<PAGE>


   As filed with the Securities and Exchange Commission on February 5, 2001
                                                  Registration No. 333-_____
================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                  ----------
                                   FORM S-8
                            REGISTRATION STATEMENT
                                     Under
                          The Securities Act of 1933
                                  ----------

                            ALIGN TECHNOLOGY, INC.
            (Exact name of registrant as specified in its charter)

            DELAWARE                                     94-3267295
 (State or other jurisdiction                (IRS Employer Identification No.)
of incorporation or organization)

                              851 MARTIN AVENUE 
                         SANTA CLARA, CALIFORNIA 95050
              (Address of principal executive offices) (Zip Code)

                           2001 STOCK INCENTIVE PLAN
                         EMPLOYEE STOCK PURCHASE PLAN
                           (Full title of the Plans)

                                  ZIA CHISHTI
                            CHIEF EXECUTIVE OFFICER
                            ALIGN TECHNOLOGY, INC.
                              851 MARTIN AVENUE 
                         SANTA CLARA, CALIFORNIA 95050
                    (Name and address of agent for service)
                                (408) 470-1000
         (Telephone number, including area code, of agent for service)

                        CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
                                                                                           Proposed
                                                                      Proposed             Maximum
                                                                       Maximum            Aggregate
Title of Securities to be                        Amount to be       Offering Price         Offering          Amount of
      Registered                                 Registered(1)       per Share(2)          Price(2)       Registration Fee
--------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                  <C>                <C>                 <C>
2001 Stock Incentive Plan
Common Stock, $0.0001 par value              12,171,362 shares            $13.69      $166,625,946              $ 41,657   
 
Employee Stock Purchase Plan
Common Stock, $0.0001 par value               1,500,000 shares            $13.69      $ 20,535,000              $  5,134   
                                             -----------------                                                  --------
 
                                             13,671,362 shares            Aggregate Registration Fee            $ 46,791     
--------------------------------------------------------------------------------------------------------------------------
</TABLE>


(1)  This Registration Statement shall also cover any additional shares of
     Common Stock which become issuable under the 2001 Stock Incentive Plan or
     the Employee Stock Purchase Plan by reason of any stock dividend, stock
     split, recapitalization or other similar transaction effected without the
     Registrant's receipt of consideration which results in an increase in the
     number of the outstanding shares of Registrant's Common Stock.

(2)  Calculated solely for purposes of this offering under Rule 457(h) of the
     Securities Act of 1933, as amended, (the "1993 Act") on the basis of the
     average of the high and low selling prices per share of the Registrant's
     Common Stock on February 1, 2001 as reported by the Nasdaq National 
     Market.

<PAGE>
 
                                    PART II

              INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

Item 3.   Incorporation of Documents by Reference

          ALIGN TECHNOLOGY, INC. (the "Registrant") hereby incorporates by
reference into this Registration Statement the following documents previously
filed with the Securities and Exchange Commission (the "Commission"):

   (a)    The Registrant's prospectus filed with the Commission pursuant to Rule
          424(b) promulgated under the 1933 Act filed with the Commission on
          January 26, 2001, in connection with the Registrant's Registration
          Statement No. 333-49932 on Form S-1, in which there is set forth the
          audited financial statements for the Registrant's fiscal year ended
          December 31, 1999; and

   (b)    The Registrant's Registration Statement No. 000-32259 on Form 8-A12G
          filed with the Commission on January 25, 2001, pursuant to Section 
          12(g) of the Securities Exchange Act of 1934 (the 1934 Act) in which
          are described the terms, rights and provisions applicable to the
          Registrant's outstanding Common Stock.

          All reports and definitive proxy or information statements filed
pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act after the date of
this Registration Statement and prior to the filing of a post-effective
amendment which indicates that all securities offered hereby have been sold or
which de-registers all securities then remaining unsold shall be deemed to be
incorporated by reference into this Registration Statement and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Registration Statement
to the extent that a statement contained herein or in any subsequently filed
document which also is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Registration Statement.

Item 4.   Description of Securities

          Not Applicable.

Item 5.   Interests of Named Experts and Counsel

          Not Applicable.

Item 6.   Indemnification of Directors and Officers

          Section 145 of the Delaware General Corporation Law authorizes a court
to award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit the indemnification
under some circumstances for liabilities (including reimbursement for expenses
incurred) arising under the 1933 Act. Article VII of the Amended and Restated
Certificate of Incorporation of the Registrant provides that, subject to
Delaware law, its directors will not be personally liable for monetary damages
for breach of the directors' fiduciary duty as directors to the Registrant and
its stockholders. This provision does not eliminate the directors' fiduciary
duty, and in appropriate circumstances, equitable remedies such as injunctive or
other forms of non-monetary relief will remain available under Delaware law.

                                     II-1

<PAGE>


The provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
The Registrant expects to enter into indemnification agreements with its
directors. The indemnification agreements provide the Registrant's directors
with further indemnification to the maximum extent permitted by the Delaware
General Corporation Law. The Registrant expects to obtain insurance covering
directors and officers for claims they may otherwise be required to pay or for
which the Registrant is required to indemnify them.

Item 7.   Exemption from Registration Claimed

          Not Applicable.

Item 8.   Exhibits

Exhibit 
Number    Exhibit
-------   -------
   4      Instruments Defining the Rights of Stockholders. Reference is made to
          Registrant's Registration Statement No. 000-32259 on Form 8-A12G,
          together with the exhibits thereto, which are incorporated herein by
          reference pursuant to Item 3(b) to this Registration Statement.

   5      Opinion of Brobeck, Phleger & Harrison LLP.

  23.1    Consent of PricewaterhouseCoopers LLP, Independent Public
          Accountants.

  23.2    Consent of Brobeck, Phleger & Harrison LLP is contained in
          Exhibit 5.

  24      Power of Attorney. Reference is made to page II-4 of this
          Registration Statement.

  99.1    2001 Stock Incentive Plan.

  99.2    Employee Stock Purchase Plan.

Item 9.   Undertakings

          A. The undersigned Registrant hereby undertakes: (1) to file,
during any period in which offers or sales are being made, a post-effective
amendment to this Registration Statement: (i) to include any prospectus required
by Section 10(a)(3) of the 1933 Act, (ii) to reflect in the prospectus any facts
or events arising after the effective date of this Registration Statement (or
the most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in this
Registration Statement and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in this
Registration Statement or any material change to such information in this
Registration Statement; provided, however, that clauses (1)(i) and (1)(ii) shall
not apply if the information required to be included in a post-effective
amendment by those clauses is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the 1934 Act that are
incorporated by reference into this Registration Statement; (2) that for the
purpose of determining any liability under the 1933 Act each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof; and (3) to remove
from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the Registrant's 2001
Stock Incentive Plan, and/or the Employee Stock Purchase Plan.

          B. The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the 1933 Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
1934 Act that is incorporated by reference into this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

          C. Insofar as indemnification for liabilities arising under the
1933 Act may be permitted to directors, officers or controlling persons of the
Registrant pursuant to the indemnification provisions summarized in Item 6 or
otherwise, the Registrant has been advised that, in the opinion of the
Commission, such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable. In the event that a claim for

                                     II-2

<PAGE>
 
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.

                                     II-3

<PAGE>
 
                                  SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-8, and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Santa Clara, State of California on
this 5th day of February, 2001. 

                                       ALIGN TECHNOLOGY, INC. 


                                       By:  /s/ ZIA CHISHTI         
                                          --------------------------------------
                                          Zia Chishti         
                                          Chief Executive Officer and 
                                          Chairman of the Board


                               POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS:

     That the undersigned officers and directors of Align Technology, Inc., a
Delaware corporation, do hereby constitute and appoint Zia Chishti and
Stephen Bonelli and each of them, the lawful attorneys-in-fact and agents with
full power and authority to do any and all acts and things and to execute any
and all instruments which said attorneys and agents, and any one of them,
determine may be necessary or advisable or required to enable said corporation
to comply with the Securities Act of 1933, as amended, and any rules or
regulations or requirements of the Securities and Exchange Commission in
connection with this Registration Statement. Without limiting the generality of
the foregoing power and authority, the powers granted include the power and
authority to sign the names of the undersigned officers and directors in the
capacities indicated below to this Registration Statement, to any and all
amendments, both pre-effective and post-effective, and supplements to this
Registration Statement, and to any and all instruments or documents filed as
part of or in conjunction with this Registration Statement or amendments or
supplements thereof, and each of the undersigned hereby ratifies and confirms
that all said attorneys and agents, or any one of them, shall do or cause to be
done by virtue hereof. This Power of Attorney may be signed in several
counterparts.

     IN WITNESS WHEREOF, each of the undersigned has executed this
Power of Attorney as of the date indicated.

     Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.


<TABLE> 
<CAPTION> 
SIGNATURE                                       TITLE                                              DATE
---------                                       -----                                              ----
<S>                                             <C>                                                <C> 
/s/ ZIA CHISHTI                     Chief Executive Officer and                               February 5, 2001 
------------------------------      Chairman of the Board (Principal 
Zia Chishti                         Executive Officer)


/s/ STEPHEN BONELLI                 Chief Financial Officer and                               February 5, 2001 
------------------------------      Vice President, Finance (Principal Financial 
Stephen Bonelli                     and Accounting Officer)


/s/ KELSEY WIRTH                    President                                                 February 5, 2001 
------------------------------
Kelsey Wirth 
</TABLE>
 

                                     II-4

<PAGE>
 

<TABLE> 
<CAPTION> 
SIGNATURE                                       TITLE                                              DATE
---------                                       -----                                              ----
<S>                                             <C>                                                <C> 
/s/ Brian Dovey                     Director                                                 February 5, 2001 
------------------------------
Brian Dovey  


/s/ Joseph Lacob                    Director                                                 February 5, 2001 
------------------------------
Joseph Lacob 


/s/ Mark Logan                      Director                                                 February 5, 2001 
------------------------------
Mark Logan


/s/ H. Kent Bowen                   Director                                                 February 5, 2001 
------------------------------
H. Kent Bowen  
</TABLE>
 
                                     II-5

<PAGE>
 
                                 EXHIBIT INDEX



Exhibit 
Number         Exhibit
-------        -------

   4           Instruments Defining the Rights of Stockholders. Reference is
               made to Registrant's Registration Statement No. 000-32259 on Form
               8-A12G, together with any exhibits thereto, which are
               incorporated herein by reference pursuant to Item 3(b) to this
               Registration Statement.

   5           Opinion of Brobeck, Phleger & Harrison LLP.

  23.1         Consent of PricewaterhouseCoopers LLP, Independent Public
               Accountants.

  23.2         Consent of Brobeck, Phleger & Harrison LLP is contained in
               Exhibit 5.

  24           Power of Attorney. Reference is made to page II-4 of this
               Registration Statement.

  99.1         2001 Stock Incentive Plan.

  99.2         Employee Stock Purchase Plan.





<PAGE>
 
                                                                       Exhibit 5

                               January 31, 2001


Align Technology, Inc.
851 Martin Avenue
Santa Clara, CA 95050


          Re:  Align Technology, Inc. Registration Statement on Form S-8
               for 13,671,362 Shares of Common Stock

Ladies and Gentlemen:

          We have acted as counsel to Align Technology, Inc., a Delaware
corporation (the "Company"), in connection with the registration on Form S-8
(the "Registration Statement") under the Securities Act of 1933, as amended, of
13,671,362 shares of common stock (the "Shares") authorized for issuance under
the Company's Employee Stock Purchase Plan and the 2001 Stock Incentive Plan
(collectively, the "Plans").

          This opinion is being furnished in accordance with the requirements of
Item 8 of Form S-8 and Item 601(b)(5)(i) of Regulation S-K.

          We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the establishment of the
Plans.  Based on such review, we are of the opinion that, if, as and when the
Shares have been issued and sold (and consideration therefor received) pursuant
to (a) the provisions of option agreements or stock purchase rights duly
authorized under the Plans and in accordance with the Registration Statement, or
(b) duly authorized direct stock issuances under
 the 2001 Stock Incentive Plan
and in accordance with the Registration Statement, such Shares will be duly
authorized, legally issued, fully paid and nonassessable.

          We consent to the filing of this opinion letter as Exhibit 5 to the
Registration Statement.

          This opinion letter is rendered as of the date first written above and
we disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein.  Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company, the
Plans or the Shares.



                                             Very truly yours,

                                             /S/ BROBECK, PHLEGER & HARRISON LLP
 
                                             BROBECK, PHLEGER & HARRISON LLP



<PAGE>
 
                                                                    EXHIBIT 23.1


                      CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration 
Statement on Form S-8 of Align Technology, Inc. of our report dated August 18,
2000, except for Note 11 for which the date is January 4, 2000, relating to the 
consolidated financial statements, which appears in Amendment No. 3 of the 
Registration Statement on Form S-1 (No. 333-49932) of Align Technology, Inc. 

/s/ PricewaterhouseCoopers LLP 

San Jose, California
February 5, 2001





<PAGE>
 
                                                                  Exhibit 99.1

                           ALIGN TECHNOLOGY, INC.

                          2001 STOCK INCENTIVE PLAN
                          -------------------------

                                        

                                 ARTICLE ONE

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

     I.   PURPOSE OF THE PLAN

          This 2001 Stock Incentive Plan is intended to promote the interests of
Align Technology, Inc., a Delaware corporation, by providing eligible persons in
the Corporation's service 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 such service.

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

      II. STRUCTURE OF THE PLAN

          A.  The Plan shall be divided into five separate equity incentives
programs:

              -  the Discretionary Option Grant Program under which eligible
                 persons may, at the discretion of the Plan Administrator, be
                 granted options to purchase shares of Common Stock,

              -  the Salary Investment Option Grant Program under which
                 eligible employees may elect to have a portion of their base
                 salary invested each year in special option grants,

              -  the Stock Issuance Program under which eligible persons may,
                 at the discretion of the Plan Administrator, be issued shares
                 of Common Stock directly, either through the immediate
                 purchase of such shares
 or as a bonus for services rendered
                 the Corporation (or any Parent or Subsidiary),

              -  the Automatic Option Grant Program under which eligible non-
                 employee Board members shall automatically receive option
                 grants at designated intervals over their period of continued
                 Board service, and

              -  the Director Fee Option Grant Program under which non-
                 employee Board members may elect to have all or any portion
                 of their annual retainer fee otherwise payable in cash
                 applied to a special stock option grant.

<PAGE>
 
          B.  The provisions of Articles One and Seven shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.

    III.  ADMINISTRATION OF THE PLAN

          A.  The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option
Grant and Stock Issuance Programs with respect to all other persons eligible
to participate in those programs may, at the Board's discretion, be vested in
the Primary Committee or a Secondary Committee, or the Board may retain the
power to administer those programs with respect to all such persons. However,
any discretionary option grants or stock issuances for members of the Primary
Committee must be authorized by a disinterested majority of the Board.

          B.  Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.

          C.  Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority
(subject to the provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for proper administration of the
Discretionary Option Grant and Stock Issuance Programs and to make such
determinations under, and issue such interpretations of, the provisions of
those programs and any outstanding options or stock issuances thereunder as it
may deem necessary or advisable. Decisions of the Plan Administrator within
the scope of its administrative functions under the Plan shall be final and
binding on all parties who have an interest in the Discretionary Option Grant
and Stock Issuance Programs under its jurisdiction or any stock option or
stock issuance thereunder.

          D.  The Primary Committee shall have the sole and exclusive
authority to determine which Section 16 Insiders and other highly compensated
Employees shall be eligible for participation in the Salary Investment Option
Grant Program for one or more calendar years. However, all option grants under
the Salary Investment Option Grant Program shall be made in accordance with
the express terms of that program, and the Primary Committee shall not
exercise any discretionary functions with respect to the option grants made
under that program.

          E.  Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as
Board members for their service on such committee. No member of the Primary
Committee or the Secondary Committee shall be liable for any act or omission
made in good faith with respect to the Plan or any option grants or stock
issuances under the Plan.

                                       2

<PAGE>
 
          F.  Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under
those programs.

     IV.  ELIGIBILITY

          A.  The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:

                (i)    Employees,

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

                (iii)  consultants and other independent advisors who provide
     services to the Corporation (or any Parent or Subsidiary).

          B.  Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.

          C.  Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive such grants, the time or times
when those grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an Incentive Option or
a Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive such issuances, the time or times when the issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the
consideration for such shares.

          D.  The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or
to effect stock issuances in accordance with the Stock Issuance Program.

          E.  The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members on or after the Plan Effective Date,
whether through appointment by the Board or election by the Corporation's
stockholders, and (ii) those individuals who continue to serve as non-employee
Board members at one or more Annual Stockholders Meetings held after the Plan
Effective Date. A non-employee Board member who has previously been in the
employ of the

                                       3

<PAGE>
 
Corporation (or any Parent or Subsidiary) shall not be eligible to receive an
option grant under the Automatic Option Grant Program at the time he or she
first becomes a non-employee Board member, but shall be eligible to receive
periodic option grants under the Automatic Option Grant Program while he or she
continues to serve as a non-employee Board member.

          F.  All non-employee Board members shall be eligible to participate
in the Director Fee Option Grant Program.

      V.  STOCK SUBJECT TO THE PLAN

          A.  The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall not exceed twelve million
one hundred seventy-one thousand three hundred sixty-two (12,171,362) shares.
Such reserve shall consist of (i) the number of shares estimated to remain
available for issuance, as of the Plan Effective Date, under the Predecessor
Plan as last approved by the Corporation's stockholders, including the shares
subject to outstanding options under the Predecessor Plan, plus (ii) an
additional increase of approximately 8,000,000 shares to be approved by the
Corporation's stockholders prior to the Plan Effective Date.

          B.  The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of
January each calendar year during the term of the Plan, beginning with
calendar year 2002, by an amount equal to five percent (5%) of the total
number of shares of Common Stock outstanding on the last trading day in
December of the immediately preceding calendar year, but in no event shall any
such annual increase exceed three million (3,000,000) shares.

          C.  To the extent any outstanding unvested shares issued under the
Predecessor Plan prior to the Plan Effective Plan are subsequently repurchased
by the Corporation, at the original purchase price paid per share, in
connection with the holder's termination of Service, those repurchased shares
shall automatically be added to the reserve of Common Stock available for
issuance under the Plan, up to a maximum of three million five hundred three 
thousand eight hundred seven (3,503,807) additional shares.

          D.  No one person participating in the Plan may receive stock
options, separately exercisable stock appreciation rights and direct stock
issuances for more than three million (3,000,000) shares of Common Stock in
the aggregate per calendar year.

          E.  Shares of Common Stock subject to outstanding options (including
options transferred to this Plan from the Predecessor Plan) shall be available
for subsequent issuance under the Plan to the extent (i) those options expire
or terminate for any reason prior to exercise in full or (ii) the options are
cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently cancelled or
repurchased by the Corporation, at the original issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for 

                                       4

<PAGE>
 
reissuance through one or more subsequent option grants or direct stock
issuances under the Plan. However, should the exercise price of an option
under the Plan be paid with shares of Common Stock or should shares of Common
Stock otherwise issuable under the Plan be withheld by the Corporation in
satisfaction of the withholding taxes incurred in connection with the exercise
of an option or the vesting of a stock issuance under the Plan, 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 or
which vest under the stock issuance, and not by the net number of shares of
Common Stock issued to the holder of such option or stock issuance. Shares of
Common Stock underlying one or more stock appreciation rights exercised under
Section IV of Article Two, Section III of Article Three, Section II of Article
Five or Section III of Article Six of the Plan shall not be available for
subsequent issuance under the Plan.

          F.  If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made by the Plan Administrator to (i) the maximum number and/or class
of securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the
Plan per calendar year, (iii) the number and/or class of securities for which
grants are subsequently to be made under the Automatic Option Grant Program to
new and continuing non-employee Board members, (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the Plan, (v) the number and/or class of securities and exercise
price per share in effect under each outstanding option transferred to this
Plan from the Predecessor Plan, (vi) the maximum number and/or class of
securities by which the share reserve is to increase automatically each
calendar year pursuant to the provisions of Section V.B of this Article One
and (vii) the maximum number and/or class of securities which may be added to
the reserve of Common Stock available for issuance under the Plan by reason of
the Corporation's repurchase of unvested shares issued under the Predecessor
Plan. 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.

                                       5

<PAGE>
 
                                 ARTICLE TWO

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

      I.  OPTION TERMS

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

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

              1.  The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the option grant date.

              2.  The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Seven and the documents evidencing the option, be payable in one or
more of the forms specified below:

                  (i)   cash or check made payable to the Corporation,

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

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

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

                                       6

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

          C.  Effect of Termination of Service.
              -------------------------------- 

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

                  (i)    Any option outstanding at the time of the Optionee's
     cessation of Service for any reason shall remain exercisable for such
     period of time thereafter as shall be determined by the Plan
     Administrator and set forth in the documents evidencing the option, but
     no such option shall be exercisable after the expiration of the option
     term.

                  (ii)   Any option held by the Optionee at the time of death
     and exercisable in whole or in part at that time may be subsequently
     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 the laws of inheritance or by the Optionee's
     designated beneficiary or beneficiaries of that option.

                  (iii)  Should the Optionee's Service be terminated for
     Misconduct or should the Optionee otherwise engage in Misconduct while
     holding one or more outstanding options under this Article Two, then all
     those options shall terminate immediately and cease to be outstanding.

                  (iv)   During the applicable post-Service exercise period,
     the option may not be exercised in the aggregate for more than the number
     of vested shares for which the option is exercisable on the date of the
     Optionee's cessation of Service. Upon the expiration of the applicable
     exercise period or (if earlier) upon the expiration of the option term,
     the option shall terminate and cease to be outstanding for any vested
     shares for which the option has not been exercised. However, the option
     shall, immediately upon the Optionee's cessation of Service, terminate
     and cease to be outstanding to the extent the option is not otherwise at
     that time exercisable for vested shares.

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

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

                                       7

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

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

          E.  Repurchase Rights.  The Plan Administrator shall have the 
              -----------------  
discretion to grant options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase, at the exercise
price paid per share, any or all of those unvested shares. The terms upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right.

          F.  Limited Transferability of Options.  During the lifetime of the 
              ----------------------------------                         
Incentive Options shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or the laws of inheritance
following the Optionee's death.  Non-Statutory Options shall be subject to the
same restriction, except that a Non-Statutory Option may be assigned in whole or
in part during the Optionee's lifetime to one or more members of the Optionee's
family or to a trust established exclusively for one or more such family members
or to Optionee's former spouse, to the extent such assignment is in connection
with the Optionee's estate plan or pursuant to a domestic relations order.  The
assigned portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to the assignment. The terms
applicable to the assigned portion shall be the same as those in effect for the
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.
Notwithstanding the foregoing, the Optionee may also designate one or more
persons as the beneficiary or beneficiaries of his or her outstanding options
under this Article Two, and  those options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee's death while holding those options.  Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option,
including (without limitation) the limited time period during which the option
may be exercised following the Optionee's death.

     II.  INCENTIVE OPTIONS

          The terms specified below shall be applicable to all Incentive
Options.  Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options.  Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall not be subject to the terms of this Section II.
                                 ---                                            

                                       8

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

          B.  Dollar Limitation.  The aggregate Fair Market Value of the shares
              -----------------     
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.

          C.  10% Stockholder.  If any Employee to whom an Incentive Option is 
              ---------------                                           
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.

    III.  CORPORATE TRANSACTION/CHANGE IN CONTROL

          A.  In the event of any Corporate Transaction, each outstanding option
under the Discretionary Option Grant Program shall automatically accelerate so
that each such option shall, immediately prior to the effective date of that
Corporate Transaction, become exercisable for all the shares of Common Stock at
the time subject to such option and may be exercised for any or all of those
shares as fully vested shares of Common Stock. However, an outstanding option
shall not become exercisable on such an accelerated basis 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 (ii) such option is to be
replaced with a cash incentive program of the successor corporation which
preserves the spread existing at the time of the Corporate Transaction on any
shares for which the option is not otherwise at that time exercisable and
provides for subsequent payout of that spread in accordance with the same
exercise/vesting schedule applicable to those option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.

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

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

                                       9

<PAGE>
 
          D.  Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall
--------
remain the same, (ii) the maximum number and/or class of securities available
for issuance over the remaining term of the Plan and (iii) the maximum number
and/or class of securities for which any one person may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances under the Plan per calendar year and (iv) the maximum number and/or
class of securities by which the share reserve is to increase automatically each
calendar year. To the extent the actual holders of the Corporation's outstanding
Common Stock receive cash consideration for their Common Stock in consummation
of the Corporate Transaction, the successor corporation may, in connection with
the assumption of the outstanding options under the Discretionary Option Grant
Program, substitute one or more shares of its own common stock with a fair
market value equivalent to the cash consideration paid per share of Common Stock
in such Corporate Transaction.

          E.  The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
such Corporate Transaction, become exercisable for all the shares of Common
Stock at the time subject to those options and may be exercised for any or all
of those shares as fully vested shares of Common Stock, whether or not those
options are to be assumed in the Corporate Transaction. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall not be assignable in connection with such Corporate
Transaction and shall accordingly terminate upon the consummation of such
Corporate Transaction, and the shares subject to those terminated rights shall
thereupon vest in full.

          F.  The Plan Administrator shall have full power and authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall become exercisable for all the shares of
Common Stock at the time subject to those options in the event the Optionee's
Service is subsequently terminated by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Corporate Transaction in which those options are assumed
and do not otherwise accelerate. In addition, the Plan Administrator may
structure one or more of the Corporation's repurchase rights so that those
rights shall immediately terminate with respect to any shares held by the
Optionee at the time of his or her Involuntary Termination, and the shares
subject to those terminated repurchase rights shall accordingly vest in full at
that time.

                                       10

<PAGE>
 
          G.  The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
a Change in Control, become exercisable for all the shares of Common Stock at
the time subject to those options and may be exercised for any or all of those
shares as fully vested shares of Common Stock. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall terminate automatically upon the consummation of such
Change in Control, and the shares subject to those terminated rights shall
thereupon vest in full. Alternatively, the Plan Administrator may condition the
automatic acceleration of one or more outstanding options under the
Discretionary Option Grant Program and the termination of one or more of the
Corporation's outstanding repurchase rights under such program upon the
subsequent termination of the Optionee's Service by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of such Change in Control.

          H.  The portion of any Incentive Option accelerated in connection with
a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.

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

     IV.  CANCELLATION AND REGRANT OF OPTIONS

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

      V.  STOCK APPRECIATION RIGHTS

          A.  The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.

          B.  The following terms shall govern the grant and exercise of tandem
stock appreciation rights:

              (i)   One or more Optionees may be granted the right, exercisable
     upon such terms as the Plan Administrator may establish, to elect between
     the exercise of the underlying option for shares of Common Stock and 

                                       11

<PAGE>
 
     the surrender of that option in exchange for a distribution from the
     Corporation in an amount equal to the excess of (a) the Fair Market Value
     (on the option surrender date) of the number of shares in which the
     Optionee is at the time vested under the surrendered option (or surrendered
     portion thereof) over (b) the aggregate exercise price payable for such
     shares.

              (ii)  No such option surrender shall be effective unless it is
     approved by the Plan Administrator, either at the time of the actual option
     surrender or at any earlier time. If the surrender is so approved, then the
     distribution to which the Optionee shall be entitled may be made in shares
     of Common Stock valued at Fair Market Value on the option surrender date,
     in cash, or partly in shares and partly in cash, as the Plan Administrator
     shall in its sole discretion deem appropriate.

              (iii) If the surrender of an option is not approved by the Plan
     Administrator, then the Optionee shall retain whatever rights the Optionee
     had under the surrendered option (or surrendered portion thereof) on the
     option surrender date and may exercise such rights at any time prior to the
     later of (a) five (5) business days after the receipt of the rejection
     -----
     notice or (b) the last day on which the option is otherwise exercisable in
     accordance with the terms of the documents evidencing such option, but in
     no event may such rights be exercised more than ten (10) years after the
     option grant date.

          C.  The following terms shall govern the grant and exercise of limited
stock appreciation rights:

              (i)    One or more Section 16 Insiders may be granted limited
     stock appreciation rights with respect to their outstanding options.

             (ii)    Upon the occurrence of a Hostile Take-Over, each individual
     holding one or more options with such a limited stock appreciation right
     shall have the unconditional right (exercisable for a thirty (30)-day
     period following such Hostile Take-Over) to surrender each such option to
     the Corporation. In return for the surrendered option, the Optionee shall
     receive a cash distribution from the Corporation in an amount equal to the
     excess of (A) the Take-Over Price of the shares of Common Stock at the time
     subject to such option (whether or not the option is otherwise at that time
     vested and exercisable for those shares) over (B) the aggregate exercise
     price payable for those shares. Such cash distribution shall be paid within
     five (5) days following the option surrender date.

              (iii)  At the time such limited stock appreciation right is
     granted, the Plan Administrator shall pre-approve any subsequent exercise
     of that right in accordance with the terms of this Paragraph C.
     Accordingly, no further approval of the Plan Administrator or the Board
     shall be required at the time of the actual option surrender and cash
     distribution.

                                       12

<PAGE>
 
                                 ARTICLE THREE

                    SALARY INVESTMENT OPTION GRANT PROGRAM
                    --------------------------------------

      I.  OPTION GRANTS

          The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for such calendar year or years.  Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00).   Each individual who files such a timely
authorization shall automatically be granted an option under the Salary
Investment Option Grant Program on the first trading day in January of the
calendar year for which the salary reduction is to be in effect.

     II.  OPTION TERMS

          Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
                                                          --------          
that each such document shall comply with the terms specified below.

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

              1.  The exercise price per share shall be thirty-three and one-
third percent (33-1/3%) of the Fair Market Value per share of Common Stock on
the option grant date.

              2.  The exercise price shall become immediately due upon exercise
of the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.

          B.  Number of Option Shares.  The number of shares of Common Stock 
              -----------------------    
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):

               X = A / (B x 66-2/3%), where

               X is the number of option shares,

                                       13

<PAGE>
 
               A is the dollar amount by which the Optionee's base salary is to
          be reduced for the calendar year pursuant to his or her election under
          the Salary Investment Option Grant Program, and

               B is the Fair Market Value per share of Common Stock on the
          option grant date.

          C.  Exercise and Term of Options.  The option shall become 
              ----------------------------  
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Service in the calendar
year for which the salary reduction is in effect. Each option shall have a
maximum term of ten (10) years measured from the option grant date.

          D.  Effect of Termination of Service.  Should the Optionee cease 
              --------------------------------                        
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
                   -------   
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), 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 the laws of inheritance or by the designated beneficiary
or beneficiaries of the option. Such right of exercise shall lapse, and the
option shall terminate, upon the earlier of (i) the expiration of the ten (10)-
                                 -------  
year option term or (ii) the three (3)-year period measured from the date of the
Optionee's cessation of Service. However, the option shall, immediately upon the
Optionee's cessation of Service for any reason, terminate and cease to remain
outstanding with respect to any and all shares of Common Stock for which the
option is not otherwise at that time exercisable.

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

          A.  In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully vested shares of Common Stock. Each such outstanding option shall
terminate immediately following the Corporate Transaction, except to the extent
assumed by the successor corporation (or parent thereof) in such Corporate
Transaction. Any option so assumed shall remain exercisable for the fully vested
shares until the earlier of (i) the expiration of the ten (10)-year option term
                 -------                                           
or (ii) the expiration of the three (3)-year period measured from the date of
the Optionee's cessation of Service.

                                       14

<PAGE>
 
          B.  In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the Change in Control,
become exercisable for all the shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. The option shall remain so exercisable until the
earliest to occur of (i) the expiration of the ten (10)-year option term, (ii)
--------                                                                       
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Service, (iii) the termination of the option in
connection with a Corporate Transaction  or (iv) the surrender of the option in
connection with a Hostile Take-Over.

          C.  Upon the occurrence of a Hostile Take-Over while the Optionee
remains in Service, such Optionee shall have a thirty (30)-day period in which
to surrender to the Corporation each outstanding option held by him or her under
the Salary Investment Option Grant Program. 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 option is otherwise at the
time exercisable for 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. The Primary
Committee shall, at the time the option with such limited stock appreciation
right is granted under the Salary Investment Option Grant Program, pre-approve
any subsequent exercise of that right in accordance with the terms of this
Paragraph C. Accordingly, no further approval of the Primary Committee or the
Board shall be required at the time of the actual option surrender and cash
distribution.

          D.  Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
                                     --------  
payable for such securities shall remain the same. To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under the Salary Investment Option Grant Program, substitute one or more
shares of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.

          E.  The grant of options under the Salary Investment Option Grant
Program 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.

                                       15

<PAGE>
 
     IV.  REMAINING TERMS

          The remaining terms of each option granted under the Salary Investment
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.

                                       16

<PAGE>
 
                                 ARTICLE FOUR

                            STOCK ISSUANCE PROGRAM
                            ----------------------

      I.  STOCK ISSUANCE TERMS

          Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.  Shares of Common Stock may also be
issued under the Stock Issuance Program pursuant to share right awards which
entitle the recipients to receive those shares upon the attainment of designated
performance goals or the completion of specified Service requirements.

          A.  Purchase Price.
              -------------- 

              1.  The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.

              2.  Subject to the provisions of Section I of Article Seven,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:

                  (i)   cash or check made payable to the Corporation, or

                  (ii)  past services rendered to the Corporation (or any Parent
     or Subsidiary).

          B.  Vesting Provisions.
              ------------------ 

              1.  Shares of Common Stock issued under the Stock Issuance Program
may, in the 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 or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards which entitle the recipients to receive
those shares upon the attainment of designated performance goals or the
satisfaction of specified Service requirements.

              2.  Any new, substituted or additional securities 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 the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or

                                       17

<PAGE>
 
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.

              3.  The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's 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.

              4.  Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, 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 indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.

              5.  The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the 
non-attainment of the performance objectives applicable to those 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.

              6.  Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals or
Service requirements established for such awards are not attained or satisfied.
The Plan Administrator, however, shall have the discretionary authority to issue
shares of Common Stock under one or more outstanding share right awards as to
which the designated performance goals or Service requirements have not been
attained or satisfied.

     II.  CORPORATE TRANSACTION/CHANGE IN CONTROL

          A.  All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed in the Stock Issuance
Agreement.

                                       18

<PAGE>
 
          B.  The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof).

          C.  The Plan Administrator shall also have the discretionary authority
to structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, either upon the occurrence of a Change in Control or upon the
subsequent termination of the Participant's Service by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of that Change in Control.

    III.  SHARE ESCROW/LEGENDS

          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 those unvested shares.

                                       19

<PAGE>
 
                                 ARTICLE FIVE

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

      I.  OPTION TERMS

          A.  Grant Dates.  Option grants shall be made on the dates specified 
              -----------     
below:

              1.  Each individual who is first elected or appointed as a non-
employee Board member at any time on or after the Plan Effective Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase thirty two thousand (32,000) shares of Common
Stock, provided that individual has not previously been in the employ of the
Corporation or any Parent or Subsidiary.

              2.  On the date of each Annual Stockholders Meeting held after the
Plan Effective Date, each individual who is to continue to serve as a non-
employee Board member, whether or not that individual is standing for re-
election to the Board at that particular Annual Meeting, shall automatically be
granted a Non-Statutory Option to purchase eight thousand (8,000) shares of
Common Stock, provided such individual has served as a non-employee Board member
for at least six (6) months. There shall be no limit on the number of such eight
thousand (8,000)-share option grants any one non-employee Board member may
receive over his or her period of Board service, and non-employee Board members
who have previously been in the employ of the Corporation (or any Parent or
Subsidiary) or who have otherwise received one or more stock option grants from
the Corporation prior to the Plan Effective Date shall be eligible to receive
one or more such annual option grants over their period of continued Board
service.

          B.  Exercise Price.
              -------------- 

              1.  The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.

              2.  The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.

          C.  Option Term.  Each option shall have a term of ten (10) years 
              -----------       
measured from the option grant date.

          D.  Exercise and Vesting of Options.  Each option shall be immediately
              -------------------------------      
exercisable for any or all of the option shares.  However, any unvested shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares.  The shares subject to each initial
thirty two thousand (32,000)-share grant shall vest, and the Corporation's

                                       20

<PAGE>
 
repurchase right shall lapse, in a series of four (4) successive equal annual
installments upon the Optionee's completion of each year of service as a Board
member over the four (4)-year period measured from the option grant date.  The
shares subject to each annual eight thousand (8,000)-share option grant shall
vest in one installment upon the Optionee's completion of the one (1)-year
period of service measured from the grant date.

          E.  Limited Transferability of Options.  Each option under this 
              ----------------------------------                    
Article Five may be assigned in whole or in part during the Optionee's lifetime
to one or more members of the Optionee's family or to a trust established
exclusively for one or more such family members or to Optionee's former spouse,
to the extent such assignment is in connection with the Optionee's estate plan
or pursuant to a domestic relations order. The assigned portion may only be
exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate. The Optionee may also designate one
or more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Five, and those options shall, in accordance with
such designation, automatically be transferred to such beneficiary or
beneficiaries upon the Optionee's death while holding those options. Such
beneficiary or beneficiaries shall take the transferred options subject to all
the terms and conditions of the applicable agreement evidencing each such
transferred option, including (without limitation) the limited time period
during which the option may be exercised following the Optionee's death.

          F.  Termination of Board Service.  The following provisions shall 
              ----------------------------     
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:

              (i)    The Optionee (or, in the event of Optionee's death, the
     personal representative of the Optionee's estate or the person or persons
     to whom the option is transferred pursuant to the Optionee's will or the
     laws of inheritance or the designated beneficiary or beneficiaries of such
     option) shall have a twelve (12)-month period following the date of such
     cessation of Board service in which to exercise each such option.

              (ii)   During the twelve (12)-month exercise period, the option
     may not be exercised in the aggregate for more than the number of vested
     shares of Common Stock for which the option is exercisable at the time of
     the Optionee's cessation of Board service.

              (iii)  Should the Optionee cease to serve as a Board member by
     reason of death or Permanent Disability, then all shares at the time
     subject to the option shall immediately vest so that such option may,
     during the twelve (12)-month exercise period following such cessation of
     Board service, be exercised for any or all of those shares as fully vested
     shares of Common Stock.

                                       21

<PAGE>
 
              (iv)   In no event shall the option remain exercisable after the
     expiration of the option term. Upon the expiration of the twelve (12)-month
     exercise period or (if earlier) upon the expiration of the option term, the
     option shall terminate and cease to be outstanding for any vested shares
     for which the option has not been exercised. However, the option shall,
     immediately upon the Optionee's cessation of Board service for any reason
     other than death or Permanent Disability, terminate and cease to be
     outstanding to the extent the option is not otherwise at that time
     exercisable for vested shares.

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

          A.  In the event of a Corporate Transaction while the Optionee remains
a Board member, the shares of Common Stock at the time subject to each
outstanding option held by such Optionee under this Automatic Option Grant
Program but not otherwise vested shall automatically vest in full so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the option shares as fully vested shares
of Common Stock and may be exercised for any or all of those vested shares.
Immediately following the consummation of the Corporate Transaction, each
automatic option grant shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).

          B.  In the event of a Change in Control while the Optionee remains a
Board member, the shares of Common Stock at the time subject to each outstanding
option held by such Optionee under this Automatic Option Grant Program but not
otherwise vested shall automatically vest in full so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all the option shares as fully vested shares of Common Stock and
may be exercised for any or all of those vested shares. Each such option shall
remain exercisable for such fully vested option shares until the expiration or
sooner termination of the option term or the surrender of the option in
connection with a Hostile Take-Over.

          C.  All outstanding repurchase rights under this under this Automatic
Option Grant Program shall automatically terminate, and the shares of Common
Stock subject to those terminated rights shall immediately vest in full, in the
event of any Corporate Transaction or Change in Control.

          D.  Upon the occurrence of a Hostile Take-Over while the Optionee
remains a Board member, such Optionee shall have a thirty (30)-day period in
which to surrender to the Corporation each of his or her outstanding options
under this Automatic Option Grant Program. 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 each surrendered option (whether or not the Optionee is otherwise at
the time vested in those

                                       22

<PAGE>
 
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 or any Plan
Administrator shall be required at the time of the actual option surrender and
cash distribution.

          E.  Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
                                     --------   
payable for such securities shall remain the same. To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under the Automatic Option Grant Program, substitute one or more shares
of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.

          F.  The grant of options under the Automatic Option Grant Program
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.

    III.  REMAINING TERMS

          The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.

                                       23

<PAGE>
 
                                  ARTICLE SIX

                       DIRECTOR FEE OPTION GRANT PROGRAM
                       ---------------------------------

      I.  OPTION GRANTS

          The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years for which the Director Fee Option Grant
Program is to be in effect.  For each such calendar year the program is in
effect, each non-employee Board member may irrevocably elect to apply all or any
portion of the annual retainer fee otherwise payable in cash for his or her
service on the Board for that year to the acquisition of a special option grant
under this Director Fee Option Grant Program.  Such election must be filed with
the Corporation's Chief Financial Officer prior to the first day of the calendar
year for which the annual retainer fee which is the subject of that election is
otherwise payable.  Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
the retainer fee election is in effect.

     II.  OPTION TERMS

          Each option shall be a Non-Statutory Option governed by the terms and
conditions specified below.

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

              1.  The exercise price per share shall be thirty-three and one-
third percent (33-1/3%) of the Fair Market Value per share of Common Stock on
the option grant date.

              2.  The exercise price shall become immediately due upon exercise
of the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.

          B.  Number of Option Shares.  The number of shares of Common Stock 
              -----------------------                                        
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):

               X = A / (B x 66-2/3%), where

               X is the number of option shares,

               A is the portion of the annual retainer fee subject to the non-
          employee Board member's election under this Director Fee Option Grant
          Program, and

                                       24

<PAGE>
 
               B is the Fair Market Value per share of Common Stock on the
          option grant date.

          C.  Exercise and Term of Options.  The option shall become 
              ----------------------------                           
exercisable in a series of twelve (12) equal monthly installments upon the
Optionee's completion of each calendar month of Board service during the
calendar year for which the retainer fee election is in effect. Each option
shall have a maximum term of ten (10) years measured from the option grant date.

          D.  Limited Transferability of Options.  Each option under this 
              ----------------------------------                          
Article Six may be assigned in whole or in part during the Optionee's lifetime
to one or more members of the Optionee's family or to a trust established
exclusively for one or more such family members or to Optionee's former spouse,
to the extent such assignment is in connection with Optionee's estate plan or
pursuant to a domestic relations order. The assigned portion may only be
exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate. The Optionee may also designate one
or more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Six, and those options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee's death while holding those options. Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option,
including (without limitation) the limited time period during which the option
may be exercised following the Optionee's death.

          E.  Termination of Board Service.  Should the Optionee cease Board 
              ----------------------------    
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the 
-------   
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.

          F.  Death or Permanent Disability.  Should the Optionee's service as 
              -----------------------------                             
a Board member cease by reason of death or Permanent Disability, then each
option held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully vested shares until the earlier of (i) the expiration of the ten
                                        -------   
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from

                                       25

<PAGE>
 
the date of such cessation of Board service.  To the extent such option is held
by the Optionee at the time of his or death, that 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 the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.

          Should the Optionee die after cessation of Board service but while
holding one or more options under this Director Fee Option Grant Program, then
each such option may be exercised, for any or all of the shares for which the
option is exercisable at the time of the Optionee's cessation of Board service
(less any shares subsequently purchased by Optionee prior to death), 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 the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.
Such right of exercise shall lapse, and the option shall terminate, upon the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the three
-------                                                                         
(3)-year period measured from the date of the Optionee's cessation of Board
service.

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

          A.  In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully vested shares of Common Stock. Each such outstanding option shall
terminate immediately following the Corporate Transaction, except to the extent
assumed by the successor corporation (or parent thereof) in such Corporate
Transaction. Any option so assumed and shall remain exercisable for the fully
vested shares until the earliest to occur of (i) the expiration of the ten (10)-
                        --------   
year option term, (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Board service or (iii) the surrender of
the option in connection with a Hostile Take-Over.

          B.  In the event of a Change in Control while the Optionee remains a
Board member, each outstanding option held by such Optionee under this Director
Fee Option Grant Program shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all the shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. The option shall remain so exercisable until the
earliest to occur of (i) the expiration of the ten (10)-year option term, (ii)
--------                                                                      
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Board service, (iii) the termination of the option in
connection with a Corporate Transaction or (iv) the surrender of the option in
connection with a Hostile Take-Over.

                                       26

<PAGE>
 
          C.  Upon the occurrence of a Hostile Take-Over while the Optionee
remains a Board member, such Optionee shall have a thirty (30)-day period in
which to surrender to the Corporation each outstanding option held by him or her
under the Director Fee Option Grant Program. 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 each surrendered option (whether or not the option is otherwise at
the time exercisable for 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 or any Plan Administrator shall be required at the time of
the actual option surrender and cash distribution.

          D.  Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
                                     --------   
payable for such securities shall remain the same. To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under the Director Fee Option Grant Program, substitute one or more
shares of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.

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

     IV.  REMAINING TERMS

          The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.

                                       27

<PAGE>
 
                                 ARTICLE SEVEN

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

      I.  FINANCING

          The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest-bearing promissory note payable in one or more
installments.  The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion.  In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares (less the par value of
such shares) plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.

     II.  TAX WITHHOLDING

          A.  The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.

          B.  The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Withholding Taxes to which
such holders may become subject in connection with the exercise of their options
or the vesting of their shares. Such right may be provided to any such holder in
either or both of the following formats:

              Stock Withholding:  The election to have the Corporation withhold,
              -----------------                                                 
from the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Withholding
Taxes (not to exceed one hundred percent (100%)) designated by the holder.

              Stock Delivery:  The election to deliver to the Corporation, at 
              --------------                                                
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.

                                       28

<PAGE>
 
    III.  EFFECTIVE DATE AND TERM OF THE PLAN

          A.  The Plan shall become effective immediately on the Plan Effective
Date. However, the Salary Investment Option Grant Program and the Director Fee
Option Grant Program shall not be implemented until such time as the Primary
Committee may deem appropriate. Options may be granted under the Discretionary
Option Grant at any time on or after the Plan Effective Date, and the initial
option grants under the Automatic Option Grant Program shall also be made on the
Plan Effective Date to any non-employee Board members eligible for such grants
at that time. However, no options granted under the Plan may be exercised, and
no shares shall be issued under the Plan, until the Plan is approved by the
Corporation's stockholders. If such stockholder approval is not obtained within
twelve (12) months after the Plan Effective Date, then all options previously
granted under this Plan shall terminate and cease to be outstanding, and no
further options shall be granted and no shares shall be issued under the Plan.

          B.  The Plan shall serve as the successor to the Predecessor Plan, and
no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date. All options outstanding under
the Predecessor Plan on the Plan Effective Date shall be transferred to the Plan
at that time and shall be treated as outstanding options under the Plan.
However, each outstanding option so transferred shall continue to be governed
solely by the terms of the documents evidencing such option, and no provision of
the Plan shall be deemed to affect or otherwise modify the rights or obligations
of the holders of such transferred options with respect to their acquisition of
shares of Common Stock.

          C.  One or more provisions of the Plan, including (without limitation)
the option/vesting acceleration provisions of Article Two relating to Corporate
Transactions and Changes in Control, may, in the Plan Administrator's
discretion, be extended to one or more options incorporated from the Predecessor
Plan which do not otherwise contain such provisions.

          D.  The Plan shall terminate upon the earliest to occur of (i)
                                                --------  
December 31, 2010, (ii) the date on which all shares available for issuance
under the Plan shall have been issued as fully vested shares or (iii) the
termination of all outstanding options in connection with a Corporate
Transaction. Should the Plan terminate on December 31, 2010, then all option
grants and unvested stock issuances outstanding at that time shall continue to
have force and effect in accordance with the provisions of the documents
evidencing such grants or issuances.

     IV.  AMENDMENT OF THE PLAN

          A.  The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.

                                       29

<PAGE>
 
          B.  Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under those programs
shall be held in escrow until there is obtained stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock available
for issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess shares 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, and such shares shall thereupon be automatically cancelled
and cease to be outstanding.

      V.  USE OF PROCEEDS

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

     VI.  REGULATORY APPROVALS

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

          B.  No shares of Common Stock or other assets shall be issued or
delivered under the 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 stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.

    VII.  NO EMPLOYMENT/SERVICE RIGHTS

          Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.

                                       30

<PAGE>
 
                                   APPENDIX
                                   --------

          The following definitions shall be in effect under the Plan:

          A.  Automatic Option Grant Program shall mean the automatic option 
              ------------------------------  
grant program in effect under Article Five of the Plan.

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

          C.  Change in Control shall mean a change in ownership or control of 
              -----------------                 
the Corporation effected through either of the following transactions:

              (i)   the acquisition, directly or indirectly by 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), of 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, or

              (ii)  a change in the composition of the Board over a period of
     thirty-six (36) consecutive months or less such that a majority of the
     Board members ceases, by reason of one or more contested elections for
     Board membership, 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 the Board approved such election or
     nomination.

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

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

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

              (i)    a merger, consolidation or other reorganization approved by
     the Corporation's stockholders, unless securities representing more than
                                     ------  
     fifty percent (50%) of the total combined voting power of the voting
     securities of the successor corporation are immediately thereafter
     beneficially owned, directly or indirectly and in substantially the same
     proportion, by the persons who beneficially owned the Corporation's
     outstanding voting securities immediately prior to such transaction, or

                                     A-1.

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

          G.  Corporation shall mean Align Technology, Inc., a Delaware 
              -----------                                               
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Align Technology, Inc. which shall by appropriate
action adopt the Plan.

          H.  Director Fee Option Grant Program shall mean the special stock 
              ---------------------------------   
option grant in effect for non-employee Board members under Article Six of the
Plan.

          I.  Discretionary Option Grant Program shall mean the discretionary 
              ----------------------------------  
option grant program in effect under Article Two of the Plan.

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

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

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

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

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

                                     A-2.

<PAGE>
 
              (iii)  For purposes of any option grants made prior to the Plan
     Effective Date, the Fair Market Value shall be determined by the Plan
     Administrator on the basis of such factors as the Plan Administrator may
     deem appropriate, including the proposed price per share at which the
     Common Stock may be sold in the initial public offering pursuant to the
     Underwriting Agreement.

          M.  Hostile Take-Over shall mean the acquisition, directly or 
              -----------------   
indirectly, by 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) of 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.

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

          O.  Involuntary Termination shall mean the termination of the 
              -----------------------  
Service of any individual which occurs by reason of:

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

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

          P.  Misconduct shall mean the commission of any act of fraud, 
              ----------  
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not in any way preclude or restrict the right of the Corporation (or any
Parent or Subsidiary) to discharge or dismiss any Optionee, Participant or other
person in the Service of the Corporation (or any Parent or Subsidiary) for any
other acts or omissions, but such other acts or omissions shall not be deemed,
for purposes of the Plan, to constitute grounds for termination for Misconduct.

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

                                     A-3.

<PAGE>
 
          R.  Non-Statutory Option shall mean an option not intended to 
              --------------------                                       
satisfy the requirements of Code Section 422.

          S.  Optionee shall mean any person to whom an option is granted 
              --------                                                    
under the Discretionary Option Grant, Salary Investment Option Grant, Automatic
Option Grant or Director Fee Option Grant Program.

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

          U.  Participant shall mean any person who is issued shares of Common 
              -----------                                                    
Stock under the Stock Issuance Program.

          V.  Permanent Disability or Permanently Disabled shall mean the 
              --------------------------------------------                  
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.

          W.  Plan shall mean the Corporation's 2001 Stock Incentive Plan, as 
              ----                                                            
set forth in this document.

          X.  Plan Administrator shall mean the particular entity, whether the 
              ------------------                                              
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.

          Y.  Plan Effective Date shall mean the date the Plan shall become 
              -------------------                                           
effective and shall be coincident with the date the shares of Common Stock are
first approved for listing (upon notice of issuance) on the Nasdaq National
Market.

          Z.  Predecessor Plan shall mean the Corporation's 1997 Equity 
              ----------------                                          
Incentive Plan as in effect immediately prior to the Plan Effective Date
hereunder.

         AA.  Primary Committee shall mean the committee of two (2) or more 
              -----------------                                             
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary 

                                     A-4.

<PAGE>
 
Investment Option Grant Program solely with respect to the selection of the
eligible individuals who may participate in such program.

         BB.  Salary Investment Option Grant Program shall mean the salary 
              --------------------------------------                       
investment option grant program in effect under Article Three of the Plan.

         CC.  Secondary Committee shall mean a committee of one or more Board 
              -------------------                                             
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.

         DD.  Section 16 Insider shall mean an officer or director of the 
              ------------------                                          
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.

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

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

         GG.  Stock Issuance Agreement shall mean the agreement entered into 
              ------------------------                                       
by the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.

         HH.  Stock Issuance Program shall mean the stock issuance program in 
              ----------------------                                          
effect under Article Four of the Plan.

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

        JJ.  Take-Over Price shall mean the greater of (i) the Fair Market 
             ---------------                -------       
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.

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

                                     A-5.

<PAGE>
 
         LL.  Underwriting Agreement shall mean the agreement between the 
              ----------------------                                      
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.

         MM.  Withholding Taxes shall mean the Federal, state and local income 
              -----------------                                               
and employment withholding taxes to which the holder of Non-Statutory Options or
unvested shares of Common Stock may become subject in connection with the
exercise of those options or the vesting of those shares.


                                     A-6.



<PAGE>
 
                                                                    EXHIBIT 99.2

                             ALIGN TECHNOLOGY, INC.


                          EMPLOYEE STOCK PURCHASE PLAN
                          ----------------------------


I.        PURPOSE OF THE PLAN

          This Employee Stock Purchase Plan is intended to promote the interests
of Align Technology, Inc., a Delaware corporation, by providing eligible
employees with the opportunity to acquire a proprietary interest in the
Corporation through participation in a payroll deduction-based employee stock
purchase plan designed to qualify under Section 423 of the Code.

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

II.       ADMINISTRATION OF THE PLAN

          The Plan Administrator 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 in order to comply with the
requirements of Code Section 423.  Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.

III.      STOCK SUBJECT TO PLAN
 
          A.  The stock purchasable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares of Common Stock
purchased on the open market. The number of shares of Common Stock initially
reserved for issuance
 over the term of the Plan shall be limited to 1,500,000
shares.

          B.  The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with calendar year 2002, by
an amount equal to three percent (3%) of the total number of shares of Common
Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall any such annual increase exceed
1,500,000 shares.

          C.  Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date, (iii) the maximum number and class of
securities purchasable in total by all Participants on any one Purchase Date,
(iv) the maximum number

<PAGE>
 
and/or class of securities by which the share reserve is to increase
automatically each calendar year pursuant to the provisions of Section III.B of
this Article One and (v) the number and class of securities and the price per
share in effect under each outstanding purchase right in order to prevent the
dilution or enlargement of benefits thereunder.

IV.       OFFERING PERIODS

          A.  Shares of Common Stock shall be offered for purchase under the
Plan through a series of overlapping offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.

          B.  Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date of such offering period. Offering periods shall commence at semi-
annual intervals on the first business day of February and August each year over
the term of the Plan. Accordingly, two (2) separate offering periods shall
commence in each calendar year the Plan remains in existence. However, the
initial offering period shall commence at the Effective Time and terminate on
the last business day in January 2003.

          C.  Each offering period shall consist of a series of one or more
successive Purchase Intervals. Purchase Intervals shall run from the first
business day in February to the last business day in July each year and from the
first business day in August each year to the last business day in January in
the following year. However, the first Purchase Interval in effect under the
initial offering period shall commence at the Effective Time and terminate on
the last business day in July 2001.

          D.  Should the Fair Market Value per share of Common Stock on any
Purchase Date within a particular offering period be less than the Fair Market
Value per share of Common Stock on the start date of that offering period, then
the individuals participating in such offering period shall, immediately after
the purchase of shares of Common Stock on their behalf on such Purchase Date, be
transferred from that offering period and automatically enrolled in the next
offering period commencing after such Purchase Date.

V.        ELIGIBILITY

          A.  Each individual who is an Eligible Employee on the start date of
any offering period under the Plan may enter that offering period on such start
date. However, an Eligible Employees may participate in only one offering period
at a time. For the initial offering period commencing at the Effective Time,
each individual who is an Eligible Employee at that time shall automatically be
enrolled as a Participant with a contribution rate equal to fifteen percent
(15%) of his or her Cash Earnings.

                                       2.

<PAGE>
 
          B.  Except as otherwise provided in Sections IV.D and V.A above, an
Eligible Employee must, in order to participate in the Plan for a particular
offering period, complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before the start date of that offering period.

VI.       PAYROLL DEDUCTIONS

          A.  The payroll deduction authorized by the Participant for purposes
of acquiring shares of Common Stock during an offering period may be any
multiple of one percent (1%) of the Cash Earnings paid to the Participant during
each Purchase Interval within that offering period, up to a maximum of fifteen
percent (15%). The deduction rate so authorized shall continue in effect
throughout the offering period, except to the extent such rate is changed in
accordance with the following guidelines: 

              (i)       The Parti cipant may, at any time during the offering
     period, reduce his or her rate of payroll deduction (or to the extent
     applicable, the percentage of Cash Earnings to serve as his or her lump sum
     contribution for the initial Purchase Interval of the first offering
     period) to become effective as soon as possible after filing the
     appropriate form with the Plan Administrator. The Participant may not,
     however, effect more than one (1) such reduction per Purchase Interval.

              (ii)      The Participant may, prior to the commencement of any
     new Purchase Interval within the offering period, increase the rate of his
     or her payroll deduction by filing the appropriate form with the Plan
     Administrator. The new rate (which may not exceed the fifteen percent (15%)
     maximum) shall become effective on the start date of the first Purchase
     Interval following the filing of such form.

          B.  Payroll deductions shall begin on the first pay day
administratively feasible following the start date of the offering period and
shall (unless sooner terminated by the Participant) continue through the pay day
ending with or immediately prior to the last day of that offering period. The
amounts so collected shall be credited to the Participant's book account under
the Plan, but no interest shall be paid on the balance from time to time
outstanding in such account. The amounts collected from the Participant shall
not be required to be held in any segregated account or trust fund and may be
commingled with the general assets of the Corporation and used for general
corporate purposes.

          C.  For the initial Purchase Interval of the first offering period
under the Plan, no payroll deductions shall be required of the Participant until
such time as the Participant affirmatively elects to commence such payroll
deductions following his or her receipt of the 1993 Act prospectus for the Plan.
In the absence of such payroll deductions, the Participant will

                                       3.

<PAGE>
 
be required to contribute the applicable percentage of his or her Cash Earnings
to the Plan in a lump sum payment immediately prior to the close of that
Purchase Interval should the Participant elect to have shares of Common Stock
purchased on his or her behalf on the Purchase Date for that initial Purchase
Interval.

          D.  Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of the
Plan.

          E.  The Participant's acquisition of Common Stock under the Plan on
any Purchase Date shall neither limit nor require the Participant's acquisition
of Common Stock on any subsequent Purchase Date, whether within the same or a
different offering period.

VII.      PURCHASE RIGHTS

          A.  Grant of Purchase Rights.  A Participant shall be granted a
              ------------------------   
separate purchase right for each offering period in which he or she is enrolled.
The purchase right shall be granted on the start date of the offering period and
shall provide the Participant with the right to purchase shares of Common Stock,
in a series of successive installments during that offering period, upon the
terms set forth below. The Participant shall execute a stock purchase agreement
embodying such terms and such other provisions (not inconsistent with the Plan)
as the Plan Administrator may deem advisable.

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

          B.  Exercise of the Purchase Right. Each purchase right shall be
              ------------------------------         
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant on each such Purchase Date. The purchase shall be
effected by applying the Participant's payroll deductions (or, to the extent
applicable, his or her lump sum contribution) for the Purchase Interval ending
on such Purchase Date to the purchase of whole shares of Common Stock at the
purchase price in effect for the Participant for that Purchase Date.

          C.  Purchase Price.  The purchase price per share at which Common
              --------------   
Stock will be purchased on the Participant's behalf on each Purchase Date within
the particular offering period in which he or she is enrolled shall be equal to
eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of
Common Stock on the start date of that offering period or (ii) the Fair Market
Value per share of Common Stock on that Purchase Date.

                                       4.

<PAGE>
 
          D.  Number of Purchasable Shares. The number of shares of Common Stock
              ----------------------------
purchasable by a Participant on each Purchase Date during the particular
offering period in which he or she is enrolled shall be the number of whole
shares obtained by dividing the amount collected from the Participant through
payroll deductions during the Purchase Interval ending with that Purchase Date
(or, to the extent applicable, his or her lump sum contribution for that
Purchase Interval) by the purchase price in effect for the Participant for that
Purchase Date. However, the maximum number of shares of Common Stock purchasable
per Participant on any one Purchase Date shall not exceed 2,500 shares, subject
to periodic adjustments in the event of certain changes in the Corporation's
capitalization. In addition, the maximum number of shares of Common Stock
purchasable in total by all Participants in the Plan on any one Purchase Date
shall not exceed 400,000 shares, subject to periodic adjustments in the event of
certain changes in the Corporation's capitalization. However, the Plan
Administrator shall have the discretionary authority, exercisable prior to the
start of any offering period under the Plan, to increase or decrease the
limitations to be in effect for the number of shares purchasable per Participant
and in total by all Participants enrolled in that particular offering period on
each Purchase Date which occurs during that offering period.

          E.  Excess Payroll Deductions.  Any payroll deductions not applied to
              -------------------------                        
the purchase of shares of Common Stock on any Purchase Date because they are not
sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable per Participant or in
total by all Participants on the Purchase Date shall be promptly refunded.

          F.  Termination of Purchase Right.  The following provisions shall
              -----------------------------                  
govern the termination of outstanding purchase rights:

              (i)       A Participant may, at any time prior to the next
     scheduled Purchase Date in the offering period in which he or she is
     enrolled, terminate his or her outstanding purchase right by filing the
     appropriate form with the Plan Administrator (or its designate), and no
     further payroll deductions shall be collected from the Participant with
     respect to the terminated purchase right. Any payroll deductions collected
     during the Purchase Interval in which such termination occurs shall, at the
     Participant's election, be immediately refunded or held for the purchase of
     shares on the next Purchase Date. If no such election is made at the time
     such purchase right is terminated, then the payroll deductions collected
     with respect to the terminated right shall be refunded as soon as possible.

              (ii)      The termination of such purchase right shall be
     irrevocable, and the Participant may not subsequently rejoin the offering
     period for which the terminated purchase right was granted. In order to
     resume participation in any subsequent offering period, such individual
     must re-enroll in the Plan (by making a timely filing of the prescribed
     enrollment forms) on or before the start date of that offering period.

                                       5.

<PAGE>
 
              (iii)     Should the Participant cease to remain an Eligible
     Employee for any reason (including death, disability or change in status)
     while his or her purchase right remains outstanding, then that purchase
     right shall immediately terminate, and all of the Participant's payroll
     deductions for the Purchase Interval in which the purchase right so
     terminates shall be immediately refunded. However, should the Participant
     cease to remain in active service by reason of an approved unpaid leave of
     absence, then the Participant shall have the right, exercisable up until
     the last business day of the Purchase Interval in which such leave
     commences, to (a) withdraw all the payroll deductions collected to date on
     his or her behalf for that Purchase Interval or (b) have such funds held
     for the purchase of shares on his or her behalf on the next scheduled
     Purchase Date. In no event, however, shall any further payroll deductions
     be collected on the Participant's behalf during such leave. Upon the
     Participant's return to active service (x) within ninety (90) days
     following the commencement of such leave or (y) prior to the expiration of
     any longer period for which such Participant's right to reemployment with
     the Corporation is guaranteed by statute or contract, his or her payroll
     deductions under the Plan shall automatically resume at the rate in effect
     at the time the leave began, unless the Participant withdraws from the Plan
     prior to his or her return. An individual who returns to active employment
     following a leave of absence that exceeds in duration the applicable (x) or
     (y) time period will be treated as a new Employee for purposes of
     subsequent participation in the Plan and must accordingly re-enroll in the
     Plan (by making a timely filing of the prescribed enrollment forms) on or
     before the start date of any subsequent offering period in which he or she
     wishes to participate.

          G.  Change in Control.  Each outstanding purchase right shall
              -----------------
automatically be exercised, immediately prior to the effective date of any
Change in Control, by applying the payroll deductions of each Participant for
the Purchase Interval in which such Change in Control occurs to the purchase of
whole shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) of the lower of (i) the Fair Market Value per share of Common
Stock on the start date of the offering period in which such individual is
enrolled at the time of such Change in Control or (ii) the Fair Market Value per
share of Common Stock immediately prior to the effective date of such Change in
Control. However, the applicable limitation on the number of shares of Common
Stock purchasable per Participant shall continue to apply to any such purchase,
but not the limitation applicable to the maximum number of shares of Common
Stock purchasable in total by all Participants on any one Purchase Date.

          The Corporation shall use its best efforts to provide at least ten
(10) days' prior written notice of the occurrence of any Change in Control, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.

                                       6.

<PAGE>
 
          H.  Proration of Purchase Rights.  Should the total number of shares
              ----------------------------
of Common Stock to be purchased pursuant to outstanding purchase rights on any
particular date exceed the number of shares then available for issuance under
the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.

          I.  Assignability.  The purchase right shall be exercisable only by
              ------------- 
the Participant and shall not be assignable or transferable by the Participant.

          J.  Stockholder Rights.  A Participant shall have no stockholder
              ------------------   
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.

VIII.     ACCRUAL LIMITATIONS

          A.  No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (i) rights to purchase Common
Stock accrued under any other purchase right granted under this Plan and (ii)
similar rights accrued under other employee stock purchase plans (within the
meaning of Code Section 423)) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000.00) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value per share on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.

          B.  For purposes of applying such accrual limitations to the purchase
rights granted under the Plan, the following provisions shall be in effect:

              (i)       The right to acquire Common Stock under each outstanding
     purchase right shall accrue in a series of installments on each successive
     Purchase Date during the offering period in which such right remains
     outstanding.

              (ii)      No right to acquire Common Stock under any outstanding
     purchase right shall accrue to the extent the Participant has already
     accrued in the same calendar year the right to acquire Common Stock under
     one or more other purchase rights at a rate equal to Twenty-Five Thousand
     Dollars ($25,000.00) worth of Common Stock (determined on the basis of the
     Fair Market Value per share on the date or dates of grant) for each
     calendar year such rights were at any time outstanding.

          C.  If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Interval, then the payroll
deductions that the Participant made during that Purchase Interval with respect
to such purchase right shall be promptly refunded.

                                       7.

<PAGE>
 
          D.  In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.

IX.       EFFECTIVE DATE AND TERM OF THE PLAN

          A.  The Plan was adopted by the Board on August 24, 2000, and shall
become effective at the Effective Time, provided no purchase rights granted
under the Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such stockholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect, and all sums collected from Participants during
the initial offering period hereunder shall be refunded.

          B.  Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest of (i) the last business day in January 2011, (ii) the date on
which all shares available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the date on which
all purchase rights are exercised in connection with a Change in Control. No
further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following such termination.

X.        AMENDMENT OF THE PLAN

          A.  The Board may alter, amend, suspend or terminate the Plan at any
time to become effective immediately following the close of any Purchase
Interval. However, the Plan may be amended or terminated immediately upon Board
action, if and to the extent necessary to assure that the Corporation will not
recognize, for financial reporting purposes, any compensation expense in
connection with the shares of Common Stock offered for purchase under the Plan,
should the financial accounting rules applicable to the Plan at the Effective
Time be subsequently revised so as to require the Corporation to recognize
compensation expense in the absence of such amendment or termination.

          B.  In no event may the Board effect any of the following amendments
or revisions to the Plan without the approval of the Corporation's stockholders:
(i) increase the number of shares of Common Stock issuable under the Plan,
except for permissible adjustments in the event of certain changes in the
Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares of Common Stock purchasable
under the Plan or (iii) modify the eligibility requirements for participation in
the Plan.

                                       8.

<PAGE>
 
XI.       GENERAL PROVISIONS

          A.  All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation; however, each Plan Participant shall bear all
costs and expenses incurred by such individual in the sale or other disposition
of any shares purchased under the Plan.

          B.  Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.

          C.  The provisions of the Plan shall be governed by the laws of the
State of California without resort to that State's conflict-of-laws rules.

                                       9.

<PAGE>
 
                                   Schedule A

                         Corporations Participating in
                          Employee Stock Purchase Plan
                            As of the Effective Time
                            ------------------------
                                        
                             Align Technology, Inc.

<PAGE>
 
                                    APPENDIX
                                    --------

          The following definitions shall be in effect under the Plan:

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

          B.  Cash Earnings shall mean (i) the regular base salary paid to a
              -------------   
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan plus (ii)
all overtime payments, bonuses, commissions, profit-sharing distributions or
other incentive-type payments received during such period. Such Cash Earnings
shall be calculated before deduction of (A) any income or employment tax
withholdings or (B) any contributions made by the Participant to any Code
Section 401(k) salary deferral plan or any Code Section 125 cafeteria benefit
program now or hereafter established by the Corporation or any Corporate
Affiliate. However, Cash Earnings shall not include any contributions made by
the Corporation or any Corporate Affiliate on the Participant's behalf to any
employee benefit or welfare plan now or hereafter established (other than Code
Section 401(k) or Code Section 125 contributions deducted from such Cash
Earnings).

          C.  Change in Control shall mean a change in ownership of the
              -----------------           
Corporation pursuant to any of the following transactions:

              (i)       a merger, consolidation or other reorganization approved
     by the Corporation's stockholders, unless securities representing more than
                                        ------ 
     fifty percent (50%) of the total combined voting power of the voting
     securities of the successor corporation are immediately thereafter
     beneficially owned, directly or indirectly and in substantially the same
     proportion, by the persons who beneficially owned the Corporation's
     outstanding voting securities immediately prior to such transaction, or

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

              (iii)     the acquisition, directly or indirectly, by a 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) of 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.

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

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

                                      A-1

<PAGE>
 
          F.  Corporate Affiliate shall mean any parent or subsidiary
              ------------------- 
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.

          G.  Corporation shall mean Align Technology, Inc., a Delaware
              ----------- 
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Align Technology, Inc. that shall by appropriate
action adopt the Plan.

          H.  Effective Time shall mean the time at which the Underwriting
              --------------   
Agreement is executed and the Common Stock priced for the initial public
offering of such Common Stock. Any Corporate Affiliate that becomes a
Participating Corporation after such Effective Time shall designate a subsequent
Effective Time with respect to its employee-Participants.

          I.  Eligible Employee shall mean any person who is employed by a
              -----------------
Participating Corporation on a basis under which he or she is regularly expected
to render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages under Code Section 3401
(a).

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

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

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

              (iii)     For purposes of the initial offering period that begins
     at the Effective Time, the Fair Market Value shall be deemed to be equal to
     the price per share at which the Common Stock is sold in the initial public
     offering pursuant to the Underwriting Agreement.

          K.  1933 Act shall mean the Securities Act of 1933, as amended.
              -------- 

                                      A-2

<PAGE>
 
          L.  Participant shall mean any Eligible Employee of a Participating
              -----------  
Corporation who is actively participating in the Plan.

          M.  Participating Corporation shall mean the Corporation and such
              -------------------------
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan are listed in attached Schedule A.

          N.  Plan shall mean the Corporation's 2001 Employee Stock Purchase
              ---- 
Plan, as set forth in this document.

          O.  Plan Administrator shall mean the committee of two (2) or more
              ------------------
Board members appointed by the Board to administer the Plan.

          P.  Purchase Date shall mean the last business day of each Purchase
              ------------- 
Interval. The initial Purchase Date shall be July 31, 2001.

          Q.  Purchase Interval shall mean each successive six (6)-month period
              -----------------
within a particular offering period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant.

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

          S.  Underwriting Agreement shall mean the agreement between the
              ----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.

                                      A-3