<PAGE>

                                                                    EXHIBIT 10.1

                           PROTON ENERGY SYSTEMS, INC.

                             1996 STOCK OPTION PLAN

                                 August 22, 1996

1.       Purpose.
         --------

         The purpose of this plan (the "Plan") is to secure for Proton Energy
Systems, Inc. (the "Company") and its shareholders the benefits arising from
capital stock ownership by employees, officers and directors of, and consultants
or advisors to, the Company and its parent and subsidiary corporations who are
expected to contribute to the Company's future growth and success. Except where
the context otherwise requires, the term "Company" shall include the parent and
all present and future subsidiaries of the Company as defined in Sections 424(e)
and 424(f) of the Internal Revenue Code of 1986, as amended or replaced from
time to time (the "Code"). Those provisions of the Plan which make express
reference to Section 422 shall apply only to Incentive Stock Options (as that
term is defined in the Plan).

2.       Type of Options and Administration.
         -----------------------------------

         (a)      Types of Options. Options granted pursuant to the Plan may be
                  ----------------
either incentive stock options ("Incentive Stock Options") meeting the
requirements of Section 422 of the Code or Non-Statutory Options which are not
intended to meet the requirements of Section 422 of the Code ("Non-Statutory
Options").

         (b)      Administration.
                  --------------

                  (i)    The Plan will be administered by the Board of Directors
of the Company, whose construction and interpretation of the terms and
provisions of the Plan shall be final and conclusive. The Board of Directors may
in its sole discretion grant options to purchase shares of the Company's Common
Stock ("Common Stock") and issue shares upon exercise of such options as
provided in the Plan. The Board shall have authority, subject to the express
provisions of the Plan, to construe the respective option agreements and the
Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, to determine the terms and provisions of the respective option agreements,
which need not be identical, and to make all other determinations which are, in
the judgment of the Board of Directors, necessary or desirable for the
administration of the Plan. The Board of Directors may correct any defect,
supply any omission or reconcile any inconsistency in the Plan or in any option
agreement in the manner and to the extent it shall deem expedient to carry the
Plan into effect and it shall be the sole and final judge of such expediency. No
director or person acting pursuant to authority delegated by the Board of
Directors shall be liable for any action or determination under the Plan made in
good faith.

                  (ii)   The Board of Directors may, to the full extent
permitted by or consistent with applicable laws or regulations and Section 3(b)
of this Plan delegate any or all of its powers under the Plan to a committee
(the "Committee") appointed by the Board of Directors, and if the
<PAGE>

Committee is so appointed all references to the Board of Directors in the Plan
shall mean and relate to such Committee.

         (c)      Applicability of Rule 16b-3. Those provisions of the Plan
                  ---------------------------
which make express reference to Rule 16b-3 promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act"), or any successor rule ("Rule 16b-3"),
or which are required in order for certain option transactions to qualify for
exemption under Rule 16b-3, shall apply only to such persons as are required to
file reports under Section 16(a) of the Exchange Act (a "Reporting Person").

3.       Eligibility.
         ------------

         (a)      General. Options may be granted to persons who are, at the
                  -------
time of grant, employees, officers or directors of, or consultants or advisors
to, the Company; provided, that the class of employees to whom Incentive Stock
                 --------
Options may be granted shall be limited to all employees of the Company. A
person who has been granted an option may, if he or she is otherwise eligible,
be granted additional options if the Board of Directors shall so determine.
Subject to adjustment as provided in Section 15 below, the maximum number of
shares with respect to which options may be granted to any employee under the
Plan shall not exceed 50,000 shares in any calendar year. For the purpose of
calculating such maximum number, (a) an option shall continue to be treated as
outstanding notwithstanding its repricing, cancellation or expiration and (b)
the repricing of an outstanding option or the issuance of a new option in
substitution for a cancelled option shall be deemed to constitute the grant of a
new additional option separate from the original grant of the option that is
repriced or cancelled.

         (b)      Grant of Options to Directors and Officers. If required to
                  ------------------------------------------
maintain the exemption under Rule 16b-3 of option transactions under the Plan,
from and after the registration of the Common Stock of the Company under the
Exchange Act, the selection of a director or an officer (as the terms "director"
and "officer" are defined for purposes of Rule 16b-3) as a recipient of an
option, the timing of the option grant, the exercise price of the option and the
number of shares subject to the option shall be determined either (i) by the
Board of Directors, of which all members shall be "disinterested persons" (as
hereinafter defined), or (ii) by two or more directors having full authority to
act in the matter, each of whom shall be a "disinterested person." For the
purposes of the Plan, a director shall be deemed to be a "disinterested person"
only if such person qualifies as a "disinterested person" within the meaning of
Rule 16b-3, as such term is interpreted from time to time.

4.       Stock Subject to Plan.
         ----------------------

         Subject to adjustment as provided in Section 15 below, the maximum
number of shares of Common Stock which may be issued and sold under the Plan is
300,000 shares. If an option granted under the Plan shall expire or terminate
for any reason without having been exercised in full, the unpurchased shares
subject to such option shall again be available for subsequent option grants
under the Plan. If shares issued upon exercise of an option under the Plan are
tendered to the Company in payment of the exercise price of an option granted
under the Plan, such tendered shares shall again be available for subsequent
option grants under the Plan; provided, that in no event shall such shares be
made available for issuance to Reporting Persons or pursuant to exercise of
Incentive Stock Options.

                                      -2-
<PAGE>

5.       Forms of Option Agreements.
         ---------------------------

         As a condition to the grant of an option under the Plan, each recipient
of an option shall execute an option agreement in such form not inconsistent
with the Plan as may be approved by the Board of Directors. Such option
agreements may differ among recipients.

6.       Purchase Price.
         ---------------

         (a)      General. Subject to Section 3(b), the purchase price per share
                  -------
of stock deliverable upon the exercise of an option shall be determined by the
Board of Directors, provided, however, that in the case of an Incentive Stock
Option, the exercise price shall not be less than 100% of the fair market value
of such stock, as determined by the Board of Directors, at the time of grant of
such option, or less than 110% of such fair market value in the case of options
described in Section 11(b).

         (b)      Payment of Purchase Price. Options granted under the Plan may
                  -------------------------
provide for the payment of the exercise price by delivery of cash or a check to
the order of the Company in an amount equal to the exercise price of such
options, or, to the extent provided in the applicable option agreement, (i) by
delivery to the Company of shares of Common Stock of the Company already owned
by the optionee having a fair market value equal in amount to the exercise price
of the options being exercised or (ii) by any other means (including, without
limitation, by delivery of a promissory note of the optionee payable on such
terms as are specified by the Board of Directors) which the Board of Directors
determines are consistent with the purpose of the Plan and with applicable laws
and regulations (including, without limitation, the provisions of Regulation T
promulgated by the Federal Reserve Board). The fair market value of any shares
of the Company's Common Stock or other non-cash consideration which may be
delivered upon exercise of an option shall be determined by the Board of
Directors.

7.       Option Period.
         --------------

         Each option and all rights thereunder shall expire on such date as
shall be set forth in the applicable option agreement, except that, in the case
of an Incentive Stock Option, such date shall not be later than ten years after
the date on which the option is granted and, in all cases, options shall be
subject to earlier termination as provided in the Plan.

8.       Exercise of Options.
         --------------------

         Each option granted under the Plan shall be exercisable either in full
or in installments at such time or times and during such period as shall be set
forth in the agreement evidencing such option, subject to the provisions of the
Plan.

9.       Nontransferability of Options.
         ------------------------------

         Options shall not be assignable or transferable by the person to whom
they are granted, either voluntarily or by operation of law, except by will or
the laws of descent and distribution, and, during the life of the optionee,
shall be exercisable only by the optionee; provided, however, that Non-Statutory
Options may be transferred pursuant to a qualified domestic relations order (as
defined in Rule 16b-3).

                                      -3-
<PAGE>

10.      Effect of Termination of Employment or Other Relationship.
         ----------------------------------------------------------

         Except as provided in Section 11(d) with respect to Incentive Stock
Options, and subject to the provisions of the Plan, the Board of Directors shall
determine the period of time during which an optionee may exercise an option
following (i) the termination of the optionee's employment or other relationship
with the Company or (ii) the death or disability of the optionee. Such periods
shall be set forth in the agreement evidencing such option.

11.      Incentive Stock Options.
         ------------------------

         Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:

         (a)      Express Designation. All Incentive Stock Options granted under
                  -------------------
the Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.

         (b)      10% Shareholder. If any employee to whom an Incentive Stock
                  ---------------
Option is to be granted under the Plan is, at the time of the grant of such
option, the owner of stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company (after taking into account the
attribution of stock ownership rules of Section 424(d) of the Code), then the
following special provisions shall be applicable to the Incentive Stock Option
granted to such individual:

                  (i)    The purchase price per share of the Common Stock
         subject to such Incentive Stock Option shall not be less than 110% of
         the fair market value of one share of Common Stock at the time of
         grant; and

                  (ii)   the option exercise period shall not exceed five years
         from the date of grant.

         (c)      Dollar Limitation. For so long as the Code shall so provide,
                  -----------------
options granted to any employee under the Plan (and any other incentive stock
option plans of the Company) which are intended to constitute Incentive Stock
Options shall not constitute Incentive Stock Options to the extent that such
options, in the aggregate, become exercisable for the first time in any one
calendar year for shares of Common Stock with an aggregate fair market value
(determined as of the respective date or dates of grant) of more than $100,000.

         (d)      Termination of Employment, Death or Disability. No Incentive
                  ----------------------------------------------
Stock Option may be exercised unless, at the time of such exercise, the optionee
is, and has been continuously since the date of grant of his or her option,
employed by the Company, except that:

                  (i)    an Incentive Stock Option may be exercised within the
         period of three months after the date the optionee ceases to be an
         employee of the Company (or within such lesser period as may be
         specified in the applicable option agreement), provided, that the
         agreement with respect to such option may designate a longer exercise
         period and that the exercise after such three-month period shall be
         treated as the exercise of a non-statutory option under the Plan;

                                      -4-
<PAGE>

                  (ii)   if the optionee dies while in the employ of the
         Company, or within three months after the optionee ceases to be such an
         employee, the Incentive Stock Option may be exercised by the person to
         whom it is transferred by will or the laws of descent and distribution
         within the period of one year after the date of death (or within such
         lesser period as may be specified in the applicable option agreement);
         and

                  (iii)  if the optionee becomes disabled (within the meaning of
         Section 22 (e) (3) of the Code or any successor provision thereto)
         while in the employ of the Company, the Incentive Stock Option may be
         exercised within the period of one year after the date the optionee
         ceases to be such an employee because of such disability (or within
         such lesser period as may be specified in the applicable option
         agreement).

For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.

12.      Additional Provisions.
         ----------------------

         (a)      Additional Option Provisions. The Board of Directors may, in
                  ----------------------------
its sole discretion, include additional provisions in option agreements covering
options granted under the Plan, including without limitation restrictions on
transfer, repurchase rights, commitments to pay cash bonuses, to make, arrange
for or guaranty loans or to transfer other property to optionees upon exercise
of options, or such other provisions as shall be determined by the Board of
Directors; provided that such additional provisions shall not be inconsistent
           -------- ----
with any other term or condition of the Plan and such additional provisions
shall not cause any Incentive Stock Option granted under the Plan to fail to
qualify as an Incentive Stock Option within the meaning of Section 422 of the
Code.

         (b)      Acceleration, Extension, Etc. The Board of Directors may, in
                  ----------------------------
its sole discretion, (i) accelerate the date or dates on which all or any
particular option or options granted under the Plan may be exercised or (ii)
extend the dates during which all, or any particular, option or options granted
under the Plan may be exercised.

13.      General Restrictions.
         ---------------------

         (a)      Investment Representations. The Company may require any person
                  ---------------------------
to whom an option is granted, as a condition of exercising such option, to give
written assurances in substance and form satisfactory to the Company to the
effect that such person is acquiring the Common Stock subject to the option for
his or her own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other effects as the
Company deems necessary or appropriate in order to comply with federal and
applicable state securities laws, or with covenants or representations made by
the Company in connection with any public offering of its Common Stock.

         (b)      Compliance With Securities Laws. Each option shall be subject
                  -------------------------------
to the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
option upon any securities exchange or

                                      -5-
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under any state or federal law, or the consent or approval of any governmental
or regulatory body, or that the disclosure of non-public information or the
satisfaction of any other condition is necessary as a condition of, or in
connection with, the issuance or purchase of shares thereunder, such option may
not be exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval, or satisfaction of such condition shall have
been effected or obtained on conditions acceptable to the Board of Directors.
Nothing herein shall be deemed to require the Company to apply for or to obtain
such listing, registration or qualification, or to satisfy such condition.

14.      Rights as a Shareholder.
         ------------------------

         The holder of an option shall have no rights as a shareholder with
respect to any shares covered by the option (including, without limitation, any
rights to receive dividends or non-cash distributions with respect to such
shares) until the date of issue of a stock certificate to him or her for such
shares. No adjustment shall be made for dividends or other rights for which the
record date is prior to the date such stock certificate is issued.

15.      Adjustment Provisions for Recapitalizations and Related Transactions.
         ---------------------------------------------------------------------

         (a)      General. If, through or as a result of any merger,
                  -------
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, (i) the outstanding shares of
Common Stock are increased, decreased or exchanged for a different number or
kind of shares or other securities of the Company, or (ii) additional shares or
new or different shares or other securities of the Company or other non-cash
assets are distributed with respect to such shares of Common Stock or other
securities, an appropriate and proportionate adjustment may be made in (x) the
maximum number and kind of shares reserved for issuance under the Plan, (y) the
number and kind of shares or other securities subject to any then outstanding
options under the Plan, and (z) the price for each share subject to any then
outstanding options under the Plan, without changing the aggregate purchase
price as to which such options remain exercisable. Notwithstanding the
foregoing, no adjustment shall be made pursuant to this Section 15 if such
adjustment would cause the Plan to fail to comply with Section 422 of the Code.

         (b)      Board Authority to Make Adjustments. Any adjustments under
                  -----------------------------------
this Section 15 will be made by the Board of Directors, whose determination as
to what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.

16.      Merger, Consolidation, Asset Sale, Liquidation, etc.
         ----------------------------------------------------

         (a)      General. In the event of a consolidation or merger or sale of
                  -------
all or substantially all of the assets of the Company in which outstanding
shares of Common Stock are exchanged for securities, cash or other property of
any other corporation or business entity or in the event of a liquidation of the
Company, the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions, as to outstanding options: (i)
provide that such options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation

                                      -6-
<PAGE>

(or an affiliate thereof), provided that any such options substituted for
                           --------
Incentive Stock Options shall meet the requirements of Section 424(a) of the
Code, upon written notice to the optionees, provide that all unexercised options
will terminate immediately prior to the consummation of such transaction unless
exercised by the optionee within a specified period following the date of such
notice, in the event of a merger under the terms of which holders of the Common
Stock of the Company will receive upon consummation thereof a cash payment for
each share surrendered in the merger (the "Merger Price"), make or provide for a
cash payment to the optionees equal to the difference between (A) the Merger
Price times the number of shares of Common Stock subject to such outstanding
options (to the extent then exercisable at prices not in excess of the Merger
Price) and (B) the aggregate exercise price of all such outstanding options in
exchange for the termination of such options, and (iv) provide that all or any
outstanding options shall become exercisable in full immediately prior to such
event.

         (b)      Substitute Options. The Company may grant options under the
                  ------------------
Plan in substitution for options held by employees of another corporation who
become employees of the Company, or a subsidiary of the Company, as the result
of a merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.

17.      No Special Employment Rights.
         -----------------------------

         Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Company or interfere in any way with the right of the Company at any time to
terminate such employment or to increase or decrease the compensation of the
optionee.

18.      Other Employee Benefits.
         -----------------------

         Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Directors.

19.      Amendment of the Plan.
         ----------------------

         (a)      The Board of Directors may at any time, and from time to time,
modify or amend the Plan in any respect, except that if at any time the approval
of the shareholders of the Company is required under Section 422 of the Code or
any successor provision with respect to Incentive Stock Options, or under Rule
16b-3, the Board of Directors may not effect such modification or amendment
without such approval.

         (b)      The termination or any modification or amendment of the Plan
shall not, without the consent of an optionee, affect his or her rights under an
option previously granted to him or her. With the consent of the optionee
affected, the Board of Directors may amend outstanding

                                      -7-
<PAGE>

option agreements in a manner not inconsistent with the Plan. The Board of
Directors shall have the right to amend or modify (i) the terms and provisions
of the Plan and of any outstanding Incentive Stock Options granted under the
Plan to the extent necessary to qualify any or all such options for such
favorable federal income tax treatment (including deferral of taxation upon
exercise) as may be afforded incentive stock options under Section 422 of the
Code and (ii) the terms and provisions of the Plan and of any outstanding option
to the extent necessary to ensure the qualification of the Plan under Rule
16b-3.

20.      Withholding.
         ------------

         (a)      The Company shall have the right to deduct from payments of
any kind otherwise due to the optionee any federal, state or local taxes of any
kind required by law to be withheld with respect to any shares issued upon
exercise of options under the Plan. Subject to the prior approval of the
Company, which may be withheld by the Company in its sole discretion, the
optionee may elect to satisfy such obligations, in whole or in part, (i) by
causing the Company to withhold shares of Common Stock otherwise issuable
pursuant to the exercise of an option or (ii) by delivering to the Company
shares of Common Stock already owned by the optionee. The shares so delivered or
withheld shall have a fair market value equal to such withholding obligation.
The fair market value of the shares used to satisfy such withholding obligation
shall be determined by the Company as of the date that the amount of tax to be
withheld is to be determined. An optionee who has made an election pursuant to
this Section 20(a) may only satisfy his or her withholding obligation with
shares of Common Stock which are not subject to any repurchase, forfeiture,
unfulfilled vesting or other similar requirements.

         (b)      Notwithstanding the foregoing, in the case of a Reporting
Person, no election to use shares for the payment of withholding taxes shall be
effective unless made in compliance with any applicable requirements of Rule
16b-3 (unless it is intended that the transaction not qualify for exemption
under Rule 16b-3).

21.      Cancellation and New Grant of Options, Etc.
         -------------------------------------------

         The Board of Directors shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
cancelled options or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of such
outstanding options.

22.      Effective Date and Duration of the Plan.
         ----------------------------------------

         (a)      Effective Date. The Plan shall become effective when adopted
                  --------------
by the Board of Directors, but no option granted under the Plan shall become
exercisable unless and until the Plan shall have been approved by the Company's
shareholders. If such shareholder approval is not obtained within twelve months
after the date of the Board's adoption of the Plan, options previously granted
under the Plan shall not vest and shall terminate and no options shall be

                                      -8-
<PAGE>

granted thereafter. Amendments to the Plan not requiring shareholder approval
shall become effective when adopted by the Board of Directors; amendments
requiring shareholder approval (as provided in Section 19) shall become
effective when adopted by the Board of Directors, but no option granted after
the date of such amendment shall become exercisable (to the extent that such
amendment to the Plan was required to enable the Company to grant such option to
a particular person) unless and until such amendment shall have been approved by
the Company's shareholders. If such shareholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any options granted on
or after the date of such amendment shall terminate to the extent that such
amendment was required to enable the Company to grant such option to a
particular optionee. Subject to this limitation, options may be granted under
the Plan at any time after the effective date and before the date fixed for
termination of the Plan.

         (b)      Termination. Unless sooner terminated in accordance with
                  -----------
Section 16, the Plan shall terminate upon the close of business on the day next
preceding the tenth anniversary of the date of its adoption by the Board of
Directors. Options outstanding on such date shall continue to have force and
effect in accordance with the provisions of the instruments evidencing such
options.

23.      Provision for Foreign Participants.
         -----------------------------------

         The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.

                                 Adopted by the Board of Directors on August 22,
                                 1996.

                                      -9-
<PAGE>


                          PROTON ENERGY SYSTEMS, INC.

                      AMENDMENT TO 1996 STOCK OPTION PLAN

     The 1996 Stock Option Plan, as amended, of Proton Energy Systems, Inc., a
Delaware corporation (the "Company"), is hereby amended as follows:

     1.  Section 4 of the Plan, is hereby amended by deleting the first sentence
thereof in its entirety and inserting in lieu thereof the following: "Subject to
adjustment as provided herein, the maximum number of shares of Common Stock
which may be issued and sold under the Plan shall not exceed the number of
shares subject to outstanding options granted hereunder prior to stockholder
approval of the Company's 2000 Stock Incentive Plan."

     2.   Section 16 of the Plan is hereby deleted in its entirety and the
following is inserted in lieu thereof:

     16.  Reorganization and Change in Control Events
          -------------------------------------------

          (1)  Definitions
               -----------

               (a)  A "Change in Control Event" shall mean:

                    (i)  the acquisition by an individual, entity or group
                         (within the meaning of Section 13(d)(3) or 14(d)(2) of
                         the Securities Exchange Act of 1934, as amended (the
                         "Exchange Act")) (a "Person") of beneficial ownership
                         of any capital stock of the Company if, after such
                         acquisition, such Person beneficially owns (within the
                         meaning of Rule 13d-3 promulgated under the Exchange
                         Act) 30% or more of either (x) the then-outstanding
                         shares of common stock of the Company (the "Outstanding
                         Company Common Stock") or (y) the combined voting power
                         of the then-outstanding securities of the Company
                         entitled to vote generally in the election of directors
                         (the "Outstanding Company Voting Securities");
                         provided, however, that for purposes of this subsection
                         --------  -------
                         (i), the following acquisitions shall not constitute a
                         Change in Control Event: (A) any acquisition directly
                         from the Company (excluding an acquisition pursuant to
                         the exercise, conversion or exchange of any security
                         exercisable for, convertible into or exchangeable for
                         common stock or voting securities of the Company,
                         unless the Person exercising, converting or exchanging
                         such security acquired such security directly from the
                         Company or an underwriter or agent of the Company), (B)
                         any acquisition by any employee benefit plan (or
                         related trust) sponsored or maintained by the Company
                         or any corporation controlled by the Company, or (C)
                         any
<PAGE>

                         acquisition by any corporation pursuant to a Business
                         Combination (as defined below) which complies with
                         clauses (x) and (y) of subsection (iii) of this
                         definition; or

                   (ii)  such time as the Continuing Directors (as defined
                         below) do not constitute a majority of the Board (or,
                         if applicable, the Board of Directors of a successor
                         corporation to the Company), where the term "Continuing
                         Director" means at any date a member of the Board (x)
                         who was a member of the Board on the date of the
                         initial adoption of this Plan by the Board or (y) who
                         was nominated or elected subsequent to such date by at
                         least a majority of the directors who were Continuing
                         Directors at the time of such nomination or election or
                         whose election to the Board was recommended or endorsed
                         by at least a majority of the directors who were
                         Continuing Directors at the time of such nomination or
                         election; provided, however, that there shall be
                                   --------  -------
                         excluded from this clause (y) any individual whose
                         initial assumption of office occurred as a result of an
                         actual or threatened election contest with respect to
                         the election or removal of directors or other actual or
                         threatened solicitation of proxies or consents, by or
                         on behalf of a person other than the Board; or

                   (iii) the consummation of a merger, consolidation,
                         reorganization, recapitalization or share exchange
                         involving the Company or a sale or other disposition of
                         all or substantially all of the assets of the Company
                         (a "Business Combination"), unless, immediately
                         following such Business Combination, each of the
                         following two conditions is satisfied: (x) all or
                         substantially all of the individuals and entities who
                         were the beneficial owners of the Outstanding Company
                         Common Stock and Outstanding Company Voting Securities
                         immediately prior to such Business Combination
                         beneficially own, directly or indirectly, more than 50%
                         of the then-outstanding shares of common stock and the
                         combined voting power of the then-outstanding
                         securities entitled to vote generally in the election
                         of directors, respectively, of the resulting or
                         acquiring corporation in such Business Combination
                         (which shall include, without limitation, a corporation
                         which as a result of such transaction owns the Company
                         or substantially all of the Company's assets either
                         directly or through one or more subsidiaries) (such
                         resulting or acquiring corporation is referred to
                         herein as the "Acquiring Corporation") in substantially
                         the same proportions as their ownership of the
                         Outstanding Company Common Stock and Outstanding
                         Company Voting Securities, respectively, immediately
                         prior to such Business Combination

                                      -2-
<PAGE>

                         and (y) no Person (excluding the Acquiring Corporation
                         or any employee benefit plan (or related trust)
                         maintained or sponsored by the Company or by the
                         Acquiring Corporation) beneficially owns, directly or
                         indirectly, 30% or more of the then-outstanding shares
                         of common stock of the Acquiring Corporation, or of the
                         combined voting power of the then-outstanding
                         securities of such corporation entitled to vote
                         generally in the election of directors (except to the
                         extent that such ownership existed prior to the
                         Business Combination).

               (b)  "Good Reason" shall mean any significant diminution in the
                    Participant's title, authority, or responsibilities from and
                    after such Reorganization Event or Change in Control Event,
                    as the case may be, or any reduction in the annual cash
                    compensation payable to the Participant from and after such
                    Reorganization Event or Change in Control Event, as the case
                    may be, or the relocation of the place of business at which
                    the Participant is principally located to a location that is
                    greater than 50 miles from the current site.

               (c)  "Cause" shall mean any (i) willful failure by the
                    Participant, which failure is not cured within 30 days of
                    written notice to the Participant from the Company, to
                    perform his or her material responsibilities to the Company
                    or (ii)  willful misconduct by the Participant which affects
                    the business reputation of the Company.  The Participant
                    shall be considered to have been discharged for "Cause" if
                    the Company determines, within 30 days after the
                    Participant's resignation, that discharge for Cause was
                    warranted.

          (2)  Effect on Options
               -----------------

               (a)  Change in Control Event. Following the occurrence of a
                    -----------------------
                    Change in Control Event, if on or prior to the first
                    anniversary of the date of the consummation of the Change in
                    Control Event, the Participant's employment with the Company
                    or the acquiring or succeeding corporation is terminated for
                    Good Reason by the Participant or is terminated without
                    Cause by the Company or the acquiring or succeeding
                    corporation, except to the extent specifically provided to
                    the contrary in the instrument evidencing any Option or any
                    other agreement between a Participant and the Company, the
                    vesting schedule of such Option shall be accelerated in part
                    so that the number of shares that would otherwise have first
                    become vested on any date after the date of the Change in
                    Control Event shall immediately become exercisable.

          (3)  Limitations.  Notwithstanding the foregoing provisions of this
               -----------
               Section 16, if the Change in Control Event is intended to be
               accounted for as a "pooling of interests" for financial
               accounting purposes, and if the

                                      -3-
<PAGE>

               acceleration to be effected by the foregoing provisions of this
               Section 16 would preclude accounting for the Change in Control
               Event as a "pooling of interests" for financial accounting
               purposes, then no such acceleration shall occur upon the Change
               in Control Event.

3.  Except as amended herein, the Plan is confirmed to remain in full force and
effect.


                                    Adopted by the Board of Directors of the
                                    Company on __, 2000.

                                    Approved by the Stockholders of the Company
                                    on __, 2000.

                                      -4-