<PAGE>   1
     As filed with the Securities and Exchange Commission on June 21, 1996
                                       Registration No. 333-_______________

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                            ------------------------

                                    FORM S-8
                             REGISTRATION STATEMENT
                                      Under
                           The Securities Act of 1933
                        --------------------------------
                        IDEC PHARMACEUTICALS CORPORATION
               (Exact name of issuer as specified in its charter)

         CALIFORNIA                                    33-0112644
(State or other jurisdiction                (IRS Employer Identification No.)
of incorporation or organization)

                    11011 TORREYANA ROAD, SAN DIEGO, CA 92121
               (Address of principal executive offices) (Zip Code)

                               -------------------
                             1988 STOCK OPTION PLAN
                            (Full title of the Plan)

                               -------------------
                              WILLIAM H. RASTETTER
                CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
                        IDEC PHARMACEUTICALS CORPORATION
                    11011 TORREYANA ROAD, SAN DIEGO, CA 92121
                     (Name and address of agent for service)
                                 (619) 550-8500
          (Telephone number, including area code, of agent for service)
                           -------------------------

                         CALCULATION OF REGISTRATION FEE


<TABLE>
<CAPTION>
================================================================================================================
                                                             Proposed           Proposed
   Title of                                                   Maximum            Maximum
  Securities                               Amount            Offering           Aggregate             Amount of
     to be                                  to be              Price            Offering            Registration
  Registered                            Registered(1)      per Share(2)         Price(2)                 Fee
<S>                                      <C>                  <C>                 <C>                    <C>
Options to Purchase
Common Stock                             1,200,000            N/A                 N/A                    N/A

Common Stock                          1,200,000 shares       $22.44             $26,928,000          $9,285.52
================================================================================================================
</TABLE>



(1)  This Registration Statement shall also cover any additional shares of
     Common Stock which become issuable under the 1988 Stock Option Plan by
     reason of any stock dividend, stock split, recapitalization or other
     similar transaction effected without the receipt of consideration which
     results in an increase in the number of the outstanding shares of IDEC
     Pharmaceuticals Corporation Common Stock.

(2)  Calculated solely for purposes of this offering under Rule 457(h) of the
     Securities Act of 1933, as amended, on the basis of the average of the high
     and low selling prices per share of Common Stock of IDEC Pharmaceuticals
     Corporation on June 20, 1996 as reported by the Nasdaq National Market.


<PAGE>   2
                                     PART II

               INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

Item 3.  Incorporation of Certain Documents by Reference

                   IDEC Pharmaceuticals Corporation (the "Registrant") hereby
incorporates by reference into this Registration Statement the following
documents previously filed with the Securities and Exchange Commission (the
"SEC"):

         a.   The Registrant's Annual Report on Form 10-K for the fiscal year
              ended December 31, 1995;

         b.   The Registrant's Quarterly Report on Form 10-Q for the fiscal
              quarter ended March 31, 1996; and

         c.   The Registrant's Registration Statement No. 0-19311 on Form 8-A
              filed with the SEC on May 28, 1991, together with Amendments
              Number 1 and 2 on Form 8 to the Registrant's Registration
              Statement No. 0-19311 on Form 8-A filed with the SEC on August 20,
              1991 and September 13, 1991, respectively, in which there is
              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 Securities Exchange
Act of 1934, as amended (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 deregisters 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.

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 317 of the California Corporations Code authorizes a
court to award, or a corporation's board of directors to grant, indemnity to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "1933 Act"). Article IV of the Registrant's Amended and Restated
Articles of Incorporation and Section 7 of Article V of the Registrant's Bylaws
provide for indemnification of its directors, officers, employees and other
agents to the maximum extent permitted by the California Corporations Code,
except in connection with proceedings initiated by such an agent which were not
authorized by the Board of Directors. In addition, the Registrant has entered
into Indemnification Agreements with its directors and certain of its officers.
The Registrant has also obtained indemnification insurance for

<PAGE>   3
officers and directors of the Registrant. Reference is also made to Section 7 of
the Placement Agent Agreement contained in Exhibit 1.1 to the Registrant's
Registration Statement No. 33-76080 on Form S-1 filed with the SEC on March 4,
1994, together with amendments thereto, indemnifying officers and directors of
the Registrant against certain liabilities.

Item 7.  Exemption from Registration Claimed

         Not applicable.

Item 8.  Exhibits


<TABLE>
<CAPTION>
 Exhibit Number       Exhibit
<S>                   <C>
     5.               Opinion of Brobeck, Phleger & Harrison LLP.
    23.1              Consent of Independent Auditors - KPMG Peat Marwick LLP.
    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              1988 Stock Option Plan.

    99.2*             Form of Notice of Grant.
    99.3*             Form of Stock Option Agreement.
</TABLE>


    * Exhibits 99.2 and 99.3 are incorporated herein by reference to Exhibit
28.2 of Registrant's Registration Statement No. 33-45172 on Form S-8 which was
filed with the SEC on January 21, 1992.

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 paragraphs 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 1988
Stock Option Plan.

                                      II-2

<PAGE>   4
                   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 indemnity provisions incorporated by reference in
Item 6, or otherwise, the Registrant has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for 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>   5
                                   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 San Diego, State of California, on
this 20th day of June, 1996.

                                  IDEC PHARMACEUTICALS CORPORATION

                                  By        /s/ William H. Rastetter
                                     -------------------------------------------
                                      William H. Rastetter, Ph.D.
                                      Chairman, President and 
                                      Chief Executive Officer

                                POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

                   That the undersigned officers and directors of IDEC
Pharmaceuticals Corporation, a California corporation, do hereby constitute and
appoint William H. Rastetter and Phillip M. Schneider, and each of them, the
lawful attorneys 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, determines 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 all that said attorneys and agents, and 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>
<S>                                <C>                                <C>
Signatures                         Title                                  Date


/s/ William H. Rastetter
- ---------------------------        Chairman, President and            June 20, 1996
William H. Rastetter, Ph.D.        Chief Executive Officer
                                   (Principal Executive Officer)
</TABLE>


                                      II-4

<PAGE>   6

<TABLE>
<CAPTION>
<S>                                <C>                                <C>
Signatures                         Title                                     Date


/s/ PHILLIP M. SCHNEIDER                                   
- ----------------------------       Vice President and Chief             June 20, 1996
Phillip M. Schneider               Financial Officer (Principal
                                   Financial and Accounting Officer)

/s/ CHARLES C. EDWARDS                                   
- ----------------------------       Director                             June 20, 1996
Charles C. Edwards, M.D.


/s/ JOHN GROOM                            
- ----------------------------       Director                             June 20, 1996
John Groom


/s/ KAZUHIRO HASHIMOTO                            
- ----------------------------       Director                             June 20, 1996
Kazuhiro Hashimoto


/s/ PETER BARTON HUTT                            
- ----------------------------       Director                             June 20, 1996
Peter Barton Hutt


/s/ FRANKLIN P. JOHNSON, JR.                            
- ----------------------------       Director                             June 20, 1996
Franklin P. Johnson, Jr.


/s/ JOHN P. MCLAUGHLIN                            
- ----------------------------       Director                             June 20, 1996
John P. McLaughlin

                            
/s/ LYNN SCHENK
- ----------------------------       Director                             June 20, 1996
Lynn Schenk
</TABLE>


                                      II-5

<PAGE>   7
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    EXHIBITS

                                       TO

                                    FORM S-8

                                      UNDER

                             SECURITIES ACT OF 1933

                        IDEC PHARMACEUTICALS CORPORATION

<PAGE>   8
                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
Exhibit Number             Exhibit

<S>                        <C>
     5.                    Opinion of Brobeck, Phleger & Harrison LLP.
    23.1                   Consent of Independent Auditors - KPMG Peat Marwick LLP.
    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                   1988 Stock Option Plan.
    99.2*                  Form of Notice of Grant.
    99.3*                  Form of Stock Option Agreement.
</TABLE>



    * Exhibits 99.2 and 99.3 are incorporated herein by reference to Exhibit
28.2 of Registrant's Registration Statement No. 33-45172 on Form S-8 which was
filed with the SEC on January 21, 1992.





<PAGE>   1
                                                                      EXHIBIT 5


                                  June 20, 1996

IDEC Pharmaceuticals Corporation
11011 Torreyana Road
San Diego, California  92121

  RE: IDEC PHARMACEUTICALS CORPORATION (THE "COMPANY") --
      REGISTRATION STATEMENT FOR OFFERING OF 1,200,000 SHARES OF COMMON STOCK

Ladies and Gentlemen:

    We refer to your registration on Form S-8 (the "Registration Statement")
under the Securities Act of 1933, as amended, of 1,200,000 shares of Common
Stock of IDEC Pharmaceuticals Corporation (the "Company") authorized for
issuance under the Company's 1988 Stock Option Plan (the "Plan"). We advise you
that, in our opinion, when such shares have been issued and sold pursuant to the
applicable provisions of the Plan and in accordance with the Registration
Statement, such shares will be validly issued, fully paid and non-assessable
shares of the Company's Common Stock.

    We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.

                                 Very truly yours,


                                 /s/ Brobeck, Phleger & Harrison LLP
                                 BROBECK, PHLEGER & HARRISON LLP





<PAGE>   1
                                                                EXHIBIT 23.1



[KPMG Peat Marwick LLP Letterhead]


                         INDEPENDENT AUDITORS' CONSENT


The Board of Directors
IDEC Pharmaceuticals Corporation:

We consent to the use of our reports incorporated herein by reference.

                                                KPMG, Peat Marwick LLP

San Diego, California
June 14, 1996





<PAGE>   1
                                  EXHIBIT 99.1

                             1988 Stock Option Plan

<PAGE>   2
                        IDEC PHARMACEUTICALS CORPORATION

                             1988 STOCK OPTION PLAN

                  AMENDED AND RESTATED THROUGH JANUARY 24, 1996

        I.        PURPOSES OF THE PLAN

                  (a) This Stock Option Plan (the "Plan") is intended to promote
the interests of IDEC Pharmaceuticals Corporation, a California corporation (the
"Company"), by providing a method whereby (i) key employees (including officers
and directors) of the Company (or its parent or subsidiary corporations)
responsible for the management, growth and financial success of the Company (or
its parent or subsidiary corporations), (ii) the non-employee members of the
Company's Board of Directors (or any parent or subsidiary corporations) and
(iii) independent consultants and advisors who provide valuable services to the
Company (or its parent or subsidiary corporations) may be offered incentives and
rewards which will encourage them to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Company and continue to
render services to the Company (or its parent or subsidiary corporations).

                  (b) The following provisions shall be applicable in
determining the parent and subsidiary corporations of the Company:

                        (i) Any corporation
 (other than the Company) in an
         unbroken chain of corporations ending with the Company shall be
         considered to be a PARENT corporation of the Company, provided each
         such corporation in the unbroken chain (other than the Company) 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.

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

      II.         ADMINISTRATION OF THE PLAN

                  (a) The Company's Board of Directors (the "Board") shall
appoint a committee ("Committee") of two (2) or more non-employee Board members
to assume full

<PAGE>   3
responsibility for the administration of the Plan. No Board member shall be
eligible to serve on the Committee if such individual has, within the twelve
(12)-month period immediately preceding the date of his or her appointment to
the Committee, received an option grant or direct stock issuance under this Plan
or any other option or stock plan of the Company (or any parent or subsidiary
corporation), except for one or more automatic option grants received under the
Company's 1993 Non-Employee Directors Stock Option Plan. In addition, no Board
member shall be entitled to receive an option grant or direct stock issuance
under this Plan or under any other option or stock plan of the Company (or any
parent or subsidiary corporation) during his or her period of service on the
Committee, except for one or more automatic option grants received under the
Company's 1993 Non-Employee Directors Stock Option Plan. Members of the
Committee shall serve for such period of time as the Board may determine and
shall be subject to removal by the Board at any time.

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

      III.        ELIGIBILITY FOR OPTION GRANTS

                  (a) The persons eligible to receive option grants under the
Plan are as follows:

                        (i) key employees (including officers and directors) of
         the Company (or its parent or subsidiary corporations) who render
         services which contribute to the success and growth of the Company (or
         its parent or subsidiary corporations) or which may reasonably be
         anticipated to contribute to the future success and growth of the
         Company (or its parent or subsidiary corporations);

                        (ii) the non-employee members of the Board (other than
         Committee members) or the non-employee members of the board of
         directors of any parent or subsidiary corporations; and

                        (iii) those independent consultants or other advisors
         who provide valuable services to the Company (or its parent or
         subsidiary corporations).

                  (b) The Plan Administrator shall have full authority to
determine which eligible individuals are to receive option grants under the
Plan, the number of shares to be

                                       2.

<PAGE>   4
covered by each such grant, whether the granted option is to be an incentive
stock option ("Incentive Option") which satisfies the requirements of Section
422 of the Internal Revenue Code or a non-statutory option not intended to meet
such requirements, the time or times at which each such option is to become
exercisable, and the maximum term for which the option is to be outstanding.

       IV.        STOCK SUBJECT TO THE PLAN

                  (a) The stock issuable under the Plan shall be shares of the
Company's authorized but unissued or reacquired Common Stock. The aggregate
number of shares which may be issued under the Plan shall not exceed 4,680,000
shares.* The total number of shares issuable under the Plan shall be subject to
adjustment from time to time in accordance with Section IV(d) of the Plan.

                  (b) In no event may the aggregate number of shares of Common
Stock for which any one individual participating in the Plan may be granted
stock options and separately exercisable stock appreciation rights exceed
1,250,000 shares in the aggregate over the remaining term of the Plan, subject
to adjustment from time to time in accordance with Section IV(d) of the Plan.
For purposes of such limitation, no stock options or stock appreciation rights
granted prior to January 1, 1994 shall be taken into account.

                  (c) Should an option expire or terminate for any reason prior
to exercise in full (including options cancelled in accordance with the
cancellation-regrant provisions of Section VIII of the Plan), the shares subject
to the portion of the option not so exercised shall be available for subsequent
option grants under the Plan. Shares subject to any option cancelled in
accordance with Section IX of the Plan and shares repurchased by the Company
pursuant to its repurchase rights under the Plan shall reduce on a
share-for-share basis the number of shares of Common Stock available for
subsequent option grants under this Plan. In addition, should the exercise price
of an outstanding option under the Plan be paid with shares of Common Stock,
then the number of shares of Common Stock available for issuance under the Plan
shall be reduced by the gross number of shares for which the option

- --------
* Adjusted to reflect (i) the 1 for 2.5 reverse Common Stock split effected by
the Company on August 18, 1991, (ii) the 700,000 share increase authorized by
the Board in March 1993 and approved by the shareholders at the 1993 Annual
Meeting, (iii) the 650,000 share increase authorized by the Board on February
28, 1994 and approved by the shareholders at the 1994 Annual Meeting, (iv) the
500,000 share increase authorized by the Board on January 25, 1995, and approved
by the shareholders at the 1995 Annual Meeting and (v) the 1,200,000 share
increase authorized by the Board on January 24, 1996, and approved by the
shareholders at the 1996 Annual Meeting. In no event, however, shall more than
4,388,151 shares of Common Stock be issued under the Plan after January 31,
1996, subject to adjustment under Section IV(d) in the event of changes in the
Company's capital structure.

                                       3.

<PAGE>   5
is exercised, and not by the net number of shares of Common Stock actually
issued to the option holder.

                  (d) In the event any change is made to the Common Stock
issuable under the Plan by reason of any stock split, stock dividend,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Company's receipt of
consideration, then appropriate adjustments shall be made 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 stock options and separately
exercisable stock appreciation rights may be granted to any one participant in
the aggregate after December 31, 1993 and (III) the number and/or class of
securities and exercise price per share in effect under each outstanding option
in order to prevent the dilution or enlargement of benefits thereunder. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.

        V.        TERMS AND CONDITIONS OF OPTIONS

                  Options granted pursuant to the Plan shall be authorized by
action of the Plan Administrator and may, at the Plan Administrator's
discretion, be either Incentive Options or non-statutory options. Individuals
who are not Employees (as defined in Section V.3.D below) may only be granted
non-statutory options. Each granted option shall be evidenced by one or more
instruments in the form approved by the Plan Administrator; provided, however,
that each such instrument shall comply with the terms and conditions specified
below. Each instrument evidencing an Incentive Option shall, in addition, be
subject to the applicable provisions of Section VI.

                  1.       Option Price.

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

                        B. The option price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section X and the
instrument evidencing the grant, be payable in one of the alternative forms
specified below:

                        (i) full payment in cash or check payable to the
         Company; or

                        (ii) full payment in shares of Common Stock held by the
         optionee for the requisite period necessary to avoid a charge to the
         Company's reported earnings and valued at fair market value on the
         Exercise Date (as such term is defined below); or

                                       4.

<PAGE>   6
                        (iii) full payment through a combination of shares of
         Common Stock held by the optionee for the requisite period necessary to
         avoid a charge to the Company's reported earnings and valued at fair
         market value on the Exercise Date and cash or check payable to the
         Company; or

                        (iv) full payment effected through a broker-dealer sale
         and remittance procedure pursuant to which the optionee shall provide
         irrevocable written instructions (I) to a Company-designated brokerage
         firm to (A) effect the immediate sale of a sufficient number of the
         purchased shares to enable such firm to remit to the Company, out of
         the sale proceeds available on the settlement date, sufficient funds to
         cover the aggregate option price payable for the purchased shares plus
         all applicable Federal and State income and employment taxes required
         to be withheld by the Company in connection with such purchase and (B)
         remit those funds to the Company on the settlement date, and (II) to
         the Company to deliver the certificates for the purchased shares
         directly to such brokerage firm.

                  For purposes of this subparagraph B, the Exercise Date shall
be the date on which written notice of the option exercise is received by the
Company. Except to the extent the sale and remittance procedure is utilized in
connection with the exercise of the option, payment of the option price for the
purchased shares must accompany such notice.

                  C. The fair market value per share of Common Stock on any
relevant date under subparagraph A or B (and for all other valuation purposes
under the Plan) shall be determined in accordance with the following provisions:

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

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

                                       5.

<PAGE>   7
         then the fair market value shall be the closing selling price on the
         exchange on the last preceding date for which such quotation exists.

                  2. Term and Exercise of Options. Each option granted under the
Plan 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 instrument evidencing such option; provided, however, that no such
option shall have a term in excess of ten (10) years from the grant date. No
option or stock appreciation right outstanding under the Plan shall be
assignable or transferable by the optionee other than a transfer of the option
by will or by the laws of descent and distribution following the optionee's
death, and during the optionee's lifetime the option and all stock appreciation
rights pertaining to such option shall be exercisable only by the optionee.

                  3.       Effect of Termination of Service.

                        A. Should an optionee cease to remain in Service (as
defined in subparagraph D below) for any reason (including death or permanent
disability as defined in Section 22(e)(3) of the Internal Revenue Code) while
the holder of one or more outstanding options granted to such optionee under the
Plan, then such option or options shall not (except to the extent otherwise
provided pursuant to Section XI below) remain exercisable for more than a
thirty-six (36)-month period (or such shorter period determined by the Plan
Administrator and specified in the instrument evidencing the grant) following
the date of such cessation of Service. Under no circumstances, however, shall
any such option be exercisable after the specified expiration date of the option
term. Each such option shall, during such thirty-six (36)-month or shorter
period, be exercisable only to the extent of the number of shares (if any) for
which the option is exercisable on the date of the optionee's cessation of
Service. Upon the expiration of such thirty-six (36)-month or shorter period or
(if earlier) upon the expiration of the option term, the option shall terminate
and cease to be exercisable. However, the option shall, immediately upon the
optionee's cessation of Service for any reason, terminate and cease to be
outstanding for any option shares for which the option is not otherwise at that
time exercisable.

                        B. Any outstanding option held by the optionee and
exercisable in whole or in part on the date of his or her death may be
subsequently exercised, but only to the extent of the number of shares (if any)
for which the option is exercisable on the date of the optionee's cessation of
Service (less any option shares subsequently purchased by the 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
in accordance with the laws of descent and distribution. The right to exercise
the option for those shares shall terminate upon the earlier of (i) the third
anniversary of the date of the optionee's cessation of Service or (ii) the
specified expiration date of the option term.

                        C. Notwithstanding subparagraphs A and B above, the Plan
Administrator shall have complete discretion, exercisable either at the time the
option is

                                       6.

<PAGE>   8
granted or at any time while the option remains outstanding, to permit one or
more options held by the optionee under the Plan to be exercised, during the
limited period of exercisability provided under Section V.3.A above, not only
with respect to the number of shares for which each such option is exercisable
at the time of the optionee's cessation of Service but also with respect to one
or more subsequent installments for which the option would otherwise have become
exercisable had such cessation of Service not occurred.

                        D. For purposes of the foregoing provisions of this
Section V.3 (and all other provisions of the Plan), the optionee shall be deemed
to remain in the SERVICE of the Company for so long as such individual renders
services on a periodic basis to the Company or any parent or subsidiary
corporation in the capacity of an Employee, a non-employee member of the board
of directors or an independent consultant or advisor, unless the option
agreement evidencing the option grant and/or the purchase agreement evidencing
the purchased option shares specifically provides otherwise. The optionee shall
be considered to be an EMPLOYEE for so long as such individual remains in the
employ of the Company or one or more of its parent or subsidiary corporations,
subject to the control and direction of the employer entity as to the work to be
performed and as to the manner and method of performance.

                  4. Shareholder Rights. An optionee shall have none of the
rights of a shareholder with respect to any shares covered by the option until
such individual shall have exercised the option and paid the option price for
the purchased shares.

                  5. Repurchase Rights. Unvested shares of Common Stock may be
issued under the Plan which are subject to repurchase by the Company in
accordance with the following provisions:

                        (a) Upon the optionee's cessation of Service while
         holding unvested shares under the Plan, the Company shall have the
         right to repurchase any or all of those unvested shares at the option
         price paid per share. The terms and conditions upon which such
         repurchase right shall be exercisable (including the period and
         procedure for exercise and the appropriate vesting schedule for the
         purchased shares) shall be established by the Plan Administrator and
         set forth in the instrument evidencing such repurchase right.

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

                                       7.

<PAGE>   9
                        (c) The Plan Administrator shall have the discretionary
         authority, exercisable either before or after the optionee's cessation
         of Service, to cancel the Company's outstanding repurchase rights with
         respect to any or all unvested shares purchased or purchasable by the
         Optionee under the Plan and thereby accelerate the vesting of those
         shares in whole or in part at any time.

       VI.        INCENTIVE OPTIONS.

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

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

                  (b) Dollar Limitation. The aggregate fair market value
(determined as of the respective date or dates of grant) of the Common Stock for
which one or more options granted to any Employee after December 31, 1986 under
this Plan (or any other option plan of the Company or its parent or subsidiary
corporations) may for the first time become exercisable as incentive stock
options under the Federal tax laws during any one calendar year shall not exceed
the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee
holds two or more such options which become exercisable for the first time in
the same calendar year, the foregoing limitation on the exercisability of such
options as incentive stock options under the Federal tax laws shall be applied
on the basis of the order in which such options are granted. Should the number
of shares of Common Stock for which an Incentive Option first becomes
exercisable in any calendar year exceed the applicable One Hundred Thousand
Dollar ($100,000) limitation, the option may nevertheless be exercised for those
excess shares in such calendar year as a non-statutory option.

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

                  Except as modified by the preceding provisions of this Section
VI, all the provisions of the Plan shall be applicable to the Incentive Options
granted hereunder.

                                       8.

<PAGE>   10
      VII.        CORPORATE TRANSACTION/CHANGE IN CONTROL

                  (a) In the event of any of the following transactions (a
"Corporate Transaction"):

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

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

                        (iii) any reverse merger in which the Company is the
         surviving entity but in which fifty percent (50%) or more of the
         Company's outstanding voting stock is transferred to persons different
         from those who held the stock immediately prior to such merger,

                  each outstanding option under the Plan shall automatically
accelerate so that each such option shall, immediately prior to the specified
effective date for the Corporate Transaction, become exercisable for the total
number of shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of those shares as fully-vested shares of
Common Stock. However, an outstanding option under the Plan shall not so
accelerate if and to the extent: (i) such option is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation or
parent thereof or be replaced with a comparable option to purchase shares of the
capital stock of the successor corporation or parent thereof or (ii) the
acceleration of such option is subject to other applicable limitations imposed
by the Plan Administrator at the time of grant. The determination of
comparability under clause (i) above shall be made by the Plan Administrator and
its determination shall be final, binding and conclusive.

                  (b) Each outstanding option under the Plan which is assumed in
connection with the Corporate Transaction or is otherwise to continue in effect
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply and pertain to the number and class of securities which would have been
issued, in consummation of such Corporate Transaction, to an actual holder of
the same number of shares of Common Stock as are subject to such option
immediately prior to such Corporate Transaction. Appropriate adjustments shall
also be made to the option price payable per share, provided the aggregate
option price payable for such securities shall remain the same. In addition, the
class and number of securities available for issuance under the Plan on both an
aggregate and per participant basis shall be appropriately adjusted to reflect
the effect of the Corporate Transaction upon the Company's capital structure.

                                       9.

<PAGE>   11
                  (c) In connection with any Change in Control (as defined
below), the Plan Administrator shall have full power and authority, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of each outstanding
option under the Plan so that each such option shall, immediately prior to the
effective date of the Change in Control, become exercisable for the total number
of shares at the time subject to such option and may be exercised for all or any
portion of those shares as fully-vested shares of Common Stock. The Plan
Administrator shall also have full power and authority to condition such option
acceleration, and the termination of any of the Company's repurchase rights with
respect to any unvested shares purchased or purchasable under the Plan, upon the
subsequent termination of the optionee's Service within a designated period
following the Change in Control.

                  A CHANGE IN CONTROL shall be deemed to occur in the event:

                        (i) twenty-five percent (25%) or more of the Company's
         outstanding voting stock is acquired pursuant to a tender or exchange
         offer (A) which is made directly to the Company's shareholders by any
         person or related group of persons (other than the Company or a person
         that directly or indirectly controls, is controlled by or is under
         common control with, the Company) and (B) which the Board does not
         recommend such shareholders to accept; or

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

                  (d) Immediately following the consummation of a Corporate
Transaction, all outstanding options under the Plan shall terminate and cease to
be outstanding, except to the extent assumed by the successor corporation or its
parent company. Upon a Change in Control, each outstanding option accelerated
pursuant to subsection VII(c) above shall remain fully exercisable until the
expiration or sooner termination of the option term specified in the agreement
evidencing such grant.

                  (e) The exercisability as incentive stock options under the
Federal tax laws of any options accelerated in connection with a Corporate
Transaction or Change in Control shall remain subject to the dollar limitation
of Section VI(b) of the Plan. To the extent such dollar limitation is exceeded,
the accelerated option shall be exercisable as a non-statutory option under the
Federal tax laws.

                                       10.

<PAGE>   12
                  (f) The grant of options under this Plan shall in no way
affect the right of the Company 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.

     VIII.        CANCELLATION AND REGRANT OF OPTIONS

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

       IX.        STOCK APPRECIATION RIGHTS

                  (a) Provided and only if the Plan Administrator determines in
its discretion to implement the stock appreciation right provisions of this
Section IX, one or more optionees may be granted the right, exercisable upon
such terms and conditions as the Plan Administrator may establish, to surrender
all or part of an unexercised option under the Plan in exchange for a
distribution from the Company in an amount equal to the excess of (i) 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 (ii) the aggregate option price payable for such vested
shares.

                  (b) No surrender of an option shall be effective hereunder
unless it is approved by the Plan Administrator. If the surrender is so
approved, then the distribution to which the optionee shall accordingly become
entitled under this Section IX 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.

                  (c) If the surrender of an option is rejected 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
(i) five (5) business days after the receipt of the rejection notice or (ii) the
last day on which the option is otherwise exercisable in accordance with the
terms of the instrument evidencing such option, but in no event may such rights
be exercised more than ten (10) years after the date of the option grant.

                                       11.

<PAGE>   13
                  (d) One or more officers of the Company subject to the
short-swing profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under the Plan. Upon the occurrence of a
Hostile Take-Over, each outstanding option with such a limited stock
appreciation right in effect for at least six (6) months shall automatically be
cancelled, to the extent such option is at the time exercisable for fully-vested
shares of Common Stock (including any shares which may vest in connection with
such Hostile Take-Over). The optionee shall in return be entitled to a cash
distribution from the Company in an amount equal to the excess of (i) the
Take-Over Price of the vested shares of Common Stock at the time subject to the
cancelled option (or cancelled portion of such option) over (ii) the aggregate
exercise price payable for such shares. The cash distribution payable upon such
cancellation shall be made within five (5) days following the consummation of
the Hostile Take-Over. Neither the approval of the Plan Administrator nor the
consent of the Board shall be required in connection with such option
cancellation and cash distribution. The balance of the option (if any) shall
continue to remain outstanding and exercisable in accordance with the terms and
conditions of the instrument evidencing such grant.

                  (e) For purposes of Section IX(d), the following definitions
shall be in effect:

                           A HOSTILE TAKE-OVER shall be deemed to occur in the
         event (i) any person or related group of persons (other than the
         Company or a person that directly or indirectly controls, is controlled
         by, or is under common control with, the Company) directly or
         indirectly acquires beneficial ownership (within the meaning of Rule
         13d-3 of the Securities Exchange Act of 1934) of securities possessing
         more than twenty-five percent (25%) of the total combined voting power
         of the Company's outstanding securities pursuant to a tender or
         exchange offer made directly to the Company's shareholders which the
         Board does not recommend such shareholders to accept and (ii) more than
         fifty percent (50%) of the securities so acquired in such tender or
         exchange offer are accepted from holders other than officers and
         directors of the Company subject to the short-swing profit restrictions
         of Section 16 of the 1934 Act.

                           The TAKE-OVER PRICE per share shall be deemed to be
         equal to the greater of (a) the fair market value per share on the date
         of cancellation, as determined pursuant to the valuation provisions of
         Section V.1.C, or (b) the highest reported price per share paid by the
         acquiring entity in effecting such Hostile Take-Over. However, to the
         extent the cancelled option is an Incentive Option, the Take-Over Price
         shall not exceed the clause (a) price per share.

                                       12.

<PAGE>   14
                  (f) The shares of Common Stock subject to any option
surrendered or cancelled for an appreciation distribution pursuant to this
Section IX shall NOT be available for subsequent option grant under the Plan.

        X.        LOANS OR INSTALLMENT PAYMENTS

                  The Plan Administrator may, in its discretion, assist any
optionee (including any officer or director of the Company) in the exercise of
one or more options granted to such individual under the Plan, including the
satisfaction of any Federal and State income and employment tax obligations
arising therefrom, by (i) authorizing the extension of a loan from the Company
to such optionee or (ii) permitting the optionee to pay the option price for the
purchased Common Stock in installments over a period of years. The terms of any
such loan or installment method of payment (including the interest rate and
terms of repayment) will be upon such terms as the Plan Administrator specifies
in the applicable option agreement or otherwise deems appropriate under the
circumstances. Loans or installment payments may be granted with or without
security or collateral (other than to individuals who are independent
consultants or advisors, in which event the loan must be adequately secured by
collateral other than the purchased shares). However, the maximum credit
available to the optionee may not exceed the option price of the acquired shares
plus any Federal and State income and employment tax liability incurred by the
optionee in connection with the exercise of the option.

       XI.        EXTENSION OF EXERCISE PERIOD

                  The Plan Administrator shall have full power and authority, to
extend the period of time for which the option is to remain exercisable
following the optionee's cessation of Service from the thirty-six (36) month or
shorter period set forth in the option agreement to such greater period of time
as the Plan Administrator shall deem appropriate. In no event, however, shall
such option be exercisable after the specified expiration date of the option
term.

      XII.        AMENDMENT OF THE PLAN

                  The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects whatsoever;
provided, however, that no such amendment or modification shall, without the
consent of the holders, adversely affect rights and obligations with respect to
options at the time outstanding under the Plan. In addition, the Board shall
not, without the approval of the Company's shareholders, (i) materially increase
the maximum number of shares issuable under the Plan or the maximum number of
shares for which any one individual participating in the Plan may be granted
stock options and separately exercisable stock appreciation rights in the
aggregate after December 31, 1993, except for permissible adjustments under
Section IV(d), (ii) materially modify the eligibility requirements for the grant
of options under the Plan or (iii) otherwise materially increase the benefits
accruing to participants under the Plan.

                                       13.

<PAGE>   15
     XIII.        EFFECTIVE DATE AND TERM OF PLAN

                  (a) The Plan was initially adopted by the Board on July 19,
1988 and approved by the Company's shareholders on March 29, 1989. The Plan was
subsequently amended by the Board on July 18, 1990, and such amendment was
approved by the Company's shareholders in October, 1990. In January 1991, the
Plan was again amended to increase by 480,000 shares the number of shares of
Common Stock issuable under the Plan, and such share increase was approved by
the Company's shareholders on March 20, 1991. The Board further amended the Plan
on May 22, 1991, with such amendments to become effective as of the date the
Company's Common Stock first became traded on the Nasdaq National Market, in
order to revise certain provisions previously required when the Plan was subject
to the permit requirements of the California Corporations Department. In January
1992, the Plan was amended and restated in its entirety, including an increase
of 670,000 shares to the number of shares of Common Stock issuable thereunder.
The 1992 restatement, including the 670,000-share increase, was approved by the
shareholders at the 1992 Annual Meeting. On March 17, 1993, the Board amended
the Plan to increase by an additional 700,000 shares the number of shares of
Common Stock issuable under the Plan, and such share increase was approved by
the shareholders at the 1993 Annual Meeting. On February 28, 1994, the Board
amended the Plan to increase by an additional 650,000 shares the number of
shares of Common Stock issuable under the Plan, and such increase was approved
by the shareholders at the 1994 Annual Meeting. On January 25, 1995, the Board
amended the Plan to increase by an additional 500,000 shares the number of
shares of Common Stock issuable under the Plan, and such increase was approved
by the shareholders at the 1995 Annual Meeting.

                  On January 24, 1996, the Board adopted an amendment which
increased the number of shares of Common Stock issuable under the Plan by an
additional 1,200,000 shares, and such increase was approved by the shareholders
at the 1996 Annual Meeting.

                  (b) The provisions of the 1992 restatement and of each
subsequent amendment to the Plan shall apply only to stock options and stock
appreciation rights granted under the Plan from and after the applicable
effective date of such restatement or amendment. All stock options and stock
appreciation rights issued and outstanding under the Plan immediately prior to
each such effective date shall continue to be governed by the terms and
conditions of the Plan (and the respective agreements evidencing each such
option or stock appreciation right) as in effect on the date each such option or
stock appreciation right was previously granted, and nothing in the 1992
restatement or in any subsequent amendment shall be deemed to affect or
otherwise modify the rights or obligations of the holders of such prior options
or stock appreciation rights with respect to their acquisition of shares of
Common Stock under such options or their exercise of such stock appreciation
rights. However, the Plan Administrator may, in its discretion, modify stock
option or stock appreciation right issued and outstanding immediately prior to
the

                                       14.

<PAGE>   16
effective date of the 1992 restatement or any subsequent amendment to include
one or more provisions to the Plan added by such restatement or amendment.

                  (c) Unless sooner terminated in accordance with Section VII,
the Plan shall terminate upon the earlier of (i) July 19, 1998 or (ii) the date
on which all shares available for issuance under the Plan shall have been issued
or cancelled pursuant to the exercise, surrender of cash-out of the stock
options and stock appreciation rights granted hereunder. If the date of
termination is determined under clause (i) above, then each stock option or
stock appreciation right outstanding on such date shall thereafter continue to
have force and effect in accordance with the provisions of the instruments
evidencing such grant.

                  (d) Options may be granted under this Plan to purchase shares
of Common Stock in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under the Plan are
held in escrow until shareholder approval is obtained for a sufficient increase
in the number of shares available for issuance under the Plan. If such
shareholder approval is not obtained within twelve (12) months after the date
the first such excess option grants are made, then (I) any unexercised excess
options shall terminate and cease to be exercisable and (II) the Company shall
promptly refund the purchase price paid for any excess shares actually issued
under the Plan and held in escrow, together with interest (at the applicable
Short Term Federal Rate) for the period the shares were held in escrow.

      XIV.        USE OF PROCEEDS

                  Any cash proceeds received by the Company from the sale of
shares pursuant to options granted under the Plan shall be used for general
corporate purposes.

       XV.        REGULATORY APPROVALS

                  The implementation of the Plan, the granting of any stock
option or stock appreciation right hereunder, and the issuance of stock upon the
exercise of any such option or stock appreciation right shall be subject to the
procurement by the Company of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the options and stock
appreciation rights granted under it and the stock issued pursuant to it.

                                       15.