<PAGE>
 
                              LOOMIS, FARGO & CO.

                            1997 STOCK OPTION PLAN



1.0  DEFINITIONS

     The following terms shall have the following meanings unless the context
     indicates otherwise:

1.1  "Board" shall mean the Board of Directors of the Company.

1.2  "Cause" shall mean:

     (a) the Participant is convicted of, or pleads nolo contendere to, (i) a
     felony or (ii) a misdemeanor involving moral turpitude; or

     (b) the Participant engages in conduct that constitutes gross neglect or
     willful misconduct in carrying out his or her duties as an employee of the
     Company.

1.3  "Change in Control of the Company" shall mean the first to occur of the
     following events:

     (a) if the Common Stock is not readily tradeable on a national securities
         exchange or other market system, any "Person" (as such term is used in
         Sections 3(a)(9) and 13(d) of the Exchange Act) or group of Persons
         (other than (i) the Loomis Stockholders Trust or any "Affiliate" (as
         such term is defined in Rule 12b-2 under the Exchange Act) of its
         unitholders, (ii) Wells Fargo Armored Service Corporation or any of its
         Affiliates, or (iii) any Subsidiary) becomes a "Beneficial Owner" (as
         such term is used in Rule 13d-3 under the Exchange Act) of more than 50
         percent of the Voting Stock of the Company;

     (b) whether or not the Common Stock is readily tradeable on a national
         securities exchange or other market system, (i) the Loomis Stockholders
         Trust and/or any Affiliate of its unitholders, or (ii) Wells Fargo
         Armored Service Corporation and/or any of its Affiliates becomes a
         Beneficial Owner of 80 percent or more of the Voting Stock of the
         Company;

     (c) if the Common Stock is readily tradeable on a national securities
         exchange or other market system, any Person or group of Persons (other
         than (i) the Loomis Stockholders Trust or any Affiliate of its
         unitholders, (ii) Wells Fargo Armored Service Corporation or any of its
         Affiliates, or (iii) any Subsidiary) becomes a Beneficial Owner of more
         than 40 percent of the Voting Stock of the Company;
<PAGE>
 
     (d) if the Common Stock is readily tradeable on a national securities
         exchange or other market system, the majority of the Board consists of
         individuals other than Incumbent Directors;

     (e) the Company adopts any plan of liquidation providing for the
         distribution of all or substantially all of its assets;

     (f) the sale or other disposition of all or substantially all of the assets
         or business of the Company and its Subsidiaries taken as a whole; or

     (g) the merger, consolidation or combination of the Company with or into
         another company (the "Other Company"); provided, however, that
         immediately after the merger, consolidation or combination, the
         shareholders of the Company immediately prior to the merger,
         consolidation or combination hold, directly or indirectly, 50 percent
         or less of the Voting Stock of the surviving company (there being
         excluded from the number of shares held by such shareholders, but not
         from the Voting Stock of the surviving company, any shares received by
         any "affiliate" (as such term is defined in Rule 12b-2 under the
         Exchange Act) of the Other Company in exchange for stock of the Other
         Company).

     Notwithstanding anything contained in the Plan to the contrary, a Change in
     Control of the Company shall not include an initial public offering of the
     Company.

1.4  "Code" shall mean the Internal Revenue Code of 1986, as amended from time
     to time.

1.5  "Committee" shall mean (i) the Board or (ii) a committee or subcommittee of
     the Board appointed by the Board from among its members.  The Committee may
     be the Board's Compensation Committee.  Unless the Board determines
     otherwise, the Committee shall be comprised solely of not less than two
     members who each shall qualify as (x) a "Non-Employee Director" within the
     meaning of Rule 16b-3(b)(3) (or any successor rule) under the Exchange Act
     and (y) an "outside director" within the meaning of Section 162(m) of the
     Code and the Treasury Regulations thereunder.

1.6  "Common Stock" shall mean the common stock, $.01 par value per share, of
     the Company.

1.7  "Company" shall mean Loomis, Fargo & Co., a Delaware corporation.

1.8  "Disability" shall mean:

     (a) a disability as determined under the Company's long-term disability
     plan or program in effect on the date the disability first occurs; or

     (b) if no such plan or program is in effect on the date the disability
     first occurs, a "total and permanent disability" (as such term is defined
     in Code Section 22(e)(3)).

1.9  "Effective Date" shall mean the date on which the Plan is adopted by the
     Board.

                                       2
<PAGE>
 
1.10 "Employee" shall mean an employee of the Company or any Subsidiary as
     described in Treasury Regulation Section 1.421-7(h).

1.11 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
     from time to time, including applicable regulations thereunder.

1.12 "Fair Market Value" shall mean:

     (a) if the Common Stock is readily tradeable on a national securities
     exchange or other market system, the closing price of the Common Stock on
     the date of calculation (or on the last preceding trading date if Common
     Stock was not traded on such date); or

     (b) if the Common Stock is not readily tradeable on a national securities
     exchange or other market system, the fair market value of a share of Common
     Stock as determined in good faith by the Board.

1.13 "Incumbent Directors" shall mean the members of the Board as of the
     Effective Date; provided, however, that any person becoming a director
     subsequent to such date whose election or nomination for election was
     supported by a majority of the directors who then comprised the Incumbent
     Directors shall be considered to be an Incumbent Director.

1.14 "Initial Stock Options" shall mean the Stock Options granted under Section
     6.8 below.

1.15 "ISO" shall mean an "incentive stock option" as such term is used in Code
     Section 422.

1.16 "Non-employee Director" shall mean a member of the Board who is not an
     Employee.

1.17 "Nonqualified Stock Option" shall mean a Stock Option that does not qualify
     as an ISO.

1.18 "Participant" shall mean any Employee or Non-employee Director to whom a
     Stock Option has been granted by the Committee under the Plan in accordance
     with Section 6 below.

1.19 "Plan" shall mean the Loomis, Fargo & Co. 1997 Stock Option Plan.

1.20 "Stock Option" shall mean the grant by the Committee to a Participant of an
     option to purchase Common Stock under Section 6 below.

1.21 "Stock Option Agreement" shall mean a written agreement between the Company
     and the Participant that establishes the terms, conditions, restrictions
     and/or limitations applicable to a Stock Option in addition to those
     established by this Plan and by the Committee's exercise of its
     administrative powers.

1.22 "Subsidiary" shall mean a corporation of which the Company directly or
     indirectly owns more than 50 percent of the Voting Stock or any other
     business entity in which the Company directly or indirectly has an
     ownership interest of more than 50 percent.

                                       3
<PAGE>
 
1.23 "Treasury Regulations" shall mean the regulations promulgated under the
     Code by the United States Department of the Treasury, as amended from time
     to time.

1.24 "Voting Stock" shall mean capital stock of any class or classes having
     general voting power under ordinary circumstances, in the absence of
     contingencies, to elect the directors of a corporation.

2.0  PURPOSE AND TERM OF PLAN

2.1  PURPOSE.  The purpose of the Plan is to provide motivation to certain key
     Employees and Non-employee Directors to put forth maximum efforts toward
     the growth, profitability, and success of the Company and Subsidiaries by
     providing incentives to such Employees and Non-employee Directors through
     the ownership and performance of the Common Stock. In addition, the Plan is
     intended to provide incentives which will attract and retain highly
     competent individuals as Employees and Non-employee Directors and to assist
     in aligning the interests of such Employees and Non-employee Directors with
     those of its stockholders.

2.2  TERM.  The Plan shall be effective as of the Effective Date; provided,
     however, that the Plan shall be approved by the stockholders of the Company
     at an annual meeting or any special meeting of stockholders of the Company
     within 12 months before or after the Effective Date, and such approval of
     stockholders shall be a condition to the right of each Participant to
     receive ISOs hereunder.  Any ISO granted under the Plan prior to such
     approval of stockholders shall be effective as of the date of grant (unless
     the Committee specifies otherwise at the time of grant), but no such ISO
     may be exercised or otherwise disposed of prior to such stockholder
     approval, and if stockholders fail to approve the Plan as specified
     hereunder, any such ISO shall be cancelled.  The Plan shall terminate on
     the 10th anniversary of the Effective Date (unless sooner terminated by the
     Board).

3.0  ELIGIBILITY AND PARTICIPATION

3.1  ELIGIBILITY.  All Employees of the Company and any Subsidiary are eligible
     to participate in the Plan.  In addition, Non-employee Directors shall be
     eligible to participate in the Plan.

3.2  PARTICIPATION.  Participants shall consist of such Employees and Non-
     employee Directors as the Committee in its sole discretion designates to
     receive Stock Options under the Plan.  Designation of a Participant in any
     year shall not require the Committee to designate such person to receive a
     Stock Option in any other year or, once designated, to receive the same
     type or amount of Stock Option as granted to the Participant in any other
     year.  The Committee shall consider such factors as it deems pertinent in
     selecting Participants and in determining the type and amount of their
     respective Stock Options.

4.0  ADMINISTRATION

4.1  RESPONSIBILITY.  The Committee shall have the responsibility, in its sole
     discretion, to control, operate, manage and administer the Plan in
     accordance with its terms.

                                       4
<PAGE>
 
4.2  AUTHORITY OF THE COMMITTEE.  The Committee shall have all the discretionary
     authority that may be necessary or helpful to enable it to discharge its
     responsibilities with respect to the Plan, including, but not limited to,
     the following:

     (a) to determine eligibility for participation in the Plan;

     (b) to determine eligibility for and the number of Stock Options granted
         under the Plan;

     (c) to supply any omission;

     (d) to issue administrative guidelines as an aid to administer the Plan and
         make changes in such guidelines as it from time to time deems proper;

     (e) to make rules for carrying out and administering the Plan and make
         changes in such rules as it from time to time deems proper;

     (f) to the extent permitted under the Plan, grant waivers of Plan terms,
         conditions, restrictions, and limitations;

     (g) to accelerate the exercisability of any Stock Option when such action
         or actions would be in the best interest of the Company;

     (h) to grant Stock Options in replacement of Stock Options previously
         granted under this Plan or any other incentive compensation plan of the
         Company; and

     (i) to take any and all other actions it deems necessary or advisable for
         the proper operation or administration of the Plan.

4.3  ACTION BY THE COMMITTEE.  The Committee may act only by a majority of its
     members.  Any determination of the Committee may be made, without a
     meeting, by a writing or writings signed by all of the members of the
     Committee.  In addition, the Committee may authorize any one or more of its
     members to execute and deliver documents on behalf of the Committee.

4.4  DELEGATION OF AUTHORITY.  The Committee may delegate to one or more of its
     members, or to one or more agents, such administrative duties as it may
     deem advisable; provided, however, that any such delegation shall be in
     writing.  In addition, the Committee, or any person to whom it has
     delegated duties as aforesaid, may employ one or more persons to render
     advice with respect to any responsibility the Committee or such person may
     have under the Plan.  The Committee may employ such legal or other counsel,
     consultants and agents as it may deem desirable for the administration of
     the Plan and may rely upon any opinion or computation received from any
     such counsel, consultant or agent.  Expenses incurred by the Committee in
     the engagement of such counsel, consultant or agent shall be paid by the
     Company, or the subsidiary or affiliate whose employees have benefitted
     from the Plan, as determined by the Committee.

                                       5
<PAGE>
 
4.5  DETERMINATIONS AND INTERPRETATIONS BY THE COMMITTEE.  All determinations
     and interpretations made by the Committee shall be binding and conclusive
     on all Participants and their legal representatives.

4.6  LIABILITY.  No member of the Board, no member of the Committee and no
     employee of the Company shall be liable for any act or failure to act
     hereunder, except in circumstances involving his or her bad faith, gross
     negligence or willful misconduct, or for any act or failure to act
     hereunder by any other member or employee or by any agent to whom duties in
     connection with the administration of the Plan have been delegated.

4.7  INDEMNIFICATION.  The Company shall indemnify members of the Committee and
     any agent of the Committee who is an employee of the Company, against any
     and all liabilities or expenses to which they may be subjected by reason of
     any act or failure to act with respect to their duties on behalf of the
     Plan, except in circumstances involving such person's bad faith, gross
     negligence or willful misconduct.

5.0  SHARES SUBJECT TO PLAN

5.1  AVAILABLE SHARES.  The aggregate number of shares of Common Stock which
     shall be available for grants of Stock Options under the Plan during its
     term shall be 1,000,000 shares.  Such shares of Common Stock available for
     issuance under the Plan may be either authorized but unissued shares,
     shares of issued stock held in the Company's treasury, or both, at the
     discretion of the Company, and subject to any adjustments made in
     accordance with Section 5.3 below. Any shares of Common Stock underlying
     Stock Options which terminate by expiration, forfeiture, cancellation or
     otherwise without the issuance of such shares shall again be available for
     grants of Stock Options under the Plan.

5.2  MAXIMUM AGGREGATE NUMBER OF SHARES UNDERLYING ALL STOCK OPTIONS GRANTED
     UNDER THE PLAN TO ANY SINGLE PARTICIPANT.  The maximum aggregate number of
     shares of Common Stock underlying all Stock Options that may be granted to
     any single Participant during the life of the Plan shall be 600,000 shares,
     subject to adjustment as provided in Section 5.3 below.  For purposes of
     the preceding sentence, Stock Options that are cancelled or repriced shall
     continue to be counted in determining such maximum aggregate number of
     shares.

5.2  ADJUSTMENT TO SHARES.  If there shall be any change in the Common Stock of
     the Company, through merger, consolidation, reorganization,
     recapitalization, stock dividend, stock split, reverse stock split, split
     up, spinoff, combination of shares, exchange of shares, dividend in kind or
     other like change in capital structure or distribution (other than normal
     cash dividends) to stockholders of the Company, an adjustment shall be made
     to each outstanding Stock Option so that each such Stock Option shall
     thereafter be exercisable for such securities, cash and/or other property
     as would have been received in respect of the Common Stock subject to such
     Stock Option had such Stock Option been exercised in full immediately prior
     to such change or distribution, and such an adjustment shall be made
     successively each time any such change shall occur.  In addition, in the
     event of any such change or distribution, in order to prevent dilution or
     enlargement of Participants' rights under the Plan, the Committee shall
     have the authority to adjust, in an equitable manner, the number and kind
     of shares that may be issued under the Plan, the number and kind of shares
     subject to outstanding Stock Options, the exercise price applicable to
     outstanding Stock Options, and the Fair Market 


                                       6
<PAGE>
 
     Value of the Common Stock and other value determinations applicable to
     outstanding Stock Options. Appropriate adjustments may also be made by the
     Committee in the terms of any Stock Options granted under the Plan to
     reflect such changes or distributions and to modify any other terms of
     outstanding Stock Options on an equitable basis, including modifications of
     performance targets and changes in the length of performance periods. In
     addition, the Committee is authorized to make adjustments to the terms and
     conditions of, and the criteria included in, Stock Options in recognition
     of unusual or nonrecurring events affecting the Company or the financial
     statements of the Company, or in response to changes in applicable laws,
     regulations, or accounting principles. Notwithstanding the foregoing, (i)
     any adjustment with respect to an ISO shall comply with the rules of Code
     Section 424(a), and (ii) in no event shall any adjustment be made which
     would render any ISO granted hereunder other than an incentive stock option
     for purposes of Code Section 422.

6.0  STOCK OPTIONS

6.1  IN GENERAL.  The Committee is authorized to grant Stock Options to
     Employees and Non-employee Directors on or after the Effective Date.  The
     Committee shall, in its sole discretion, determine the Employees and the
     Non-employee Directors who will receive Stock Options and the number of
     shares of Common Stock underlying each Stock Option.  Stock Options may be
     ISOs or Nonqualified Stock Options.  The Committee, in its sole discretion,
     may grant to any Participant one or more ISOs, Nonqualified Stock Options,
     or both types of Stock Options.  Each Stock Option granted under the Plan
     shall be evidenced by a Stock Option Agreement which shall be signed by the
     Committee and the Participant; provided, however, that in the event of any
     conflict between any provision of the Plan and any provision of a Stock
     Option Agreement, the provision of the Plan shall prevail.  Each Stock
     Option shall be subject to such terms and conditions consistent with the
     Plan as the Committee may impose from time to time.  In addition, each
     Stock Option shall be subject to the following terms and conditions set
     forth below in this Section 6.

6.2  EXERCISE PRICE.  The Committee shall specify the exercise price of each
     Stock Option in the Stock Option Agreement; provided, however, that the
     exercise price of any Stock Option shall not be less than 100 percent of
     Fair Market Value of the Common Stock on the date of grant.

6.3  TERM OF STOCK OPTION.  The Committee shall specify the term of each Stock
     Option in the Stock Option Agreement; provided, however, that (i) no ISO
     shall be exercised after the 10th anniversary of the date of grant and (ii)
     no Stock Option shall be exercised after the 11th anniversary of the date
     of grant.  Each Stock Option shall terminate at such earlier times and upon
     such conditions or circumstances as the Committee shall in its discretion
     set forth in the Stock Option Agreement on the date of grant.

6.4  EXERCISE SCHEDULE.  The Committee shall specify the exercisability schedule
     of each Stock Option in the Stock Option Agreement.  The Committee may
     grant Stock Options that are immediately exercisable.  If the Committee
     fails to specify an exercisability schedule in the Stock Option Agreement,
     20 percent of such Stock Option shall become exercisable on each of the
     first 5 anniversaries of the date of grant.  The exercisability schedule
     may be subject to such other terms and conditions as shall be determined by
     the Committee, including, without limitation, accelerated exercisability if
     certain performance goals are achieved.


                                       7
<PAGE>
 
6.5  EXERCISE OF STOCK OPTIONS.  The Stock Option exercise price may be paid in
     cash or, in the discretion of the Committee, by the delivery of shares of
     Common Stock then owned by the Participant, by the withholding of shares of
     Common Stock for which a Stock Option is exercisable, or by a combination
     of these methods.  In the discretion of the Committee, payment may also be
     made by delivering a properly executed exercise notice to the Company
     together with a copy of irrevocable instructions to a broker to deliver
     promptly to the Company the amount of sale or loan proceeds to pay the
     exercise price.  To facilitate the foregoing, the Company may enter into
     agreements for coordinated procedures with one or more brokerage firms.
     The Committee may prescribe any other method of paying the exercise price
     that it determines to be consistent with applicable law and the purpose of
     the Plan, including, without limitation, in lieu of the exercise of a Stock
     Option by delivery of shares of Common Stock then owned by a Participant,
     providing the Company with a notarized statement attesting to the number of
     shares owned by the Participant, where upon verification by the Company,
     the Company would issue to the Participant only the number of incremental
     shares to which the Participant is entitled upon exercise of the Stock
     Option.  In determining which methods a Participant may utilize to pay the
     exercise price, the Committee may consider such factors as it determines
     are appropriate; provided, however, that with respect to ISOs, all such
     discretionary determinations by the Committee shall be made at the time of
     grant and specified in the Stock Option Agreement.

6.6  RESTRICTIONS RELATING TO ISOS.  In addition to being subject to the terms
     and conditions of this Section 6, ISOs shall comply with all other
     requirements under Code Section 422.  Accordingly, ISOs may be granted only
     to Participants who are employees (as described in Treasury Regulation
     Section 1.421-7(h)) of the Company or of any "Parent Corporation" (as
     defined in Code Section 424(e)) or of any "Subsidiary Corporation" (as
     defined in Code Section 424(f)) on the date of grant.  The aggregate market
     value (determined as of the time the ISO is granted) of the Common Stock
     with respect to which ISOs (under all option plans of the Company and of
     any Parent Corporation and of any Subsidiary Corporation) are exercisable
     for the first time by a Participant during any calendar year shall not
     exceed $100,000. For purposes of the preceding sentence, (i) ISOs shall be
     taken into account in the order in which they are granted and (ii) ISOs
     granted before 1987 shall not be taken into account. ISOs shall not be
     transferable by the Participant otherwise than by will or the laws of
     descent and distribution and shall be exercisable, during the Participant's
     lifetime, only by such Participant. The Committee shall not grant ISOs to
     any Employee who, at the time the ISO is granted, owns stock possessing
     (after the application of the attribution rules of Code Section 424(d))
     more than 10 percent of the total combined voting power of all classes of
     stock of the Company or of any Parent Corporation or of any Subsidiary
     Corporation unless the exercise price of the ISO is fixed at not less than
     110 percent of the Fair Market Value of the Common Stock on the date of
     grant and the exercise of such ISO is prohibited by its terms after the 5th
     anniversary of the ISO's date of grant. In addition, no ISO shall be issued
     to a Participant in tandem with a Nonqualified Stock Option issued to such
     Participant.

6.7  ADDITIONAL TERMS AND CONDITIONS.  The Committee may, by way of the Stock
     Option Agreements or otherwise, establish such other terms, conditions,
     restrictions and/or limitations, if any, of any Stock Option, provided they
     are not inconsistent with the Plan.

6.8  INITIAL STOCK OPTIONS.  Notwithstanding any provision contained in the Plan
     to the contrary, during the 90-day period following the Effective Date the
     Committee shall grant Stock 


                                       8
<PAGE>
 
     Options (the "Initial Stock Options") to those individuals selected by the
     Board to receive Initial Stock Options. The Initial Stock Options shall be
     subject to the following terms and conditions:

     (a) Exercise Price.  The exercise price of each Initial Stock Option shall
         be the Fair Market Value of the Common Stock on the date of grant.

     (b) Term.  Each Initial Stock Option shall expire on, and shall not be
         exercised on and after, the 11th anniversary of the date of grant.

     (c) Exercisability.  Each Initial Stock Option shall become exercisable on
         the 10th anniversary of the date of grant.
 
     (d) Performance-Based Accelerated Exercisability. Notwithstanding Section
         6.8(c) above, a percentage of each Initial Stock Option shall become
         exercisable earlier than the 10th anniversary of the date of grant (and
         shall remain exercisable until such Initial Stock Option is scheduled
         to expire or is otherwise terminated under the terms of the Plan or the
         Stock Option Agreement) if, during the period beginning on the date
         that the Common Stock first becomes readily tradeable on a national
         securities exchange or other market system and ending on December 31,
         2002, the daily closing price of the Common Stock is equal to or
         greater that (i) $10, (ii) $15, (iii) $20, (iv) $25, or (v) $30, for 80
         out of 100 consecutive trading days (each individually a "Stock Price
         Hurdle"). The percentage of each Initial Stock Option that shall become
         exercisable as each Stock Price Hurdle is reached is set forth in the
         matrix below. The "Vesting Start Date" shall be (i) January 24, 1997 or
         (ii) any other date selected by the Committee and which is specified in
         the Stock Option Agreement.


                                       9
<PAGE>
 
<TABLE>
<CAPTION>
================================================================================================================                   
|                                MATRIX OF PERFORMANCE-BASED ACCELERATED                                       |  
|                                EXERCISABILITY OF INITIAL STOCK OPTIONS                                       |  
================================================================================================================  
|                                         | If the daily closing price of the Common Stock is equal            |  
|                                         | to or greater than the prices listed below for at least 80         |  
|                                         | out of 100 consecutive trading                                     |  
|            TIME PERIOD                  | days prior to December 31, 2002:                                   |  
|                                         =====================================================================   
|           (based on the                 |  $10           $15          $20          $25           $30         |  
|       1st 5 anniversaries of the        |====================================================================|  
|          Vesting Start Date)            |Then the corresponding percentage of the Initial Stock              |  
|                                         |Option listed below will become exercisable during the              |  
|                                         |specified Time Period:                                              |  
===============================================================================================================|  
| <S>                                     | <C>              <C>          <C>          <C>          <C>        |  
| Before 1st anniversary:                 | 0%               0%            0%          0%             0%       |  
----------------------------------------------------------------------------------------------------------------  
| On or after 1st anniversary             |                                                                    |  
| but before 2nd anniversary:             | 2%               5%            9%         14%            20%       |  
----------------------------------------------------------------------------------------------------------------  
| On or after 2nd anniversary             |                                                                    |  
| but before 3rd anniversary:             | 4%              10%           18%         28%            40%       |  
----------------------------------------------------------------------------------------------------------------  
| On or after 3rd anniversary             |                                                                    |  
| but before 4th anniversary:             | 6%              15%           27%         42%            60%       |  
----------------------------------------------------------------------------------------------------------------  
| On or after 4th anniversary             |                                                                    | 
| but before 5th anniversary:             | 8%              20%           36%         56%            80%       | 
---------------------------------------------------------------------------------------------------------------- 
|                                         |                                                                    | 
| After 5th anniversary:                  | 10%             25%           45%         70%           100%       | 
================================================================================================================ 
 </TABLE>

7.0  CHANGE IN CONTROL.

7.1  Accelerated Vesting.  Notwithstanding any other provision of this Plan to
     the contrary, if there is a Change in Control of the Company, the
     Committee, in its sole discretion, may take such actions as it deems
     appropriate with respect to outstanding Stock Options, including, without
     limitation, accelerating the exercisability, vesting and/or payout of all
     or a portion of such Stock Options.

7.2  Cashout.  The Committee, in its sole discretion, may determine that, upon
     the occurrence of a Change in Control of the Company, all or a portion of
     certain outstanding Stock Option shall terminate within a specified number
     of days after notice to the holders, and each such holder shall receive,
     with respect to each share of Common Stock subject to such Stock Option, an
     amount equal to the excess of the Fair Market Value of such shares of
     Common Stock immediately prior to the occurrence of such Change in Control
     over the exercise price per share of such Stock Option; and such amount
     shall be payable in cash, in one or more kinds 


                                      10
<PAGE>
 
     of property (including the property, if any, payable in the transaction) or
     in a combination thereof, as the Committee, in its sole discretion, shall
     determine.

8.0  TERMINATION OF EMPLOYMENT

8.1  TERMINATION OF EMPLOYMENT DUE TO DEATH OR DISABILITY.  Subject to any
     written agreement between the Company and a Participant (including the
     Stock Option Agreement), if a Participant's employment is terminated due to
     death or Disability:

     (a) all unexercisable Stock Options held by the Participant on the date of
         the Participant's death or the date of the termination of his or her
         employment, as the case may be, shall immediately be forfeited by such
         Participant as of such date; and

     (b) all exercisable Stock Options held by the Participant on the date of
         the Participant's death or the date of the termination of his or her
         employment, as the case may be, shall remain exercisable until the
         earlier of (i) the end of the 12-month period following the date of the
         Participant's death or the date of the termination of his or her
         employment, as the case may be, or (ii) the date the Stock Option would
         otherwise expire.

8.2  TERMINATION OF EMPLOYMENT DUE TO RETIREMENT.  Subject to any written
     agreement between the Company and a Participant (including the Stock Option
     Agreement), if a Participant's employment is terminated due to retirement:

     (a) all unexercisable Stock Options held by the Participant on the date of
         the termination of his or her employment due to retirement shall
         immediately be forfeited by such Participant as of such date;

     (b) all exercisable ISOs held by the Participant on the date of the
         termination of his or her employment due to retirement shall remain
         exercisable until the earlier of (i) the end of the 90-day period
         following the date of the termination of his or her employment due to
         retirement, or (ii) the date the ISO would otherwise expire; and

     (c) all exercisable Nonqualified Stock Options held by the Participant on
         the date of the termination of his or her employment due to retirement
         shall remain exercisable until the earlier of (i) the end of the 36-
         month period following the date of the termination of his or her
         employment due to retirement, or (ii) the date the Nonqualified Stock
         Option would otherwise expire.

8.3  TERMINATION OF EMPLOYMENT FOR CAUSE.  Subject to any written agreement
     between the Company and a Participant (including the Stock Option
     Agreement), if a Participant's employment is terminated by the Company for
     Cause, all exercisable and all unexercisable Stock Options held by a
     Participant on the date of the termination of his or her employment for
     Cause shall immediately be forfeited by such Participant as of such date.

8.4  OTHER TERMINATIONS OF EMPLOYMENT.  Subject to any written agreement between
     the Company and a Participant (including the Stock Option Agreement), if a
     Participant's employment is 


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     terminated for any reason other than for Cause or other than due to death,
     Disability or retirement:

     (a) all unexercisable Stock Options held by the Participant on the date of
         the termination of his or her employment shall immediately be forfeited
         by such Participant as of such date; and

     (b) all exercisable Stock Options held by the Participant on the date of
         the termination of his or her employment shall remain exercisable until
         the earlier of (i) the end of the 90-day period following the date of
         the termination of the Participant's employment or (ii) the date the
         Stock Option would otherwise expire.

8.5  COMMITTEE DISCRETION.  Notwithstanding anything contained in the Plan to
     the contrary, the Committee may, in its sole discretion, provide that:

     (a) any or all unexercisable Stock Options held by the Participant on the
         date of the Participant's death and/or the date of the termination of
         his or her employment shall immediately become exercisable as of such
         date and, except with respect to ISOs, shall remain exercisable until a
         date that occurs on or prior to the date the Stock Option is scheduled
         to expire; and

     (b) any or all exercisable Nonqualified Stock Options held by the
         Participant on the date of the Participant's death and/or the date of
         the termination of his or her employment shall remain exercisable until
         a date that occurs on or prior to the date the Stock Option is
         scheduled to expire.

8.6  ISOS.  Notwithstanding anything contained in the Plan to the contrary, (i)
     the provisions contained in this Section 8 shall be applied to an ISO only
     if the application of such provision maintains the treatment of such ISO as
     an ISO and (ii) the exercise period of an ISO in the event of a termination
     of the Participant's employment due to Disability provided in Section 8.1
     above shall be applied only if the Participant is "permanently and totally
     disabled" (as such term is defined in Code Section 22(e)(3)).

9.0  TAXES

9.1  WITHHOLDING TAXES.  The Company, or the applicable Subsidiary, may require
     a Participant who exercises a Stock Option granted hereunder to reimburse
     the corporation or entity which employs such Participant for any taxes
     required by any governmental regulatory authority to be withheld or
     otherwise deducted and paid by such corporation or entity in respect of the
     issuance or disposition of such shares.  In lieu thereof, the corporation
     or entity which employs such Participant shall have the right to withhold
     the amount of such taxes from any other sums due or to become due from such
     corporation or entity to the Participant upon such terms and conditions as
     the Committee shall prescribe.  The corporation or entity that employs such
     Participant may, in its discretion, hold the stock certificate to which
     such Participant is entitled upon the exercise of a Stock Option as
     security for the payment of such withholding tax liability, until cash
     sufficient to pay that liability has been accumulated.  In addition, at any
     time that the Company, Subsidiary or other entity that employs such
     Participant becomes subject to a withholding obligation under applicable
     law with respect to 


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<PAGE>
 
     the exercise of a Nonqualified Stock Option (the "Tax Date"), except as set
     forth below, a holder of a Stock Option may elect to satisfy, in whole or
     in part, the holder's related personal tax liabilities (an "Election") by
     (i) directing the Company, Subsidiary or other entity that employs such
     Participant to withhold from shares issuable in the related exercise either
     a specified number of shares or shares of Common Stock having a specified
     value (in each case not in excess of the related personal tax liabilities),
     (ii) tendering shares of Common Stock previously issued pursuant to the
     exercise of a Stock Option or other shares of the Common Stock owned by the
     holder, or (iii) combining any or all of the foregoing Elections in any
     fashion. An Election shall be irrevocable. The withheld shares and other
     shares of Common Stock tendered in payment shall be valued at their Fair
     Market Value on the Tax Date. The Committee may disapprove of any Election,
     suspend or terminate the right to make Elections or provide that the right
     to make Elections shall not apply to particular shares or exercises. The
     Committee may impose any additional conditions or restrictions on the right
     to make an Election as it shall deem appropriate, including conditions or
     restrictions with respect to Section 16 of the Exchange Act.

9.2  NO GUARANTEE OF TAX CONSEQUENCES.  No person connected with the Plan in any
     capacity, including, but not limited to, the Company and any Subsidiary and
     their directors, officers, agents and employees makes any representation,
     commitment, or guarantee that any tax treatment, including, but not limited
     to, federal, state and local income, estate and gift tax treatment, will be
     applicable with respect to amounts deferred under the Plan, or paid to or
     for the benefit of a Participant under the Plan, or that such tax treatment
     will apply to or be available to a Participant on account of participation
     in the Plan.

10.0 AMENDMENT AND TERMINATION

10.1 TERMINATION OF PLAN.  The Board may suspend or terminate the Plan at any
     time with or without prior notice.

10.2 AMENDMENT OF PLAN.  The Board may amend the Plan at any time with or
     without prior notice; provided, however, that no action authorized by this
     Section 10.2 shall reduce the amount of any outstanding Stock Option or
     change the terms and conditions thereof without the Participant's consent.
     No amendment of the Plan shall, without approval of the stockholders of the
     Company, (i) increase the total number of shares which may be issued under
     the Plan or the maximum number of shares with respect to all Stock Options
     that may be granted to any individual under the Plan or (ii) modify the
     requirements as to eligibility for Stock Options under the Plan.  In
     addition, the Plan shall not be amended without the approval of such
     amendment by the Company's stockholders if such amendment will disqualify
     any ISO granted hereunder.

10.3 AMENDMENT OR CANCELLATION OF STOCK OPTION AGREEMENTS.  The Committee may
     amend or modify any Stock Option Agreement at any time by mutual agreement
     between the Committee and the Participant or such other persons as may then
     have an interest therein.  In addition, by mutual agreement between the
     Committee and an Employee or Non-employee Director or such other persons as
     may then have an interest therein, Stock Options may be granted to an
     Employee or Non-employee Director in substitution and exchange for, and in
     cancellation of, any Stock Options previously granted to such Employee or
     Non-employee 


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<PAGE>
 
     Director under the Plan, or any award previously granted to such Employee
     or Non-employee Director under any other present or future plan of the
     Company.

11.0 MISCELLANEOUS

11.1 OTHER PROVISIONS.  Stock Options granted under the Plan may also be subject
     to such other provisions (whether or not applicable to the Stock Option
     granted to any other Participant) as the Committee determines on the date
     of grant to be appropriate, including, without limitation, for the
     installment purchase of Common Stock under Stock Options, to assist the
     Participant in financing the acquisition of Common Stock, for the
     forfeiture of, or restrictions on resale or other disposition of, Common
     Stock acquired under any Stock Option, for the acceleration of
     exercisability or vesting of Stock Options in the event of a change in
     control of the Company, for the payment of the value of Stock Options to
     Participants in the event of a change in control of the Company, or to
     comply with federal and state securities laws, or understandings or
     conditions as to the Participant's employment in addition to those
     specifically provided for under the Plan.

11.2 TRANSFERABILITY. Each Stock Option granted under the Plan to a Participant
     shall not be transferable otherwise than by will or the laws of descent and
     distribution, and shall be exercisable, during the Participant's lifetime,
     only by the Participant. In the event of the death of a Participant, each
     Stock Option theretofore granted to him or her shall be exercisable during
     such period after his or her death as the Committee shall in its discretion
     set forth in the Stock Option Agreement on the date of grant and then only
     by the executor or administrator of the estate of the deceased Participant
     or the person or persons to whom the deceased Participant's rights under
     the Stock Option shall pass by will or the laws of descent and
     distribution. Notwithstanding the foregoing, the Committee, in its
     discretion, may permit the transferability of a Stock Option (other than an
     ISO) by a Participant solely to members of the Participant's immediate
     family or trusts or family partnerships for the benefit of such persons,
     and subject to such terms, conditions, restrictions and/or limitations, if
     any, as the Committee may establish and include in the Stock Option
     Agreement.

11.3 LISTING OF SHARES AND RELATED MATTERS.  If at any time the Committee shall
     determine that the listing, registration or qualification of the shares of
     Common Stock subject to any Stock Option on any securities exchange or
     under any applicable law, or the consent or approval of any governmental
     regulatory authority, is necessary or desirable as a condition of, or in
     connection with, the granting of a Stock Option, or the issuance of shares
     of Common Stock thereunder, such Stock Option may not be exercised, in
     whole or in part, unless such listing, registration, qualification, consent
     or approval shall have been effected or obtained free of any conditions not
     acceptable to the Committee.

11.4 NO RIGHT, TITLE, OR INTEREST IN COMPANY ASSETS.  Participants shall have no
     right, title, or interest whatsoever in or to any investments which the
     Company may make to aid it in meeting its obligations under the Plan.
     Nothing contained in the Plan, and no action taken pursuant to its
     provisions, shall create or be construed to create a trust of any kind, or
     a fiduciary relationship between the Company and any Participant,
     beneficiary, legal representative or any other person.  To the extent that
     any person acquires a right to receive payments from the Company under the
     Plan, such right shall be no greater than the right of an unsecured general
     creditor of the Company.  All payments to be made hereunder shall be 


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<PAGE>
 
     paid from the general funds of the Company and no special or separate fund
     shall be established and no segregation of assets shall be made to assure
     payment of such amounts except as expressly set forth in the Plan. The Plan
     is not intended to be subject to the Employee Retirement Income Security
     Act of 1974, as amended.

11.5 NO RIGHT TO CONTINUED EMPLOYMENT OR GRANTS.  A Participant's right, if any,
     to continue to serve the Company as a director, officer, employee, or
     otherwise, shall not be enlarged or otherwise affected by his or her
     designation as a Participant under the Plan, and the Company or the
     applicable Subsidiary reserves the right to terminate any Employee at any
     time.  In addition, other than as provided in Section 6 above, the adoption
     of the Plan shall not be deemed to give any Employee or any other
     individual any right to be selected as a Participant or to be granted a
     Stock Option.

11.6 AWARDS SUBJECT TO FOREIGN LAWS.  The Committee may grant Stock Options to
     individual Participants who are subject to the tax laws of nations other
     than the United States, and such Stock Options may have terms and
     conditions as determined by the Committee as necessary to comply with
     applicable foreign laws.  The Committee may take any action which it deems
     advisable to obtain approval of such Stock Options by the appropriate
     foreign governmental entity; provided, however, that no such Stock Options
     may be granted pursuant to this Section 11.6 and no action may be taken
     which would result in a violation of the Exchange Act, the Code or any
     other applicable law.

11.7 GOVERNING LAW.  The Plan, all Stock Options granted hereunder and all
     actions taken in connection herewith shall be governed by and construed in
     accordance with the laws of the State of Texas without reference to
     principles of conflict of laws, except as superseded by applicable federal
     law.

11.8 OTHER BENEFITS.  No Stock Option granted under the Plan shall be considered
     compensation for purposes of computing benefits under any retirement plan
     of the Company or any Subsidiary nor affect any benefits or compensation
     under any other benefit or compensation plan of the Company or any
     Subsidiary now or subsequently in effect.

11.9 NO FRACTIONAL SHARES.  No fractional shares of Common Stock shall be issued
     or delivered pursuant to the Plan or any Stock Option.  The Committee shall
     determine whether cash, Common Stock, Stock Options, or other property
     shall be issued or paid in lieu of fractional shares or whether such
     fractional shares or any rights thereto shall be forfeited or otherwise
     eliminated.


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