over Price per share shall be deemed to be equal to the
GREATER of (i) the fair market value per share on the date of cancellation,
as determined pursuant to the valuation provisions of Section I(B) of this
Article Two, or (ii) the highest reported price per share paid in effecting
such Hostile Take-Over. However, if the cancelled option is an Incentive
Option, the Take-Over Price shall not exceed the clause (i) price per share.

C. The shares of Common Stock subject to any option cancelled for an
apprecia tion distribution pursuant to this Section V shall NOT be available for
subsequent option grants under the Plan.

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<PAGE>

ARTICLE THREE
AUTOMATIC OPTION GRANTS

I. GRANT OF AUTOMATIC OPTIONS

Outside Directors shall automatically be granted non-statutory options (the
"Automatic Option Grants") to purchase the number of shares of Common Stock set
forth below (subject to adjustment under Article I, Section V(D)) on the dates
set forth below:

A. INITIAL GRANTS. Each individual who is serving as an Outside
Director on January 23, 1995, shall, on that date, automatically be granted
a non-statutory stock option to purchase fifteen thousand (15,000) shares of
Common Stock. A person who is first elected by the stockholders or appointed
by the Board as an Outside Director (and who is not already a member of the
Board) shall, on the date such person becomes an Outside Director (or, if
later, on the next trading day), automatically receive an option to purchase
fifteen thousand (15,000) (twenty-four thousand (24,000) for an Outside
Directorfirst appointed on or after May 25, 2000)(4) shares of Common Stock.
(Options granted under this Subparagraph (1) are referred to below as
"Initial Automatic Option Grants.")

B. ANNUAL GRANTS. On October 24, 1996, each individual who then is
serving as an Outside Director and who has so served for not less than
ninety (90) days shall, on that date, automatically be granted a
non-statutory stock option to purchase three thousand (3,000) shares of
Common Stock. On the date of each Annual Stockholders' Meeting, commencing
with the 1997 Annual Stockholders' Meeting, each individual who thereafter
will continue serving as an Outside Director and who has so served for not
less than ninety (90) days shall, on that date, automatically be granted a
non-statutory stock option to purchase three thousand (3,000) shares of
Common Stock. Commencing with the 2000 Annual Stockholders' Meeting, each
individual who thereafter will continue serving as an Outside Director and
who has so served for not less than ninety (90) days shall, on that date,
automatically be granted a non-statutory stock option to purchase eight
thousand (8,000) shares of Common Stock.(5) (Options granted under this
Subparagraph (2) are referred to below as "Annual Automatic Option Grants.")

II. TERMS AND CONDITIONS

The terms and conditions applicable to each Automatic Option Grant shall be
as follows:

A. PRICE. The option price per share shall be equal to one hundred
percent (100%) of the fair market value of one share of Common Stock on the
date of grant.

- ------------------------
(4) Authorized by the Board in April 2000, subject to approval by the
stockholders at the 2000 Annual Stockholders' Meeting.

(5) Authorized by the Board in April 2000, subject to approval by the
stockholders at the 2000 Annual Stockholders' Meeting.

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<PAGE>

B. TERM. The options shall have terms of ten (10) years, measured from
the date of grant, and shall be immediately exercisable. However, any
non-vested shares purchased under the option shall be subject to repurchase
by the Corporation, at the exercise price paid per share, upon the Outside
Director's cessation of Board service prior to vesting in those shares.

C. VESTING.

(1) The shares subject to each Initial Automatic Option Grant shall
vest, and the Corporation's repurchase right with respect to those shares
shall lapse, with respect to twenty percent (20%) of the optioned shares
upon completion of twelve (12) months of Board service from the date of
grant, and the remainder of the optioned shares in forty-eight (48) equal
monthly installments. The shares subject to each Annual Automatic Option
Grant shall vest, and the Corporation's repurchase right with respect to
those shares shall lapse, with respect to thirty-three and one-third percent
(33 1/3%) of the optioned shares upon completion of twelve (12) months of
Board service from the date of grant, and the remainder of the optioned
shares in twenty-four (24) equal monthly installments. Vesting of the option
shares shall be subject to acceleration as provided below. In no event,
however, shall any additional option shares vest after the Optionee's
cessation of Board service.

(2) All Automatic Option Grants made on or after the date of the 2000
Annual Stockholder's meeting shall vest, and the Corporation's repurchase
right with respect to those shares shall lapse, with respect to twenty-five
percent (25%) of the optioned shares upon completion of twelve (12) months
of Board service from the date of grant, and the remainder of the optioned
shares in thirty-six (36) equal monthly installments.(6)

D. PAYMENT. Upon exercise of the option, the option price for the
purchased shares shall become payable immediately in cash or in shares of
Common Stock that the optionee has held for at least six (6) months. Payment
may also be made by delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the
Corporation the amount of sale or loan proceeds to pay the option price.

E. CESSATION.

(1) In the event the optionee ceases to provide services to the
Corporation or its subsidiaries as a director for any reason other than
death or disability, each outstanding option may be exercised, within the
term of the option, for a period of three (3) months after the date of such
cessation to the extent that it was exercisable upon the date that such
services cease.

(2) In the event the optionee ceases to provide such services by reason
of permanent disability, each outstanding option may be exercised, within
the term of the option, for a period of twelve (12) months after the date
of such cessation to the extent that it was exercisable upon the date that
such services cease.

- ------------------------
(6) Authorized by the Board in April 2000, subject to approval by the
stockholders at the 2000 Annual Stockholders' Meeting.

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<PAGE>

(3) Should an Outside Director die while in service or during the three
(3)-month period following his or her cessation of Board service, then each
outstanding option may be exercised, within the term of the option, for a
period of three (3) years following the date of the optionee's death. In the
case of death, the option may be exercised within such period by the estate
or heirs of the optionee.

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

A. CORPORATE TRANSACTION. In the event of any Corporate Transaction as
defined in Article Two, Section III(A), the shares of Common Stock at the time
subject to each outstanding option but not otherwise vested shall automatically
vest in full so that each such option shall, immediately prior to the specified
effective date for the Corporate Transaction, become fully exercisable for all
of the shares of Common Stock at the time subject to that option and may be
exercised for all or any portion of such shares as fully-vested shares of Common
Stock. Immediately following the consummation of the Corporate Transaction, each
Automatic Option Grant under the Plan shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation or its
parent company.

B. CHANGE IN CONTROL. In connection with any Change in Control of the
Corporation, the shares of Common Stock at the time subject to each outstanding
option but not otherwise vested shall automatically vest in full so that each
such option shall, immediately prior to the specified effective date for the
Change in Control, become fully exercisable for all of the shares of Common
Stock at the time subject to that option and may be exercised for all or any
portion of such shares as fully-vested shares of Common Stock. Each such option
shall remain fully exercisable for the option shares which vest in connection
with the Change in Control until the expiration or sooner termination of the
option term or the cash-out of the option in accordance with Subsection
(C) below.

C. HOSTILE TAKE-OVER. Upon the occurrence of a Hostile Take-Over, the
optionee shall have a thirty (30)-day period in which to surrender to the
Corporation each Automatic Option Grant held by him or her under this Plan for a
period of at least six (6) months. The optionee shall in return be entitled to a
cash distribution from the Corporation in an amount equal to the excess of
(i) the Take-Over Price of the shares of Common Stock at the time subject to the
surrendered option (whether or not the optionee is otherwise at the time vested
in those shares) over (ii) the aggregate exercise price payable for such shares.
Such cash distribution shall be paid within five (5) days following the
surrender of the option to the Corporation. No approval or consent of the Board
shall be required in connection with such option surrender and cash
distribution.

D. REUSE OF SHARES. The shares of Common Stock subject to each option
surrendered in connection with the Hostile Take-Over shall NOT be available for
subsequent option grant under this Plan.

E. NON-TRANSFERABILITY. During the lifetime of the optionee, each
Automatic Option Grant, together with the limited stock appreciation right
pertaining to such option, shall be exercisable

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<PAGE>

only by the optionee and shall not be assignable or transferable by the
optionee other than a transfer of the option effected by will or by the laws
of descent and distribution following the optionee's death.

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<PAGE>
ARTICLE FOUR
STOCK ISSUANCE PROGRAM

I. TERMS AND CONDITIONS OF STOCK ISSUANCES

Shares may be issued under the Stock Issuance Program through direct and
immediate purchases without any intervening stock option grants. The issued
shares shall be evidenced by a Stock Issuance Agreement (the "Issuance
Agreement") that complies with the terms and conditions of this Article Four.

A. CONSIDERATION.

(1) Shares of Common Stock drawn from the Corporation's authorized but
unissued shares of Common Stock (the "Newly Issued Shares") shall be issued
under the Plan for one or more of the following items of consideration which the
Plan Administrator may deem appropriate in each individual instance:

(i) cash or check payable to the Corporation;

(ii) a promissory note payable to the Corporation's order in one or more
installments, which may be subject to cancellation in whole or in part upon
terms and conditions established by the Plan Administrator; or

(iii) past services rendered to the Corporation or any parent or
subsidiary corporation.

(2) Newly Issued Shares may, in the absolute discretion of the Plan
Administrator, be issued for consideration with a value less than one-hundred
percent (100%) of the fair market value of the issued shares, but in no event
less than eighty-five percent (85%) of such fair market value. Fair market value
shall be determined in accordance with Article Two, Section I(B).

(3) Shares of Common Stock reacquired by the Corporation and held as
treasury shares (the "Treasury Shares") may be issued under the Plan for such
consideration (in whatever form) as the Plan Administrator may deem appropriate.
Accordingly, such Treasury Shares may, in lieu of any cash consideration, be
issued subject to such vesting requirements tied to the Participant's period of
future Service or the Corporation's attainment of specified performance
objectives as the Plan Administrator may establish at the time of issuance.

B. VESTING PROVISIONS.

(1) Shares of Common Stock issued under the Plan may, in the absolute
discretion of the Plan Administrator, be fully and immediately vested upon
issuance or may vest in one or more installments over the Participant's period
of Service (as such term is defined in Section I(D)(5) of Article Two). The
elements of the vesting schedule applicable to any unvested shares of Common
Stock issued under the Plan, including the period of Service to be completed or
the performance objectives to be achieved, the number of installments, the
interval between installments, and the effect which death, disability or other
event is to have upon the vesting

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<PAGE>

schedule, shall be determined by the Plan Administrator and incorporated into
the Issuance Agreement executed by the Corporation and the Participant at the
time such unvested shares are issued.

(2) The Participant shall have full stockholder rights with respect to any
shares of Common Stock issued to him or her under the Plan, whether or not his
or her interest in those shares is vested. Accordingly, the Participant shall
have the right to vote such shares and to receive any regular cash dividends
paid on such shares. Any new, additional or different shares of stock or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to his or her unvested
shares by reason of any stock dividend, stock split, reclassification of Common
Stock or other similar change in the Corporation's capital structure or by
reason of any Corporate Transaction under Section II of this Article Four shall
be issued, subject to (i) the same vesting requirements applicable to his or her
unvested shares and (ii) such escrow arrangements as the Plan Administrator
shall deem appropriate.

(3) Should the Participant cease to remain in Service while holding one or
more unvested shares of Common Stock under the Plan, then those shares shall be
immediately surrendered to the Corporation for cancellation, and the Participant
shall have no further stockholder rights with respect to those shares. To the
extent the surrendered shares were previously issued to the Participant for
consideration paid in cash or cash equivalent (including the Participant's
purchase-money promissory note), the Corporation shall repay to the Participant
the cash consideration paid for the surrendered shares and shall cancel the
principal balance of any outstanding purchase-money note of the Participant to
the extent attributable to such surrendered shares. The surrendered shares may,
at the Plan Administrator's discretion, be retained by the Corporation as
Treasury Shares or may be retired to authorized but unissued share status.

(4) The Plan Administrator may in its discretion elect to waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the
non-completion of the vesting schedule applicable to such shares. Such waiver
shall result in the immediate vesting of the Participant's interest in the
shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.

II. CORPORATE TRANSACTIONS/CHANGES IN CONTROL

A. In the event of a Corporate Transaction to which the Corporation is a
party (as defined in Section III of Article Two), then all unvested shares of
Common Stock shall immediately vest in full, except to the extent the Plan
Administrator imposes limitations in the Issuance Agreement which preclude such
accelerated vesting in whole or in part.

B. The Plan Administrator shall have the discretionary authority,
exercisable either in advance of any actually-anticipated Change in Control (as
defined in Section III of Article Two) or at the time of an actual Change in
Control, to provide for the immediate and automatic vesting

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<PAGE>

of one or more unvested shares outstanding under this Article Four at the
time of such Change in Control. The Plan Administrator shall also have full
power and authority to condition any such accelerated vesting upon the
subsequent termination of the Optionee's Service within a specified period
following the Change in Control.

III. TRANSFER RESTRICTIONS/SHARE ESCROW

A. Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing such unvested shares. To the extent an escrow
arrangement is used, the unvested shares and any securities or other assets
issued with respect to such shares (other than regular cash dividends) shall be
delivered in escrow to the Corporation to be held until the Participant's
interest in such shares (or other securities or assets) vests. Alternatively, if
the unvested shares are issued directly to the Participant, a restrictive legend
shall be placed on the certificates for such shares and shall read substantially
as follows:

"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND ARE
ACCORDINGLY SUBJECT TO (I) CERTAIN TRANSFER RESTRICTIONS AND TO
(II) CANCELLATION OR REPURCHASE IN THE EVENT THE REGISTERED HOLDER (OR
HIS/HER PREDECESSOR IN INTEREST) CEASES TO REMAIN IN THE CORPORATION'S
SERVICE. SUCH TRANSFER RESTRICTIONS AND THE TERMS AND CONDITIONS OF
SUCH CANCELLATION OR REPURCHASE ARE SET FORTH IN A STOCK ISSUANCE
AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER (OR
HIS/HER PREDECESSOR IN INTEREST) DATED , 19 , A
COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION."

B. The Participant shall have no right to transfer any unvested shares of
Common Stock issued to him or her under the Plan. For purposes of this
restriction, the term "transfer" shall include (without limitation) any sale,
pledge, assignment, encumbrance, gift, or other disposition of such shares,
whether voluntary or involuntary. Upon any such attempted transfer, the unvested
shares shall immediately be cancelled, and neither the Participant nor the
proposed transferee shall have any rights with respect to those shares. However,
the Participant shall have the right to make a gift of unvested shares acquired
under the Plan to his or her spouse or issue, including adopted children, or to
a trust established for such spouse or issue, provided the donee of such shares
delivers to the Corporation a written agreement to be bound by all the
provisions of the Plan and the Issuance Agreement applicable to the gifted
shares.

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<PAGE>

ARTICLE FIVE
MISCELLANEOUS

I. LOANS OR INSTALLMENT PAYMENTS

A. The Plan Administrator may, in its discretion, assist any employee
(including an Optionee or Participant who is an officer or director of the
Corporation) in the exercise of one or more options granted to such Optionee
under the Article Two Discretionary Option Grant Program or the purchase of one
or more shares issued to such Participant under the Article Four Stock Issuance
Program, including the satisfaction of any Federal and State income and
employment tax obligations arising therefrom by (i) authorizing the extension of
a loan from the Corporation to such Optionee or Participant or (ii) permitting
the Optionee or Participant to pay the option price or purchase price for the
purchased Common Stock in installments over a period of years. The terms of any
loan or installment method of payment (including the interest rate and terms of
repayment) shall be upon such terms as the Plan Administrator specifies in the
applicable option or issuance agreement or otherwise deems appropriate under the
circumstances. Loans and installment payments may be granted with or without
security or collateral (other than to individuals who are consultants or
independent contractors, in which event the loan must be adequately secured by
collateral other than the purchased shares). However, the maximum credit
available to the Optionee or Participant may not exceed the option or purchase
price of the acquired shares (less the par value of such shares) plus any
Federal and State income and employment tax liability incurred by the Optionee
or Participant in connection with the acquisition of such shares.

B. The Plan Administrator may, in its absolute discretion, determine that
one or more loans extended under this financial assistance program shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Plan Administrator may deem appropriate.

II. AMENDMENT OF THE PLAN AND AWARDS

A. The Board has complete and exclusive power and authority to amend or
modify the Plan (or any component thereof) in any or all respects whatsoever.
However, no such amendment or modification may adversely affect the rights
and obligations of an Optionee with respect to options at the time
outstanding under the Plan, nor adversely affect the rights of any
Participant with respect to Common Stock issued under the Plan prior to such
action, unless the Optionee or Participant consents to such amendment. The
Board may not, without the approval of the Corporation's stockholders, amend
the Plan to (i) materially increase the maximum number of shares issuable
under the Plan in the aggregate or to any single individual (except for
permissible adjustments under Article One, Section V(D)) or (ii) materially
modify the eligibility requirements for participation in the Plan.

B. Options to purchase shares of Common Stock may be granted under the
Plan, and shares of Common Stock may be issued under the Stock Issuance Program,
which are in both instances

A-21
<PAGE>

in excess of the number of shares then available for issuance under the Plan,
provided any excess shares actually issued under the Plan are held in escrow
until stockholder approval is obtained for a sufficient increase in the
number of shares available for issuance under the Plan. If such stockholder
approval is not obtained within twelve (12) months after the date the first
such excess option grants or excess share issuances are made, then (i) any
unexercised excess options shall terminate and cease to be exercisable and
(ii) the Corporation shall promptly refund the purchase price paid for any
excess shares actually issued under the Plan and held in escrow, together
with interest (at the applicable Short Term Federal Rate) for the period the
shares were held in escrow.

III. EFFECTIVE DATE AND TERM OF PLAN

A. The Plan was initially adopted by the Board on January 11, 1992, and
approved by the Corporation's stockholders on April 25, 1992. The Board
subsequently restated the Plan, effective on July 31, 1992, to serve as the
successor to the Predecessor Plans and again restated the Plan on May 25, 1993,
to include certain provisions in connection with the initial public offering of
the Common Stock and to increase the number of shares issuable under the Plan by
82,276 shares (after giving effect to the 1-for-1.6 reverse stock split approved
by the Board on the same date). On April 24, 1994, the Board adopted a
restatement of the Plan which (i) increased the number of shares of Common Stock
issuable thereunder by an additional 500,000 shares and (ii) imposed a
limitation on the maximum number of shares for which any one individual
participating in the Plan may be granted stock options or direct stock issuances
after December 31, 1993. The 1994 restatement was approved by the Corporation's
stockholders at the 1994 Annual Meeting and became effective when adopted by the
Board. On January 23, 1995, the Board adopted amendments to the Plan which added
the Initial Automatic Option Grants to the Plan and increased the number of
shares of Common Stock issuable under the Plan by an additional 300,000 shares.
The 1995 restatement was approved by the Corporation's stockholders at the 1995
Annual Meeting and became effective when adopted by the Board. In January 1996,
the Board adopted a restatement of the Plan which increased the number of shares
of Common Stock issuable thereunder by an additional 300,000 shares to 1,880,000
shares. The January 1996 restatement was approved by the Corporation's
stockholders at the 1996 Annual Meeting and became effective when adopted by the
Board. In October 1996, the Board adopted a restatement of the Plan which
increased the number of shares of Common Stock issuable thereunder by an
additional 200,000 shares to 2,080,000 shares and provided for the Annual
Automatic Option Grants. The October 1996 restatement was approved by the
Corporation's stockholders at the 1997 Annual Meeting and became effective when
adopted by the Board. Subject to the foregoing limitations, the Plan
Administrator may grant options under the Plan at any time before the date fixed
herein for termination of the Plan.

B. This Plan shall serve as successor to the Predecessor Plans and no
further option grants shall be made under the Predecessor Plans from and after
July 31, 1992. Each option issued and outstanding under the Predecessor Plans
immediately prior to July 31, 1992, shall be incorporated into this Plan and
treated as an outstanding option under this Plan, but each such option shall
continue to be governed solely by the terms and conditions of the instrument
evidencing such grant and nothing in this Plan shall be deemed to affect or
otherwise modify the

A-22
<PAGE>

rights or obligations of the holders of such options with respect to their
acquisition of shares of Common Stock thereunder.

C. The sale and remittance procedure authorized for the exercise of
outstanding options under this Plan shall be available for all options
granted under this Plan and for all non-statutory options outstanding under
the Predecessor Plans and incorporated into this Plan. The Plan Administrator
may also allow such procedure to be used in connection with one or more
disqualifying dispositions of shares acquired under Incentive Options granted
under the Predecessor Plans.

D. The option/vesting acceleration provisions of Section III of Article Two
and Section II of Article Four relating to Corporate Transactions and Changes in
Control may, in the Plan Administrator's discretion, be extended to one or more
stock options which are outstanding under the Predecessor Plans but which do not
otherwise provide for such acceleration.

E. The Plan shall terminate upon the EARLIER of (i) January 10, 2002, or
(ii) the date on which all shares available for issuance under the Plan shall
have been issued or cancelled pursuant to the exercise, surrender or cash-out of
the options granted under the Discretionary Option Grant Program or Automatic
Option Grant Program, or the issuance of shares (whether vested or unvested)
under the Stock Issuance Program. If the date of termination is determined under
clause (i) above, then all option grants and unvested stock issuances
outstanding on such date shall thereafter continue to have force and effect in
accordance with the provisions of the instruments evidencing such grants or
issuances.

IV. USE OF PROCEEDS

Cash proceeds received by the Corporation from the sale of shares under the
Plan shall be used for general corporate purposes.

V. REGULATORY APPROVALS

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

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

A-23
<PAGE>

VI. NO EMPLOYMENT/SERVICE RIGHTS

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

VII. WITHHOLDING

The Corporation's obligation to deliver shares upon the exercise of any
options granted under Article Two or Article Three or upon the purchase of any
shares issued under Article Four shall be subject to the satisfaction of all
applicable Federal, State and local income and employment tax withholding
requirements.

VIII. MISCELLANEOUS PROVISIONS

A. The right to acquire Common Stock or other assets under the Plan may not
be assigned, encumbered or otherwise transferred by any optionee or Participant.

B. The provisions of the Plan shall be governed by the laws of the State of
California, as such laws are applied to contracts entered into and performed in
such State.

C. The provisions of the Plan shall inure to the benefit of, and be binding
upon, the Corporation and its successors or assigns, whether by Corporate
Transaction or otherwise, and the Participants and Optionees, the legal
representatives of their respective estates, their respective heirs or legatees
and their permitted assignees.

A-24
<PAGE>
Appendix B

CONDUCTUS, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
(AMENDED AND RESTATED EFFECTIVE MAY 25, 2000)(1)

1. PURPOSE
The Conductus, Inc. 1994 Employee Stock Purchase Plan (the "Plan") is
intended to provide an opportunity to participate in the ownership of Conductus,
Inc. (the "Company") for eligible employees of the Company and such other
companies ("Participating Companies") as the Board of Directors of the Company
(the "Board") shall from time to time designate; PROVIDED that each such company
shall qualify as a "parent corporation" or "subsidiary corporation" as defined
in Section 425(e) and (f) of the Internal Revenue Code of 1986 (the "Code"), (a
"Corporate Affiliate") on the first day of the relevant Offering Period. It is
further intended the Plan shall qualify as an "employee stock purchase plan" as
defined in Section 23 of the Code.

2. ADMINISTRATION

(a) ADMINISTRATIVE BODY. The Plan shall be administered by a committee
or committees (the Committee") appointed by the Board. The Committee shall have
full authority to interpret and construe any provision of the Plan and to adopt
such rules and regulations for administering the Plan as it may deem necessary.
Decisions of the Committee shall be final and binding on all parties who have an
interest in the Plan.

(b) RULE 16B-3 LIMITATIONS. Notwithstanding the provisions of
Subsection 2(a), in the event that Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended, or any successor provision ("Rule 16b-3")
provides specific requirements for the administrators of plans of this type, the
Plan shall be only administered by such a body and in such a manner as shall
comply with the applicable requirements of Rule 16b-3. Unless permitted by Rule
16b-3, no discretion concerning decisions regarding the Plan shall be afforded
to any committee or person that is not "disinterested" as that term is used in
Rule 16b-3.

3. EFFECTIVE DATE AND TERM OF PLAN

(a) EFFECTIVE DATE. The Plan shall become effective August 1, 1994, but
no shares of Common Stock shall be issued under the Plan and no purchase rights
granted under the Plan shall be exercisable before the Plan is approved by the
holders of at least a majority of the Company's voting stock represented and
voting at a duly-held meeting at which a quorum is present. If such shareholder
approval is not obtained, then any purchase rights previously granted under the
Plan shall terminate and no further purchase rights shall be granted.

- --------
(1) The Company intends to register the additional shares contemplated to be
issued pursuant to this amended and restated [name of plan] on Form S-8 promptly
after, and subject to, approval of the amended plan by the Company's
stockholders.

<PAGE>
Appendix B

(b) TERMINATION OF THE PLAN. The Plan shall continue in effect until
the date on which all shares available for issuance under the Plan shall have
been issued unless earlier terminated pursuant to Section 10 or 11.

4. STOCK SUBJECT TO THE PLAN

(a) NUMBER OF SHARES. The stock subject to the plan shall be shares
of the common stock of the Company which are authorized but unissued or which
have been reacquired ("Common Stock"). In connection with the sale of shares
under the Plan, the Company may repurchase shares of Common Stock in the open
market or otherwise. The aggregate amount of Common Stock which may be issued
pursuant to the Plan shall not exceed 750,000(2) shares (subject to
adjustment as provided in 4(b)).

(b) ADJUSTMENT. If any change is made in the Common Stock
subject to the Plan, or subject to any purchase right granted under the Plan
(through merger, consolidation, reorganization, recapitalization, stock
dividend, split-up, combination of shares, exchange of shares, change in
corporate structure, or otherwise), appropriate adjustments shall be made as
to (i) the class and maximum number of shares subject to the Plan, (ii) the
class and maximum number of shares purchasable by each participant per
Purchase Period, and (iii) the class and number of shares and price per share
of stock subject to outstanding purchase rights in order to prevent the
dilution or enlargement of benefits thereunder.

5. OFFERING PERIODS

(a) TERMS OF OFFERING PERIOD. Common Stock shall be offered for
purchase under the Plan through a series of successive Offering Periods until
such time as (i) the maximum number of shares of Common Stock available for
issuance under the Plan shall have been issued pursuant to purchase rights
granted under the Plan, or (ii the Plan shall have been sooner terminated in
accordance with Section 10 or 11. Each Offering Period shall have a maximum
duration of twelve (12) months, and shall begin on the first business day of
June (except with respect to the initial Offering/Purchase period) unless
otherwise designated by the Committee.

(b) INITIAL OFFERING PERIOD. The initial Offering/Purchase Period under
the Plan will begin on August 1, 1994 and end on May 31, 1995.

6. PURCHASE PERIODS
The Plan shall have successive six-month Purchase Periods within each
Offering Period (unless otherwise determined by the Committee); PROVIDED that
the initial Offering Period shall consist of one Purchase Period. Payroll
deductions will be collected during each Purchase Period and applied to the
purchase of whole shares of Common Stock on the last business day of each
Purchase Period ("Purchase Date"). Payroll deductions

- -----------
(2) Approved by the Board in April 2000, subject to stockdholder approval
at the 2000 Annual Stockholder's meeting.

B-2.
<PAGE>

Appendix B

collected in the initial Offering/Purchase Period shall be applied to the
purchase of Common Stock on May 31, 1995, the months after the commencement
of the initial Offering/Purchase Period. The Committee shall designate the
final day of each Purchase Period so as to facilitate administration of the
Plan. No two Purchase Periods shall run concurrently.

7. ELIGIBILITY AND PARTICIPATION

(a) GENERAL RULES. Each employee of the Company or any of the
Participating Companies who is employed on a full-time basis requiring more than
twenty (20) hours of service per week for more than five (5) months per calendar
year shall be an eligible employee on any date if, on that date her or she has
completed 90 days of service with the Company or any of the Participating
companies. An employee who has become an eligible employee before he first day
of an Offering Period shall be eligible to participate in the Plan during that
Offering Period. An employee who is ineligible on the first day of the Offering
Period may participate in the subsequent semi-annual Purchase Period within the
Offering Period if he or she satisfies the minimum service requirements before
the first day of such Purchase Period; PROVIDED, if an employee is eligible to
participate on August 1, 1994, but does not enroll in the Plan by August 12,
1994, or the employee first becomes eligible to participate in the Plan after
August 1, 1994, but before January 2, 1995, the employee may participate in the
Plan effective January 2, 1995. Each eligible employee may become a participant
with respect to a purchase Period by executing such instruments as the Committee
may specify and delivering them to such persons and at such time prior to the
first day of that Purchase Period as the Committee may specify.

(b) FIVE PERCENT OWNER. Under no circumstances shall purchase
rights be granted under the Plan to any employee if such individual would,
immediately after the grant, own (within he meaning of Code Section 424(d)),
or hold outstanding options or other rights to purchase, stock possessing
five percent (5%) or more of he total combined voting power or value of all
classes of stock of the Company or any Corporate Affiliate.

8. PURCHASE RIGHTS

Each participant shall be granted a separate purchase right for each
Offering Period in which the individual participates. The purchase right shall
be granted on the date which such individual first joins the offering Period and
shall be automatically exercised on each Purchase Date within the Offering
Period; PROVIDED, with respect to the initial Offering/Purchase Period, each
employee who is eligible to participate on August 1, 1994, will be granted a
purchase right on that date. Exercise of this purchase right shall be subject to
the employee's subsequent enrollment in the Plan by August 12, 1994. Each
employee who becomes a participant in the Plan on January 2, 1995, shall be
granted a purchase right on that date.

Purchase rights shall be evidenced by instruments in such form as the
Committee may from time to time approve, and shall conform to the following
terms and conditions:

B-3.

<PAGE>

Appendix B

(a) PURCHASE PRICE. The Purchase Price of each share purchased on any
date within an Offering Period shall be the LOWER of (i) eighty-five percent
(85%) of the fair market value per share of the Company's Common Stock on the
first day of the Offering Period, (or, if a participant joins an Offering Period
after the first day of that Offering Period, the GREATER of eighty-five percent
(85%) of the fair market value per share of the Company's Common Stock on the
first day of the Offering Period, or eighty-five percent (85%) of the fair
market value per share on the day the participant joins the Offering Period), or
(ii) eighty-five percent (85%) of the fair market value per share of the
Company's Common Stock on the Purchase Date.

(b) FAIR MARKET VALUE. For purposes of the Plan, the fair market value
per share of the Company's Common Stock on any relevant day shall be determined
in accordance with the following provisions:

(i) If the Common Stock is not at the time listed or admitted
to trading on any stock exchange but is traded on the NASDAQ National Market,
the fair market value shall be the closing selling price of one share of Common
Stock on the date in question, as reported by the National Association of
Securities Dealers through its Nasdaq system or any successor system. If there
is no closing selling price for the Common Stock on the date in question, then
the closing selling price on the last preceding date for which such quotation
exists shall be determinative of fair market value.

(ii) If the Common Stock is at the time listed or admitted to
trading on any national stock exchange, then the fair market value shall be the
closing selling price per share of Common Stock on the date in question on the
stock exchange that the Committee determines to be the primary market for such
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale of Common Stock on
such exchange on the date in question, then the fair market value shall be the
closing selling price on the exchange on the last preceding date for which such
quotation exists.

(c) PAYROLL DEDUCTIONS. Payment for Common Stock under the Plan shall
be effected by means of the participant's authorized payroll deductions. Such
deductions shall begin with the first pay day following the participant's entry
date into the Offering Period and shall (unless sooner terminated by the
participant) remain in effect for successive Purchase Periods and Offering
Periods; PROVIDED, payroll deductions for the initial Offering Period will begin
with the payroll period ending August 12, 1994. A participant may elect a
percentage of the participant's compensation paid during the Purchase Period, in
one percent (1%) increments (not to exceed ten percent (10%)), to be contributed
to the Plan. Compensation for this purpose will include total cash earnings paid
by the Company or a Participating Company, including bonuses, overtime and
commissions and elective contributions that are not includible in income under
Internal Revenue Code Sections 125, 402(a)(8), 401(h) or 403(b).

(d) NUMBER OF SHARES. No participant may purchase more than 2,500
shares of Common Stock in any Purchase Period; PROVIDED, for the initial
ten-month Offering Period, no participant may purchase more than 4,250 shares of
Common Stock.

B-4.
<PAGE>

Appendix B

(e) TERMINATION OF OR CHANGES TO PAYROLL DEDUCTIONS. Unless a
participant has irrevocably elected otherwise, the participant may terminate
payroll deductions at any time by filing the appropriate form with the Committee
subject to such advance notice as the Committee may require. If a participant
terminates payroll deductions, he or she cannot rejoin that particular Purchase
Period at any later date. All further payroll deductions will cease, and any
payroll deductions previously collected from the participant and not previously
applied to the purchase of Common Stock during that Purchase Period shall, at
the participant's election, immediately be refunded or held for the purchase of
shares on the next Purchase Date immediately following such termination. If no
such election is made, then such funds shall be refunded as soon as possible
after the Purchase Date. A participant may increase or decrease the rate of
payroll deductions twice per Purchase Period subject to such advance notice as
the Committee may require. The Committee shall determine, in its discretion,
when such rate change shall become effective.

(f) TERMINATION OF EMPLOYMENT. If a participant ceases to be employed
by the Company or a Participation Company for any reason, including death or
disability, prior to the end of a Purchase Period, the participant's purchase
right shall terminate, and any payroll deductions previously collected from the
participant and not previously applied to the purchase of Common Stock during
that Purchase Period shall, at the participant's election (or at the election of
the estate of the deceased participant) immediately be paid to the participant
or the participant's personal representative, or held for purchase of shares on
the next Purchase Date immediately following such termination. If no such
election is made, then such funds shall be refunded as soon as possible after
the Purchase Date. The Committee may provide, on a uniform basis with respect to
any Purchase Period, that an employee who is on a leave of absence will be
deemed to have terminated employment after a specified period.

(g) PRORATION OF PURCHASE RIGHTS. If the total number of shares of
Common Stock for which purchase rights are to be granted on any date in
accordance with the terms of the Plan exceed the number of shares then remaining
available under the Plan (after deduction of all shares for which purchase right
have been exercised or are then outstanding), the committee shall make a pro
rata allocation of the shares remaining available in as near as uniform a manner
as shall be practicable and as it shall deem equitable. The Committee shall give
written notice of such allocation to each participant affected thereby.

(h) EXERCISE. Each purchase right shall be exercised automatically on
the Purchase Date for the full number of purchasable shares, unless the purchase
right has been previously terminated pursuant to Section 8(e) or 8(f).

(i) ASSIGNABILITY. Subject to Section 9, purchase rights under the Plan
shall not be assignable or transferable by the participant other than by will or
by the laws of descent and distribution and during the life of the participant
shall be exercisable only by the participant.

(j) RIGHTS AS STOCKHOLDER. A participant shall have no rights as a
stockholder with respect to shares covered by any purchase right granted under
the Plan until the

B-5.
<PAGE>

Appendix B

purchase right is exercised. No adjustments will be made for dividend or
other rights for which the record date is prior to the date of exercise.

(k) ACCRUAL LIMITATIONS. No purchase right shall permit the rights of a
participant to purchase stock under all "employee stock purchase plans" (as
defined in Section 423 of the Code) of the Company or a Corporate Affiliate to
accrue at a rate that exceeds $25,000 of fair market value of such stock
(determined at the time such purchase right is granted) for each calendar year
in which such purchase right is outstanding at any time.

(l) REGULATORY APPROVAL. The implementation of the Plan, the granting
of any purchase right under the Plan, and the issuance of Common Stock upon the
exercise of any such purchase right shall be subject to the Company's compliance
with all applicable requirements of the 1933 Act, all applicable listing
requirements of any securities exchange on which the Common Stock is listed and
all other applicable requirements established by law or regulation.

(m) OTHER PROVISIONS. Instruments evidencing purchase rights may
contain such other provisions, not inconsistent with the Plan, as the Committee
deems advisable.

9. DESIGNATION OF BENEFICIARY

A participant may file a written designation of a beneficiary who is to
receive shares and cash, if any, credited on behalf of the participant under the
Plan in the event of the death of a participant and in the absence of a
beneficiary validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such shares and/or cash to the
executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company shall deliver such shares and/or cash to the participant's spouse or
if no spouse is living, to the children of the participant in equal shares.

10. CORPORATE TRANSACTIONS

(a) TERMINATION. In the event the disposition of all or substantially
all of the assets or outstanding capital stock of the issuer by means of a sale,
merger, reorganization, or liquidation, (a "Corporate Transaction") each
purchase right under this Plan, unless assumed pursuant to a written agreement
by the successor corporation or a parent or subsidiary thereof, will
automatically be exercised immediately prior to the consummation of the
Corporate Transaction as if such date were the last Purchase Date of the
Offering Period. Any payroll deductions not applied to such purchase shall be
promptly refunded to the participant.

(b) CORPORATE STRUCTURE. The grant of purchase rights under this Plan
will in no way affect the right of the issuer of Common Stock to adjust,
reclassify, reorganize, or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.

B-6.
<PAGE>

Appendix B

11. AMENDMENT AND TERMINATION

(a) AMENDMENT. The Board may from time to time alter, amend, suspend,
or discontinue the Plan with respect to any shares at any time not subject to
purchase rights; PROVIDED that no such action of the Board may, without the
approval of stockholders of the Company, (i) materially increase the benefits
accruing to participants under the Plan, (ii) materially increase the number of
shares which may be issued under the Plan, or which may be issued to one
individual, (iii) materially modify the eligibility requirements under the Plan,
or (iv) make any other change with respect to which the Board determines that
stockholder approval is required by applicable law or regulatory standards.

(b) TERMINATION. The Board shall have the right, exercisable in its
sole discretion, to terminate the Plan immediately following any Purchase Date.
Should the board elect to exercise such right, then no further purchase rights
shall thereafter be granted or exercised, and no further payroll deductions
shall thereafter be collected under the Plan.

12. NO EMPLOYMENT OBLIGATION

Nothing contained in the Plan (or in any purchase right granted
pursuant to the Plan) shall confer upon any employee any right to continue in
the employ of the Company or any Corporate Affiliate or constitute any contract
or agreement of employment or interfere in any was with the right of the Company
or a Corporate Affiliate to reduce such employee's compensation from the rate in
existence at the time of the granting of a purchase right or to terminate such
employee's employment at any time, with or without cause. However, nothing
contained herein or in any purchase right shall affect any contractual rights of
an employee pursuant to a written employment agreement.

13. USE OF PROCEEDS

The cash proceeds received by the Company from the issuance of shares
pursuant to purchase rights under the Plan shall be held in a non-interest
bearing trust account.

14. GOVERNING LAW

To the extent not otherwise governed by federal law, the Plan and its
implementation shall be governed by and construed in accordance with the laws of
the State of Delaware.

B-7.
<PAGE>

DETACH HERE

CONDUCTUS, INC.

ANNUAL MEETING OF STOCKHOLDERS, MAY 25, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CONDUCTUS, INC.

The undersigned revokes all previous proxies, acknowledges receipt of
the Notice of Annual Meeting of Stockholders to be held May 25, 2000, and the
Proxy Statement and appoints Charles E. Shalvoy and Ronald Wilderink and each
of them, the Proxy of the undersigned, with full power of substitution, to
vote all shares of Common Stock or Preferred Stock of Conductus, Inc. (the
"Company") which the undersigned is entitled to vote, either on his or her
own behalf or on behalf of any entity or entities, at the Annual Meeting of
Stockholders of the Company to be held at the Company's offices located at
966 W. Maude Avenue, Sunnyvale, California on Thursday, May 25, 2000 at 3:00
p.m. (the "Annual Meeting"), and at any adjournment or postponement thereof,
with the same force and effect as the undersigned might or could do if
personally present thereat. The shares represented by this Proxy shall be
voted in the manner set forth on the reverse side.

- ---------------- ----------------
SEE REVERSE SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
- ---------------- ----------------

<PAGE>
DETACH HERE

PLEASE MARK VOTES AS IN THIS EXAMPLE /X/

The Board of Directors recommends a vote FOR each of the nominees listed below
and a vote FOR the other proposals. This Proxy, when properly executed, will be
voted as specified above. THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE
NOMINEES LISTED BELOW AND FOR THE OTHER PROPOSALS IF NO SPECIFICATION IS MADE.

At their discretion, the proxies are authorized to vote on such other matter
or matters as may properly come before the meeting and any postponement(s) or
adjournment(s) thereof.

(1) To elect the following directors to serve for a term ending upon the 2001
Annual Meeting of Stockholders and until their successors are elected and
qualified:

Nominees:
John F. Shock, Martin Cooper, Robert M. Janowiak, Martin J. Kaplan

FOR ALL NOMINEES / /
WITHHELD FROM ALL NOMINEES / /
FOR ALL NOMINEES, EXCEPT AS NOTED ABOVE / /

MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW / /

(2) To approve the amendment and restatement of the Company's Restated
Certificate of Incorporation to increase the number of shares of Common Stock
authorized to be issued from 20,000,000 to 25,000,000.