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                                                                   EXHIBIT 10.42



                       THE 1997 EQUITY PARTICIPATION PLAN
                                       OF
                               SCPIE HOLDINGS INC.


                  SCPIE Holdings Inc., a Delaware corporation, has adopted The
1997 Equity Participation Plan of SCPIE Holdings Inc. (the "Plan"), effective
November 5, 1997, for the benefit of its eligible employees, consultants and
directors. The Plan consists of two plans, one for the benefit of key Employees
(as such term is defined below) and consultants and one for the benefit of
Independent Directors (as such term is defined below).

                  The purposes of this Plan are as follows:

                  (1) To provide an additional incentive for directors, key
Employees and consultants to further the growth, development and financial
success of the Company by personally benefiting through the ownership of Company
stock and/or rights which recognize such growth, development and financial
success.

                  (2) To enable the Company to obtain and retain the services of
directors, key Employees and consultants considered essential to the long range
success of the Company by offering them an opportunity to own stock in the
Company and/or rights which will reflect the growth, development and financial
success of the Company.

                                    ARTICLE I

                                   DEFINITIONS

                  1.1         General. Wherever the following terms are used in
this Plan they shall have the meanings specified below, unless the context
clearly indicates otherwise.

                  1.2         Award Limit. "Award Limit" shall mean 250,000
shares of Common Stock, as adjusted pursuant to Section 10.3.

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

                  1.4         Change in Control. "Change in Control" shall mean
a change in ownership or control of the Company effected through either of the
following transactions:

                  (a) any person or related group of persons (other than the
         Company or a person that directly or indirectly controls, is controlled
         by, or is under common control with, the Company) directly or
         indirectly acquires beneficial ownership (within the meaning of Rule
         13d-3 under the Exchange Act) of securities possessing more than 20% of
         the total combined voting power of the Company's outstanding securities
         pursuant to a tender or exchange offer made directly to the Company's
         stockholders which the Board does not recommend such stockholders to
         accept; or

                  (b) there is a change in the composition of the Board over a
         period of 36 consecutive months (or less) such that a majority of the
         Board members (rounded up to the nearest whole number) ceases, by
         reason of one or more proxy contests for the election of Board members,
         to be comprised of individuals who either (i) have been Board members
         continuously

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         since the beginning of such period or (ii) have been elected or
         nominated for election as Board members during such period by at least
         a majority of the Board members described in clause (i) who were still
         in office at the time such election or nomination was approved by the
         Board.

                  1.5         Code.  "Code" shall mean the Internal Revenue Code
of 1986, as amended.

                  1.6         Committee. "Committee" shall mean the Compensation
Committee of the Board, or another committee or subcommittee of the Board,
appointed as provided in Section 9.1.

                  1.7         Common Stock. "Common Stock" shall mean the common
stock of the Company, par value $.0001 per share, and any equity security of the
Company issued or authorized to be issued in the future, but excluding any
preferred stock and any warrants, options or other rights to purchase Common
Stock. Debt securities of the Company convertible into Common Stock shall be
deemed equity securities of the Company.

                  1.8         Company. "Company" shall mean SCPIE Holdings Inc.,
a Delaware corporation.

                  1.9         Corporate Transaction.  "Corporate Transaction"
shall mean any of the following stockholder-approved transactions to which the
Company is a party:

                  (a) a merger or consolidation in which the Company is not the
         surviving entity, except for a transaction the principal purpose of
         which is to change the State in which the Company is incorporated, form
         a holding company or effect a similar reorganization as to form
         whereupon this Plan and all Options are assumed by the successor
         entity;

                  (b) the sale, transfer, exchange or other disposition of all
         or substantially all of the assets of the Company, in complete
         liquidation or dissolution of the Company in a transaction not covered
         by the exceptions to clause (a), above; or

                  (c) any reverse merger in which the Company is the surviving
         entity but in which securities possessing more than 50% of the total
         combined voting power of the Company's outstanding securities are
         transferred or issued to a person or persons different from those who
         held such securities immediately prior to such merger.

                  1.10        Deferred Stock. "Deferred Stock" shall mean Common
Stock awarded under Article VII of this Plan.

                  1.11        Director. "Director" shall mean a member of (i)
the Board or (ii) the Board of Directors of any corporation which is a
Subsidiary.

                  1.12        Dividend Equivalent. "Dividend Equivalent" shall
mean a right to receive the equivalent value (in cash or Common Stock) of
dividends paid on Common Stock, awarded under Article VII of this Plan.

                  1.13 Employee. "Employee" shall mean any officer or other
employee (as defined in accordance with Section 3401(c) of the Code) of the
Company, or of any corporation which is a Subsidiary.


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                  1.14        Exchange Act. "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended.

                  1.15        Fair Market Value. "Fair Market Value" of a share
of Common Stock as of a given date shall be (i) the closing price of a share of
Common Stock on the principal exchange on which shares of Common Stock are then
trading, if any (or as reported on any composite index which includes such
principal exchange), on the trading day previous to such date, or if shares were
not traded on the trading day previous to such date, then on the next preceding
date on which a trade occurred, or (ii) if Common Stock is not traded on an
exchange but is quoted on Nasdaq or a successor quotation system, the mean
between the closing representative bid and asked prices for the Common Stock on
the trading day previous to such date as reported by Nasdaq or such successor
quotation system; or (iii) if Common Stock is not publicly traded on an exchange
and not quoted on Nasdaq or a successor quotation system, the Fair Market Value
of a share of Common Stock as established by the Committee (or the Board, in the
case of Options granted to Independent Directors) acting in good faith.

                  1.16        Grantee. "Grantee" shall mean an Employee or
consultant granted a Performance Award, Dividend Equivalent, Stock Payment or
Stock Appreciation Right, or an award of Deferred Stock, under this Plan.

                  1.17        Incentive Stock Option. "Incentive Stock Option"
shall mean an option which conforms to the applicable provisions of Section 422
of the Code and which is designated as an Incentive Stock Option by the
Committee.

                  1.18        Independent Director. "Independent Director" shall
mean a Director who is not an Employee of the Company or of any corporation
which is a Subsidiary.

                  1.19        Non-Qualified Stock Option. "Non-Qualified Stock
Option" shall mean an Option which is not designated as an Incentive Stock
Option by the Committee.

                  1.20        Option. "Option" shall mean a stock option granted
under Article III of this Plan. An Option granted under this Plan shall, as
determined by the Committee, be either a NonQualified Stock Option or an
Incentive Stock Option; provided, however, that Options granted to Independent
Directors and consultants shall be Non-Qualified Stock Options.

                  1.21        Optionee. "Optionee" shall mean an Employee,
consultant or Independent Director granted an Option under this Plan.

                  1.22        Performance Award. "Performance Award" shall mean
a cash bonus, stock bonus or other performance or incentive award that is paid
in cash, Common Stock or a combination of both, awarded under Article VII of
this Plan.

                  1.23        Plan. "Plan" shall mean The 1997 Equity
Participation Plan of SCPIE Holdings Inc.

                  1.24        QDRO. "QDRO" shall mean a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder.


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                  1.25        Restricted Stock. "Restricted Stock" shall mean
Common Stock awarded under Article VI of this Plan.

                  1.26        Restricted Stockholder. "Restricted Stockholder"
shall mean an Employee or consultant granted an award of Restricted Stock under
Article VI of this Plan.

                  1.27        Rule 16b-3. "Rule 16b-3" shall mean that certain
Rule 16b-3 under the Exchange Act, as such Rule may be amended from time to
time.

                  1.28        Section 162(m) Participant. "Section 162(m)
Participant" shall mean any key Employee designated by the Committee as a key
Employee whose compensation for the fiscal year in which the key Employee is so
designated or a future fiscal year may be subject to the limit on deductible
compensation imposed by Section 162(m) of the Code.

                  1.29        Stock Appreciation Right. "Stock Appreciation
Right" shall mean a stock appreciation right granted under Article VIII of this
Plan.

                  1.30        Stock Payment. "Stock Payment" shall mean a
payment in the form of (i) shares of Common Stock, or (ii) an option or other
right to purchase shares of Common Stock, as part of a deferred compensation
arrangement, made in lieu of all or any portion of the compensation, including
without limitation, salary, bonuses and commissions, that would otherwise become
payable to a key Employee or consultant in cash, awarded under Article VII of
this Plan.

                  1.31        Subsidiary. "Subsidiary" shall mean any
corporation in an unbroken chain of corporations beginning with the Company if
each of the corporations other than the last corporation in the unbroken chain
then owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.

                  1.32        Termination of Consultancy. "Termination of
Consultancy" shall mean the time when the engagement of an Optionee, Grantee or
Restricted Stockholder as a consultant to the Company or a Subsidiary is
terminated for any reason, with or without cause, including, but not by way of
limitation, by resignation, discharge, death or retirement; but excluding
terminations where there is a simultaneous commencement of employment with the
Company or any Subsidiary. The Committee, in its absolute discretion, shall
determine the effect of all matters and questions relating to Termination of
Consultancy, including, but not by way of limitation, the question of whether a
Termination of Consultancy resulted from a discharge for good cause, and all
questions of whether a particular leave of absence constitutes a Termination of
Consultancy. Notwithstanding any other provision of this Plan, the Company or
any Subsidiary has an absolute and unrestricted right to terminate a
consultant's service at any time for any reason whatsoever, with or without
cause, except to the extent expressly provided otherwise in writing.

                  1.33        Termination of Directorship. "Termination of
Directorship" shall mean the time when an Optionee who is an Independent
Director ceases to be a Director for any reason, including, but not by way of
limitation, a termination by resignation, failure to be elected, death or
retirement. The Board, in its sole and absolute discretion, shall determine the
effect of all matters and questions relating to Termination of Directorship with
respect to Independent Directors.

                  1.34        Termination of Employment. "Termination of
Employment" shall mean the time when the employee-employer relationship between
an Optionee, Grantee or Restricted Stockholder


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and the Company or any Subsidiary is terminated for any reason, with or without
cause, including, but not by way of limitation, a termination by resignation,
discharge, death, disability or retirement; but excluding (i) terminations where
there is a simultaneous reemployment or continuing employment of an Optionee,
Grantee or Restricted Stockholder by the Company or any Subsidiary, (ii) at the
discretion of the Committee, terminations which result in a temporary severance
of the employee-employer relationship, and (iii) at the discretion of the
Committee, terminations which are followed by the simultaneous establishment of
a consulting relationship by the Company or a Subsidiary with the former
employee. The Committee, in its absolute discretion, shall determine the effect
of all matters and questions relating to Termination of Employment, including,
but not by way of limitation, the question of whether a Termination of
Employment resulted from a discharge for good cause, and all questions of
whether a particular leave of absence constitutes a Terminations of Employment;
provided, however, that, with respect to Incentive Stock Options unless
otherwise determined by the Committee in its discretion, a leave of absence,
change in status from an employee to an independent contractor or other change
in the employee-employer relationship shall constitute a Termination of
Employment if, and to the extent that, such leave of absence, change in status
or other change interrupts employment for the purposes of Section 422(a)(2) of
the Code and the then applicable regulations and revenue rulings under said
Section. Notwithstanding any other provision of this Plan, the Company or any
Subsidiary has an absolute and unrestricted right to terminate an Employee's
employment at any time for any reason whatsoever, with or without cause, except
to the extent expressly provided otherwise in writing.

                                   ARTICLE II

                             SHARES SUBJECT TO PLAN

                  2.1    Shares Subject to Plan.

                  (a)    The shares of stock subject to Options, awards of
Restricted Stock, Performance Awards, Dividend Equivalents, awards of Deferred
Stock, Stock Payments or Stock Appreciation Rights shall be Common Stock,
initially shares of the Company's Common Stock, par value $.0001 per share. The
aggregate number of such shares which may be issued upon exercise of such
Options or rights or upon any such awards under the Plan shall not exceed
1,250,000. The shares of Common Stock issuable upon exercise of such Options or
rights or upon any such awards may be either previously authorized but unissued
shares or treasury shares.

                  (b)    The maximum number of shares which may be subject to
Options, awards of Restricted Stock, Performance Awards, Dividend Equivalents,
awards of Deferred Stock, Stock Payments or Stock Appreciation Rights granted
under the Plan to any individual in any calendar year shall not exceed the Award
Limit. To the extent required by Section 162(m) of the Code, shares subject to
Options which are canceled continue to be counted against the Award Limit.

                  2.2    Add-back of Options and Other Rights. If any Option, or
other right to acquire shares of Common Stock under any other award under this
Plan, expires or is canceled without having been fully exercised, or is
exercised in whole or in part for cash as permitted by this Plan, the number of
shares subject to such Option or other right but as to which such Option or
other right was not exercised prior to its expiration, cancellation or exercise
may again be optioned, granted or awarded hereunder, subject to the limitations
of Section 2.1. Furthermore, any shares subject to Options or other awards which
are adjusted pursuant to Section 10.3 and become exercisable with respect to
shares of stock of another corporation shall be considered cancelled and may
again be optioned, granted or awarded hereunder, subject to the limitations of
Section 2.1. Shares of Common Stock which are delivered by


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the Optionee or Grantee or withheld by the Company upon the exercise of any
Option or other award under this Plan, in payment of the exercise price thereof,
may again be optioned, granted or awarded hereunder, subject to the limitations
of Section 2.1. If any share of Restricted Stock is forfeited by the Grantee or
repurchased by the Company pursuant to Section 6.6 hereof, such share may again
be optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Notwithstanding the provisions of this Section 2.2, no shares of Common
Stock may again be optioned, granted or awarded if such action would cause an
Incentive Stock Option to fail to qualify as an incentive stock option under
Section 422 of the Code.


                                   ARTICLE III

                               GRANTING OF OPTIONS

                  3.1    Eligibility. Any Employee or consultant selected by the
Committee pursuant to Section 3.4(a)(i) shall be eligible to be granted an
Option. Each Independent Director of the Company shall be eligible to be granted
Options at the times and in the manner set forth in Section 3.4(d).

                  3.2    Disqualification for Stock Ownership. No person may be
granted an Incentive Stock Option under this Plan if such person, at the time
the Incentive Stock Option is granted, owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
Company or any then existing Subsidiary or parent corporation (within the
meaning of Section 422 of the Code) unless such Incentive Stock Option conforms
to the applicable provisions of Section 422 of the Code.

                  3.3    Qualification of Incentive Stock Options.  No Incentive
Stock Option shall be granted to any person who is not an Employee.

                  3.4    Granting of Options

                  (a)    The Committee shall from time to time, in its absolute
discretion, and subject to applicable limitations of this Plan:

                              (i)   Determine which Employees are key Employees
          and select from among the key Employees or consultants (including
          Employees or consultants who have previously received Options or other
          awards under this Plan) such of them as in its opinion should be
          granted Options;

                              (ii)  Subject to the Award Limit, determine the
          number of shares to be subject to such Options granted to the selected
          key Employees or consultants;


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                              (iii) Subject to Section 3.3, determine whether
          such Options are to be Incentive Stock Options or Non-Qualified Stock
          Options and whether such Options are to qualify as performance-based
          compensation as described in Section 162(m)(4)(C) of the Code; and

                              (iv) Determine the terms and conditions of such
          Options, consistent with this Plan; provided, however, that the terms
          and conditions of Options intended to qualify as performance-based
          compensation as described in Section 162(m)(4)(C) of the Code shall
          include, but not be limited to, such terms and conditions as may be
          necessary to meet the applicable provisions of Section 162(m) of the
          Code.

                  (b)    Upon the selection of a key Employee or consultant
to be granted an Option, the Committee shall instruct the Secretary of the
Company to issue the Option and may impose such conditions on the grant of the
Option as it deems appropriate.

                  (c)    Any Incentive Stock Option granted under this Plan may
be modified by the Committee to disqualify such Option from treatment as an
"incentive stock option" under Section 422 of the Code.

                  (d)    Each person who is an Independent Director as of the
date the stockholders of the Company approve the Plan as provided in Section
10.4 automatically shall be granted (i) an Option to purchase 5,000 shares of
Common Stock (subject to adjustment as provided in Section 10.3) on the
effective date the Plan and (ii) an Option to purchase 1,000 shares of Common
Stock (subject to adjustment as provided in Section 10.3) on the date of each
subsequent annual meeting of stockholders. During the term of the Plan, a person
who is initially elected a Director after the Plan is approved by the
stockholders and who is an Independent Director at the time of such initial
election automatically shall be granted (i) an Option to purchase 5,000 shares
of Common Stock (subject to adjustment as provided in Section 10.3) on the date
of such initial election and (ii) an Option to purchase 1,000 shares of Common
Stock (subject to adjustment as provided in Section 10.3) on the date of each
annual meeting of stockholders after such initial election. Directors who are
employees of the Company or a Subsidiary who subsequently retire from the
Company or such Subsidiary and remain a Director will not receive an initial
Option grant pursuant to clause (i) of the preceding sentence, but to the extent
that they are otherwise eligible, will receive, after retirement from employment
with the Company or a Subsidiary, Options as described in clause (ii) of the
preceding sentence. All the foregoing Option grants authorized by this Section
3.4(d) are subject to stockholder approval of the Plan.


                                   ARTICLE IV

                                TERMS OF OPTIONS

                  4.1    Option Agreement. Each Option shall be evidenced by a
written Stock Option Agreement, which shall be executed by the Optionee and an
authorized officer of the Company and which shall contain such terms and
conditions as the Committee (or the Board, in the case of Options granted to
Independent Directors) shall determine, consistent with this Plan. Stock Option
Agreements evidencing Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall contain such
terms and conditions as may be necessary to meet the applicable provisions of
Section 162(m) of the Code. Stock Option Agreements evidencing Incentive Stock
Options shall


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contain such terms and conditions as may be necessary to meet the applicable
provisions of Section 422 of the Code.

                  4.2    Option Price. The price per share of the shares subject
to each Option shall be set by the Committee; provided, however, that such price
shall be no less than the par value of a share of Common Stock, unless otherwise
permitted by applicable state law, and (i) in the case of Options intended to
qualify as performance-based compensation as described in Section 162(m)(4)(C)
of the Code, such price shall not be less than 100% of the Fair Market Value of
a share of Common Stock on the date the Option is granted; (ii) in the case of
Incentive Stock Options such price shall not be less than 100% of the Fair
Market Value of a share of Common Stock on the date the Option is granted (or
the date the Option is modified, extended or renewed for purposes of Section
424(h) of the Code); (iii) in the case of Incentive Stock Options granted to an
individual then owning (within the meaning of Section 424(d) of the Code) more
than ten percent of the total combined voting power of all classes of stock of
the Company or any Subsidiary or parent corporation thereof (within the meaning
of Section 422 of the Code), such price shall not be less than 110% of the Fair
Market Value of a share of Common Stock on the date the Option is granted (or
the date the Option is modified, extended or renewed for purposes of Section
424(h) of the Code); and (iv) in the case of Options granted to Independent
Directors, such price shall equal 100% of the Fair Market Value of a share of
Common Stock on the date the Option is granted.

                  4.3    Option Term. The term of an Option shall be set by the
Committee in its discretion; provided, however, that, (i) in the case of Options
granted to Independent Directors, the term shall be ten years from the date the
Option is granted, without variation or acceleration hereunder, but subject to
Section 5.6, and (ii) in the case of Incentive Stock Options, the term shall not
be more than ten years from the date the Incentive Stock Option is granted, or
five years from such date if the Incentive Stock Option is granted to an
individual then owning (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company or any Subsidiary or parent corporation thereof (within the meaning of
Section 422 of the Code). Except as limited by requirements of Section 422 of
the Code and regulations and rulings thereunder applicable to Incentive Stock
Options, the Committee may extend the term of any outstanding Option in
connection with any Termination of Employment or Termination of Consultancy of
the Optionee, or amend any other term or condition of such Option relating to
such a termination.

                  4.4    Option Vesting

                  (a)    The period during which the right to exercise an Option
in whole or in part vests in the Optionee shall be set by the Committee and the
Committee may determine that an Option may not be exercised in whole or in part
for a specified period after it is granted; provided, however, that, unless the
Committee otherwise provides in the terms of the Option or otherwise, no Option
shall be exercisable by any Optionee who is then subject to Section 16 of the
Exchange Act within the period ending six months and one day after the date the
Option is granted; and provided, further, that Options granted to Independent
Directors shall become exercisable in cumulative annual installments of 33% on
each of the first, second and third anniversaries of the date of Option grant,
without variation or acceleration hereunder except as provided in Sections
4.4(b) and 10.3. At any time after grant of an Option, the Committee may, in its
sole and absolute discretion and subject to whatever terms and conditions it
selects, accelerate the period during which an Option (except an Option granted
to an Independent Director) vests.

                  (b)    No portion of an Option which is unexercisable at
Termination of Employment, Termination of Directorship or Termination of
Consultancy, as applicable, shall thereafter become


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exercisable, except (i) as may be otherwise provided by the Committee in the
case of Options granted to Employees or consultants either in the Stock Option
Agreement or by action of the Committee following the grant of the Option, or
(ii) in the case of Termination of Directorship by reason of death, permanent
and total disability (within the meaning of Section 22(e)(3) of the Code) or
retirement required by age limits imposed on directorships, each Option granted
to an Independent Director shall become fully vested and exercisable as to all
shares covered thereby upon such Termination of Directorship.

                  (c) To the extent that the aggregate Fair Market Value of
stock with respect to which "incentive stock options" (within the meaning of
Section 422 of the Code, but without regard to Section 422(d) of the Code) are
exercisable for the first time by an Optionee during any calendar year (under
the Plan and all other incentive stock option plans of the Company and any
parent or subsidiary corporation (within the meaning of Section 422 of the Code)
of the Company) exceeds $100,000, such Options shall be treated as Non-Qualified
Options to the extent required by Section 422 of the Code. The rule set forth in
the preceding sentence shall be applied by taking Options into account in the
order in which they were granted. For purposes of this Section 4.4(c), the Fair
Market Value of stock shall be determined as of the time the Option with respect
to such stock is granted.

                  4.5 Consideration. In consideration of the granting of an
Option, the Optionee shall agree, in the written Stock Option Agreement, to
remain in the employ of (or to consult for or to serve as an Independent
Director of, as applicable) the Company or any Subsidiary for a period of at
least one year (or such shorter period as may be fixed in the Stock Option
Agreement or by action of the Committee, or Board in the case of Independent
Directors, following grant of the Option) after the Option is granted. Nothing
in this Plan or in any Stock Option Agreement hereunder shall confer upon any
Optionee any right to continue in the employ of, or as a consultant for, the
Company or any Subsidiary, or as a director of the Company, or shall interfere
with or restrict in any way the rights of the Company and any Subsidiary, which
are hereby expressly reserved, to discharge any Optionee at any time for any
reason whatsoever, with or without good cause.

                                    ARTICLE V

                               EXERCISE OF OPTIONS

                  5.1 Partial Exercise. An exercisable Option may be exercised
in whole or in part. However, an Option shall not be exercisable with respect to
fractional shares and the Committee (or the Board, in the case of Options
granted to Independent Directors) may require that, by the terms of the Option,
a partial exercise be with respect to a minimum number of shares.

                  5.2 Manner of Exercise. All or a portion of an exercisable
Option shall be deemed exercised upon delivery of all of the following to the
Secretary of the Company or his office:

                  (a) A written notice complying with the applicable rules
established by the Committee (or the Board, in the case of Options granted to
Independent Directors) stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Optionee or other person then
entitled to exercise the Option or such portion of the Option;

                  (b) Such representations and documents as the Committee (or
the Board, in the case of Options granted to Independent Directors), in its
absolute discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act of 1933, as amended, and any other
federal or state securities laws or regulations. The Committee or Board may, in
its absolute discretion,


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also take whatever additional actions it deems appropriate to effect such
compliance including, without limitation, placing legends on share certificates
and issuing stop-transfer notices to agents and registrars;

                  (c) In the event that the Option shall be exercised pursuant
to Section 10.1 by any person or persons other than the Optionee, appropriate
proof of the right of such person or persons to exercise the Option; and

                  (d) Full cash payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is exercised.
However, the Committee (or the Board, in the case of Options granted to
Independent Directors), may in its discretion (i) allow a delay in payment up to
30 days from the date the Option, or portion thereof, is exercised; (ii) allow
payment, in whole or in part, through the delivery of shares of Common Stock
owned by the Optionee, duly endorsed for transfer to the Company with a Fair
Market Value on the date of delivery equal to the aggregate exercise price of
the Option or exercised portion thereof; (iii) allow payment, in whole or in
part, through the surrender of shares of Common Stock then issuable upon
exercise of the Option having a Fair Market Value on the date of Option exercise
equal to the aggregate exercise price of the Option or exercised portion
thereof; (iv) allow payment, in whole or in part, through the delivery of
property of any kind which constitutes good and valuable consideration; (v)
allow payment, in whole or in part, through the delivery of a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code) and payable upon such terms
as may be prescribed by the Committee or the Board; (vi) allow payment, in whole
or in part, through the delivery of a notice that the Optionee has placed a
market sell order with a broker with respect to shares of Common Stock then
issuable upon exercise of the Option, and that the broker has been directed to
pay a sufficient portion of the net proceeds of the sale to the Company in
satisfaction of the Option exercise price; or (vii) allow payment through any
combination of the consideration provided in the foregoing subparagraphs (ii),
(iii), (iv), (v) and (vi). In the case of a promissory note, the Committee (or
the Board, in the case of Options granted to Independent Directors) may also
prescribe the form of such note and the security to be given for such note. The
Option may not be exercised, however, by delivery of a promissory note or by a
loan from the Company when or where such loan or other extension of credit is
prohibited by law.

                  5.3 Conditions to Issuance of Stock Certificates. The Company
shall not be required to issue or deliver any certificate or certificates for
shares of stock purchased upon the exercise of any Option or portion thereof
prior to fulfillment of all of the following conditions:

                  (a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;

                  (b) The completion of any registration or other qualification
of such shares under any state or federal law, or under the rulings or
regulations of the Securities and Exchange Commission or any other governmental
regulatory body which the Committee or Board shall, in its absolute discretion,
deem necessary or advisable;

                  (c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee (or Board, in the case
of Options granted to Independent Directors) shall, in its absolute discretion,
determine to be necessary or advisable;

                  (d) The lapse of such reasonable period of time following the
exercise of the Option as the Committee (or Board, in the case of Options
granted to Independent Directors) may establish from time to time for reasons of
administrative convenience; and


                                       10

<PAGE>   11

                  (e) The receipt by the Company of full payment for such
shares, including payment of any applicable withholding tax.

                  5.4 Rights as Stockholders. The holders of Options shall not
be, nor have any of the rights or privileges of, stockholders of the Company in
respect of any shares purchasable upon the exercise of any part of an Option
unless and until certificates representing such shares have been issued by the
Company to such holders.

                  5.5 Ownership and Transfer Restrictions. The Committee (or
Board, in the case of Options granted to Independent Directors), in its absolute
discretion, may impose such restrictions on the ownership and transferability of
the shares purchasable upon the exercise of an Option as it deems appropriate.
Any such restriction shall be set forth in the respective Stock Option Agreement
and may be referred to on the certificates evidencing such shares. The Committee
may require the Employee to give the Company prompt notice of any disposition of
shares of Common Stock acquired by exercise of an Incentive Stock Option within
(i) two years from the date of granting (including the date the Option is
modified, extended or renewed for purposes of Section 424(h) of the Code) such
Option to such Employee or (ii) one year after the transfer of such shares to
such Employee. The Committee may direct that the certificates evidencing shares
acquired by exercise of an Option refer to such requirement to give prompt
notice of disposition.

                  5.6 Limitations on Exercise of Options Granted to Independent
Directors. No Option granted to an Independent Director may be exercised to any
extent by anyone after the first to occur of the following events:

                  (a) The expiration of 12 months from the date of the
Optionee's death;

                  (b) The expiration of 12 months from the date of the
Optionee's Termination of Directorship by reason of his permanent and total
disability (within the meaning of Section 22(e)(3) of the Code);

                  (c) The expiration of 12 months from the date of the
Optionee's retirement;

                  (d) The expiration of three months from the date of the
Optionee's Termination of Directorship for any reason other than such Optionee's
death, permanent and total disability, or retirement unless the Optionee dies
within said three-month period; or

                  (e) The expiration of ten years from the date the Option was
granted.


                                       11

<PAGE>   12

                                   ARTICLE VI

                            AWARD OF RESTRICTED STOCK

                  6.1 Eligibility. Subject to the Award Limit, Restricted Stock
may be awarded to any Employee who the Committee determines is a key Employee or
any consultant whom the Committee determines should receive such an award.

                  6.2 Award of Restricted Stock

                  (a) The Committee may from time to time, in its absolute
discretion:

                              (i)   Determine which Employees are key Employees
          and select from among the key Employees or consultants (including
          Employees or consultants who have previously received other awards
          under this Plan) such of them as in its opinion should be awarded
          Restricted Stock; and

                              (ii)  Determine the purchase price, if any, and
          other terms and conditions applicable to such Restricted Stock,
          consistent with this Plan.

                  (b) The Committee shall establish the purchase price, if any,
and form of payment for Restricted Stock; provided, however, that such purchase
price shall be no less than the par value of the Common Stock to be purchased,
unless otherwise permitted by applicable state law. In all cases, legal
consideration shall be required for each issuance of Restricted Stock.

                  (c) Upon the selection of a key Employee or consultant to be
awarded Restricted Stock, the Committee shall instruct the Secretary of the
Company to issue such Restricted Stock and may impose such conditions on the
issuance of such Restricted Stock as it deems appropriate.

                  6.3 Restricted Stock Agreement. Restricted Stock shall be
issued only pursuant to a written Restricted Stock Agreement, which shall be
executed by the selected key Employee or consultant and an authorized officer of
the Company and which shall contain such terms and conditions as the Committee
shall determine, consistent with this Plan.

                  6.4 Consideration. As consideration for the issuance of
Restricted Stock, in addition to payment of any purchase price, the Restricted
Stockholder shall agree, in the written Restricted Stock Agreement, to remain in
the employ of, or to consult for, the Company or any Subsidiary for a period of
at least one year after the Restricted Stock is issued (or such shorter period
as may be fixed in the Restricted Stock Agreement or by action of the Committee
following grant of the Restricted Stock). Nothing in this Plan or in any
Restricted Stock Agreement hereunder shall confer on any Restricted Stockholder
any right to continue in the employ of, or as a consultant for, the Company or
any Subsidiary or shall interfere with or restrict in any way the rights of the
Company and any Subsidiary, which are hereby expressly reserved, to discharge
any Restricted Stockholder at any time for any reason whatsoever, with or
without good cause.

                  6.5 Rights as Stockholders. Subject to Section 6.6, upon
delivery of the shares of Restricted Stock to the escrow holder pursuant to
Section 6.8, the Restricted Stockholder shall have, unless otherwise provided by
the Committee, all the rights of a stockholder with respect to said shares,
subject to the restrictions in his Restricted Stock Agreement, including the
right to receive all dividends


                                       12

<PAGE>   13

and other distributions paid or made with respect to the shares; provided,
however, that in the discretion of the Committee, any extraordinary
distributions with respect to the Common Stock shall be subject to the
restrictions set forth in Section 6.6.

                  6.6 Restriction. All shares of Restricted Stock issued under
this Plan (including any shares received by holders thereof with respect to
shares of Restricted Stock as a result of stock dividends, stock splits or any
other form of recapitalization) shall, in the terms of each individual
Restricted Stock Agreement, be subject to such restrictions as the Committee
shall provide, which restrictions may include, without limitation, restrictions
concerning voting rights and transferability and restrictions based on duration
of employment with the Company, Company performance and individual performance;
provided, however, that, unless the Committee otherwise provides in the terms of
the Restricted Stock Agreement or otherwise, no share of Restricted Stock
granted to a person subject to Section 16 of the Exchange Act shall be sold,
assigned or otherwise transferred until at least six months and one day have
elapsed from the date on which the Restricted Stock was issued; provided,
further, that, except with respect to shares of Restricted Stock granted
pursuant to Section 6.10, by action taken after the Restricted Stock is issued,
the Committee may, on such terms and conditions as it may determine to be
appropriate, remove any or all of the restrictions imposed by the terms of the
Restricted Stock Agreement. Restricted Stock may not be sold or encumbered until
all restrictions are terminated or expire. If no consideration was paid by the
Restricted Stockholder upon issuance, a Restricted Stockholder's rights in
unvested Restricted Stock shall lapse upon Termination of Employment or, if
applicable, upon Termination of Consultancy with the Company; provided, however,
that the Committee in its sole and absolute discretion may provide that such
rights shall not lapse in the event of a Termination of Employment following a
"change of ownership control" (within the meaning of Treasury Regulation Section
1.62-27(e)(2)(v) or any successor regulation thereto) of the Company or because
of the Restricted Stockholder's death or disability; provided, further, except
with respect to shares of Restricted Stock granted pursuant to Section 6.10, the
Committee in its sole and absolute discretion may provide that no such right of
repurchase shall exist in the event of a Termination of Employment, or a
Termination of Consultancy, without cause or following any change in control or
ownership of the Company or because of the Restricted Stockholder's retirement,
or otherwise.

                  6.7 Repurchase of Restricted Stock. The Committee shall
provide in the terms of each individual Restricted Stock Agreement that the
Company shall have the right to repurchase from the Restricted Stockholder the
Restricted Stock then subject to restrictions under the Restricted Stock
Agreement immediately upon a Termination of Employment or, if applicable, upon a
Termination of Consultancy between the Restricted Stockholder and the Company,
at a cash price per share equal to the price paid by the Restricted Stockholder
for such Restricted Stock; provided, however, that the Committee in its sole and
absolute discretion may provide that no such right of repurchase shall exist in
the event of a Termination of Employment following a "change of ownership or
control" (within the meaning of Treasury Regulation Section 1.162-27(e)(2)(v) or
any successor regulation thereto) of the Company or because of the Restricted
Stockholder's death or disability; provided, further, that, except with respect
to shares of Restricted Stock granted pursuant to Section 6.10, the Committee in
its sole and absolute discretion may provide that no such right of repurchase
shall exist in the event of a Termination of Employment or a Termination of
Consultancy without cause or following any change in control or ownership of the
Company or because of the Restricted Stockholder's retirement, or otherwise.

                  6.8 Escrow. The Secretary of the Company or such other escrow
holder as the Committee may appoint shall retain physical custody of each
certificate representing Restricted Stock until all of the restrictions imposed
under the Restricted Stock Agreement with respect to the shares evidenced by
such certificate expire or shall have been removed.


                                       13

<PAGE>   14

                  6.9 Legend. In order to enforce the restrictions imposed upon
shares of Restricted Stock hereunder, the Committee shall cause a legend or
legends to be placed on certificates representing all shares of Restricted Stock
that are still subject to restrictions under Restricted Stock Agreements, which
legend or legends shall make appropriate reference to the conditions imposed
thereby.

                  6.10 Provisions Applicable to Section 162(m) Participants.

                  (a) Notwithstanding anything in the Plan to the contrary, the
Committee may grant Restricted Stock to a Section 162(m) Participant, the
restrictions with respect to which lapse upon the attainment of performance
goals for the Company which are related to one or more of the following business
criteria: (i) net income either before or after taxes, (ii) market share, (iii)
customer satisfaction, (iv) profits, (v) share price, (vi) earnings per share,
(vii) total stockholder return, (viii) return on assets, (ix) return on equity,
(x) operating income, (xi) return on capital or investments, or (xii) economic
value added (including, but not limited to, any or all of such measures in
comparison to the Company's competitors, the industry, or some other comparator
group).

                  (b) To the extent necessary to comply with the
performance-based compensation requirements of Section 162(m)(4)(C) of the Code,
with respect to Restricted Stock which may be granted to one or more Section
162(m) Participants, no later than 90 days following the commencement of any
fiscal year in question or any other designated fiscal period or period of
service (or such other time as may be required or permitted by Section 162(m) of
the Code), the Committee shall, in writing, (i) designate one or more Section
162(m) Participants, (ii) select the performance goal or goals applicable to the
fiscal year or other designated fiscal period or period of service, (iii)
establish the various targets and amounts of Restricted Stock which may be
earned for such fiscal year or other designated fiscal period or period of
service and (iv) specify the relationship between performance goals and targets
and the amounts of Restricted Stock to be earned by each Section 162(m)
Participant for such fiscal year or other designated fiscal period or period of
service. Following the completion of each fiscal year or other designated fiscal
period or period of service, the Committee shall certify in writing whether the
applicable performance targets have been achieved for such fiscal year or other
designated fiscal period or period of service. In determining the amount earned
by a Section 162(m) Participant, the Committee shall have the right to reduce
(but not to increase) the amount payable at a given level of performance to take
into account additional factors that the Committee may deem relevant to the
assessment of individual or corporate performance for the fiscal year or other
designated fiscal period or period of service.


                                   ARTICLE VII

                    PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS,
                         DEFERRED STOCK, STOCK PAYMENTS

                  7.1 Eligibility. Subject to the Award Limit, one or more
Performance Awards, Dividend Equivalents, awards of Deferred Stock, and/or Stock
Payments may be granted to any Employee whom the Committee determines is a key
Employee or any consultant whom the Committee determines should receive such an
award.

                  7.2 Performance Awards. Any key Employee or consultant
selected by the Committee may be granted one or more Performance Awards. The
value of such Performance Awards may be linked to the market value, book value,
net profits or other measure of the value of Common Stock or other specific
performance criteria determined appropriate by the Committee, in each case on a
specified


                                       14

<PAGE>   15

date or dates or over any period or periods determined by the Committee, or may
be based upon the appreciation in the market value, book value, net profits or
other measure of the value of a specified number of shares of Common Stock over
a fixed period or periods determined by the Committee. In making such
determinations, the Committee shall consider (among such other factors as it
deems relevant in light of the specific type of award) the contributions,
responsibilities and other compensation of the particular key Employee or
consultant.

                  7.3 Dividend Equivalents. Any key Employee or consultant
selected by the Committee may be granted Dividend Equivalents based on the
dividends declared on Common Stock, to be credited as of dividend payment dates,
during the period between the date an Option, Stock Appreciation Right, Deferred
Stock or Performance Award is granted, and the date such Option, Stock
Appreciation Right, Deferred Stock or Performance Award is exercised, vests or
expires, as determined by the Committee. Such Dividend Equivalents shall be
converted to cash or additional shares of Common Stock by such formula and at
such time and subject to such limitations as may be determined by the Committee.
With respect to Dividend Equivalents granted with respect to Options intended to
be qualified performance-based compensation for purposes of Section 162(m) of
the Code, such Dividend Equivalents shall be payable regardless of whether such
Option is exercised.

                  7.4 Stock Payments. Any key Employee or consultant selected by
the Committee may receive Stock Payments in the manner determined from time to
time by the Committee. The number of shares shall be determined by the Committee
and may be based upon the Fair Market Value, book value, net profits or other
measure of the value of Common Stock or other specific performance criteria
determined appropriate by the Committee, determined on the date such Stock
Payment is made or on any date thereafter.

                  7.5 Deferred Stock. Any key Employee or consultant selected by
the Committee may be granted an award of Deferred Stock in the manner determined
from time to time by the Committee. The number of shares of Deferred Stock shall
be determined by the Committee and may be linked to the market value, book
value, net profits or other measure of the value of Common Stock or other
specific performance criteria determined to be appropriate by the Committee, in
each case on a specified date or dates or over any period or periods determined
by the Committee. Common Stock underlying a Deferred Stock award will not be
issued until the Deferred Stock award has vested, pursuant to a vesting schedule
or performance criteria set by the Committee. Unless otherwise provided by the
Committee, a Grantee of Deferred Stock shall have no rights as a Company
stockholder with respect to such Deferred Stock until such time as the award has
vested and the Common Stock underlying the award has been issued.

                  7.6 Performance Award Agreement, Dividend Equivalent
Agreement, Deferred Stock Agreement, Stock Payment Agreement. Each Performance
Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment shall
be evidenced by a written agreement, which shall be executed by the Grantee and
an authorized officer of the Company and which shall contain such terms and
conditions as the Committee shall determine, consistent with this Plan.

                  7.7 Term. The term of a Performance Award, Dividend
Equivalent, award of Deferred Stock and/or Stock Payment shall be set by the
Committee in its discretion.

                  7.8 Exercise or Purchase Price.  The Committee may establish
the exercise or purchase price of a Performance Award, shares of Deferred Stock,
or shares received as a Stock


                                       15

<PAGE>   16

Payment; provided, however, that such price shall not be less than the par value
for a share of Common Stock, unless otherwise permitted by applicable state law.

                  7.9 Exercise Upon Termination of Employment. A Performance
Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment is
exercisable or payable only while the Grantee is an Employee or consultant;
provided, however, that the Committee in its sole and absolute discretion may
provide that the Performance Award, Dividend Equivalent, award of Deferred Stock
and/or Stock Payment may be exercised or paid subsequent to a Termination of
Employment following a "change of control or ownership" (within the meaning of
Section 1.162-27(e)(2)(v) or any successor regulation thereto) of the Company;
provided, further, that except with respect to Performance Awards granted
pursuant to Section 7.12, the Committee in its sole and absolute discretion may
provide that the Performance Awards may be exercised or paid following a
Termination of Employment or a Termination of Consultancy without cause, or
following a change in control of the Company, or because of the Grantee's
retirement, death or disability, or otherwise.

                  7.10 Payment on Exercise. Payment of the amount determined
under Section 7.2 or 7.3 above shall be in cash, in Common Stock or a
combination of both, as determined by the Committee. To the extent any payment
under this Article VII is effected in Common Stock, it shall be made subject to
satisfaction of all provisions of Section 5.3.

                  7.11 Consideration. In consideration of the granting of a
Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock
Payment, the Grantee shall agree, in a written agreement, to remain in the
employ of, or to consult for, the Company or any Subsidiary for a period of at
least one year after such Performance Award, Dividend Equivalent, award of
Deferred Stock and/or Stock Payment is granted (or such shorter period as may be
fixed in such agreement or by action of the Committee following such grant).
Nothing in this Plan or in any agreement hereunder shall confer on any Grantee
any right to continue in the employ of, or as a consultant for, the Company or
any Subsidiary or shall interfere with or restrict in any way the rights of the
Company and any Subsidiary, which are hereby expressly reserved, to discharge
any Grantee at any time for any reason whatsoever, with or without good cause.

                  7.12 Provisions Applicable to Section 162(m) Participants.

                  (a) Notwithstanding anything in the Plan to the contrary, the
Committee may grant any performance or incentive awards described in Article VII
to a Section 162(m) Participant that vest or become exercisable or payable upon
the attainment of performance goals for the Company which are related to one or
more of the following business criteria: (i) net income either before or after
taxes, (ii) market share, (iii) customer satisfaction, (iv) profits, (v) share
price, (vi) earnings per share, (vii) total stockholder return, (viii) return on
assets, (ix) return on equity, (x) operating income, (xi) return on capital or
investments, or (xii) economic value added (including, but not limited to, any
or all of such measures in comparison to the Company's competitors, the
industry, or some other comparator group).

                  (b) To the extent necessary to comply with the
performance-based compensation requirements of Section 162(m)(4)(C) of the Code,
with respect to performance or incentive awards described in Article VII which
may be granted to one or more Section 162(m) Participants, no later than 90 days
following the commencement of any fiscal year in question or any other
designated fiscal period or period of service (or such other time as may be
required or permitted by Section 162(m) of the Code), the Committee shall, in
writing, (i) designate one or more Section 162(m) Participants, (ii) select the
performance goal or goals applicable to the fiscal year or other designated
fiscal period or period of


                                       16

<PAGE>   17

service, (iii) establish the various targets and bonus amounts which may be
earned for such fiscal year or other designated fiscal period or period of
service and (iv) specify the relationship between performance goals and targets
and the amounts to be earned by each Section 162(m) Participant for such fiscal
year or other designated fiscal period or period of service. Following the
completion of each fiscal year or other designated fiscal period or period of
service, the Committee shall certify in writing whether the applicable
performance targets have been achieved for such fiscal year or other designated
fiscal period or period of service. In determining the amount earned by a
Section 162(m) Participant, the Committee shall have the right to reduce (but
not to increase) the amount payable at a given level of performance to take into
account additional factors that the Committee may deem relevant to the
assessment of individual or corporate performance for the fiscal year or other
designated fiscal period or period of service.

                                  ARTICLE VIII

                            STOCK APPRECIATION RIGHTS

                  8.1 Grant of Stock Appreciation Rights. A Stock Appreciation
Right may be granted to any key Employee or consultant selected by the
Committee. A Stock Appreciation Right may be granted (i) in connection and
simultaneously with the grant of an Option, (ii) with respect to a previously
granted Option, or (iii) independent of an Option. A Stock Appreciation Right
shall be subject to such terms and conditions not inconsistent with this Plan as
the Committee shall impose and shall be evidenced by a written Stock
Appreciation Right Agreement, which shall be executed by the Grantee and an
authorized officer of the Company. The Committee, in its discretion, may
determine whether a Stock Appreciation Right is to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code and Stock
Appreciation Right Agreements evidencing Stock Appreciation Rights intended to
so qualify shall contain such terms and conditions as may be necessary to meet
the applicable provisions of Section 162(m) of the Code.

                  8.2 Coupled Stock Appreciation Rights

                  (a) A Coupled Stock Appreciation Right ("CSAR") shall be
related to a particular Option and shall be exercisable only when and to the
extent the related Option is exercisable.

                  (b) A CSAR may be granted to the Grantee for no more than the
number of shares subject to the simultaneously or previously granted Option to
which it is coupled.

                  (c) A CSAR shall entitle the Grantee (or other person entitled
to exercise the Option pursuant to this Plan) to surrender to the Company
unexercised a portion of the Option to which the CSAR relates (to the extent
then exercisable pursuant to its terms) and to receive from the Company in
exchange therefor an amount determined by multiplying the difference obtained by
subtracting the Option exercise price from the Fair Market Value of a share of
Common Stock on the date of exercise of the CSAR by the number of shares of
Common Stock with respect to which the CSAR shall have been exercised, subject
to any limitations the Committee may impose.

                  8.3 Independent Stock Appreciation Rights

                  (a) An Independent Stock Appreciation Right ("ISAR") shall be
unrelated to any Option and shall have a term set by the Committee. An ISAR
shall be exercisable in such installments as the Committee may determine. An
ISAR shall cover such number of shares of Common Stock as the


                                       17

<PAGE>   18

Committee may determine; provided, however, that unless the Committee otherwise
provides in the terms of the ISAR or otherwise, no ISAR granted to a person
subject to Section 16 of the Exchange Act shall be exercisable until at least
six months have elapsed from (but excluding) the date on which the Option was
granted. The exercise price per share of Common Stock subject to each ISAR shall
be set by the Committee. An ISAR is exercisable only while the Grantee is an
Employee or consultant; provided that the Committee may determine that the ISAR
may be exercised subsequent to Termination of Employment or Termination of
Consultancy without cause, or following a change in control of the Company, or
because of the Grantee's retirement, death or disability, or otherwise.

                  (b) An ISAR shall entitle the Grantee (or other person
entitled to exercise the ISAR pursuant to this Plan) to exercise all or a
specified portion of the ISAR (to the extent then exercisable pursuant to its
terms) and to receive from the Company an amount determined by multiplying the
difference obtained by subtracting the exercise price per share of the ISAR from
the Fair Market Value of a share of Common Stock on the date of exercise of the
ISAR by the number of shares of Common Stock with respect to which the ISAR
shall have been exercised, subject to any limitations the Committee may impose.

                  8.4 Payment and Limitations on Exercise

                  (a) Payment of the amount determined under Section 8.2(c) and
8.3(b) above shall be in cash, in Common Stock (based on its Fair Market Value
as of the date the Stock Appreciation Right is exercised) or a combination of
both, as determined by the Committee. To the extent such payment is effected in
Common Stock it shall be made subject to satisfaction of all provisions of
Section 5.3 above pertaining to Options.

                  (b) Grantees of Stock Appreciation Rights may be required to
comply with any timing or other restrictions with respect to the settlement or
exercise of a Stock Appreciation Right, including a window-period limitation, as
may be imposed in the discretion of the Board or Committee.

                  8.5 Consideration. In consideration of the granting of a Stock
Appreciation Right, the Grantee shall agree, in the written Stock Appreciation
Right Agreement, to remain in the employ of, or to consult for, the Company or
any Subsidiary for a period of at least one year after the Stock Appreciation
Right is granted (or such shorter period as may be fixed in the Stock
Appreciation Right Agreement or by action of the Committee following grant of
the Restricted Stock). Nothing in this Plan or in any Stock Appreciation Right
Agreement hereunder shall confer on any Grantee any right to continue in the
employ of, or as a consultant for, the Company or any Subsidiary or shall
interfere with or restrict in any way the rights of the Company and any
Subsidiary, which are hereby expressly reserved, to discharge any Grantee at any
time for any reason whatsoever, with or without good cause.


                                       18

<PAGE>   19

                                   ARTICLE IX

                                 ADMINISTRATION

                  9.1 Compensation Committee. The Compensation Committee (or
another committee or a subcommittee of the Board assuming the functions of the
Committee under this Plan) shall consist solely of two or more Independent
Directors of the Company appointed by and holding office at the pleasure of the
Board, each of whom is a "non-employee director" as defined by Rule 16b-3.
Appointment of Committee members shall be effective upon acceptance of
appointment. Committee members may resign at any time by delivering written
notice to the Board. Vacancies in the Committee may be filled by the Board.

                  9.2 Duties and Powers of Committee. It shall be the duty of
the Committee to conduct the general administration of this Plan in accordance
with its provisions. The Committee shall have the power to interpret this Plan
and the agreements pursuant to which Options, awards of Restricted Stock or
Deferred Stock, Performance Awards, Stock Appreciation Rights, Dividend
Equivalents or Stock Payments are granted or awarded, and to adopt such rules
for the administration, interpretation, and application of this Plan as are
consistent therewith and to interpret, amend or revoke any such rules.
Notwithstanding the foregoing, the full Board, acting by a majority of its
members in office, shall conduct the general administration of the Plan with
respect to Options granted to Independent Directors. Any such grant or award
under this Plan need not be the same with respect to each Optionee, Grantee or
Restricted Stockholder. Any such interpretations and rules with respect to
Incentive Stock Options shall be consistent with the provisions of Section 422
of the Code. In its absolute discretion, the Board may at any time and from time
to time exercise any and all rights and duties of the Committee under this Plan
except with respect to matters which under Rule 16b-3 or Section 162(m) of the
Code, or any regulations or rules issued thereunder, are required to be
determined in the sole discretion of the Committee.

                  9.3 Majority Rule; Unanimous Written Consent. The Committee
shall act by a majority of its members in attendance at a meeting at which a
quorum is present or by a memorandum or other written instrument signed by all
members of the Committee.

                  9.4 Compensation; Professional Assistance; Good Faith Actions.
Members of the Committee shall receive such compensation for their services as
members as may be determined by the Board. All expenses and liabilities which
members of the Committee incur in connection with the administration of this
Plan shall be borne by the Company. The Committee may, with the approval of the
Board, employ attorneys, consultants, accountants, appraisers, brokers, or other
persons. The Committee, the Company and the Company's officers and Directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee or the Board in good faith shall be final and binding upon all
Optionees, Grantees, Restricted Stockholders, the Company and all other
interested persons. No members of the Committee or Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to this Plan, Options, awards of Restricted Stock or Deferred Stock,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments, and all members of the Committee and the Board shall be fully
protected by the Company in respect of any such action, determination or
interpretation.


                                       19

<PAGE>   20



                                    ARTICLE X

                            MISCELLANEOUS PROVISIONS

                  10.1 Not Transferable. Options, Restricted Stock awards,
Deferred Stock awards, Performance Awards, Stock Appreciation Rights, Dividend
Equivalents or Stock Payments under this Plan may not be sold, pledged,
assigned, or transferred in any manner other than by will or the laws of descent
and distribution or pursuant to a QDRO, unless and until such rights or awards
have been exercised, or the shares underlying such rights or awards have been
issued, and all restrictions applicable to such shares have lapsed. No Option,
Restricted Stock award, Deferred Stock award, Performance Award, Stock
Appreciation Right, Dividend Equivalent or Stock Payment or interest or right
therein shall be liable for the debts, contracts or engagements of the Optionee,
Grantee or Restricted Stockholder or his successors in interest or shall be
subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be voluntary
or involuntary or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect, except to
the extent that such disposition is permitted by the preceding sentence.

                  During the lifetime of the Optionee or Grantee, only he may
exercise an Option or other right or award (or any portion thereof) granted to
him under the Plan, unless it has been disposed of pursuant to a QDRO. After the
death of the Optionee or Grantee, any exercisable portion of an Option or other
right or award may, prior to the time when such portion becomes unexercisable
under the Plan or the applicable Stock Option Agreement or other agreement, be
exercised by his personal representative or by any person empowered to do so
under the deceased Optionee's or Grantee's will or under the then applicable
laws of descent and distribution.

                  10.2 Amendment, Suspension or Termination of this Plan. Except
as otherwise provided in this Section 10.2, this Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Board or the Committee. However, without approval of the
Company's stockholders given within 12 months before or after the action by the
Board or the Committee, no action of the Board or the Committee may, except as
provided in Section 10.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under this Plan or increase the
Award Limit, and no action of the Board or the Committee may be taken that would
otherwise require stockholder approval as a matter of applicable law, regulation
or rule. No amendment, suspension or termination of this Plan shall, without the
consent of the holder of Options, Restricted Stock awards, Deferred Stock
awards, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or
Stock Payments, alter or impair any rights or obligations under any Options,
Restricted Stock awards, Deferred Stock awards, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments theretofore granted
or awarded, unless the award itself otherwise expressly so provides. No Options,
Restricted Stock, Deferred Stock, Performance Awards, Stock Appreciation Rights,
Dividend Equivalents or Stock Payments may be granted or awarded during any
period of suspension or after termination of this Plan, and in no event may any
Incentive Stock Option be granted under this Plan after the first to occur of
the following events:

                  (a) The expiration of ten years from the date the Plan is
adopted by the Board; or

                  (b) The expiration of ten years from the date the Plan is
approved by the Company's stockholders under Section 10.4.


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<PAGE>   21

                  10.3 Changes in Common Stock or Assets of the Company,
Acquisition or Liquidation of the Company and Other Corporate Events.

                  (a) Subject to Section 10.3(d), in the event that the
Committee (or the Board, in the case of Options granted to Independent
Directors) determines that any dividend or other distribution (whether in the
form of cash, Common Stock, other securities, or other property),
recapitalization, reclassification, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, liquidation, dissolution, or sale, transfer, exchange or other
disposition of all or substantially all of the assets of the Company (including,
but not limited to, a Corporate Transaction), or exchange of Common Stock or
other securities of the Company, issuance of warrants or other rights to
purchase Common Stock or other securities of the Company, or other similar
corporate transaction or event, in the Committee's sole discretion (or in the
case of Options granted to Independent Directors, the Board's sole discretion),
affects the Common Stock such that an adjustment is determined by the Committee
to be appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan or with respect
to an Option, Restricted Stock award, Performance Award, Stock Appreciation
Right, Dividend Equivalent, Deferred Stock award or Stock Payment, then the
Committee (or the Board, in the case of Options granted to Independent
Directors) shall, in such manner as it may deem equitable, adjust any or all of

                             (i) the number and kind of shares of Common Stock
         (or other securities or property) with respect to which Options,
         Performance Awards, Stock Appreciation Rights, Dividend Equivalents or
         Stock Payments may be granted under the Plan, or which may be granted
         as Restricted Stock or Deferred Stock (including, but not limited to,
         adjustments of the limitations in Section 2.1 on the maximum number and
         kind of shares which may be issued and adjustments of the Award Limit),

                             (ii) the number and kind of shares of Common Stock
         (or other securities or property) subject to outstanding Options,
         Performance Awards, Stock Appreciation Rights, Dividend Equivalents, or
         Stock Payments, and in the number and kind of shares of outstanding
         Restricted Stock or Deferred Stock, and

                             (iii) the grant or exercise price with respect to
         any Option, Performance Award, Stock Appreciation Right, Dividend
         Equivalent or Stock Payment.

                  (b) Subject to Sections 10.3(b)(vii) and 10.3(d), in the event
of any Corporate Transaction or other transaction or event described in Section
10.3(a) or any unusual or nonrecurring transactions or events affecting the
Company, any affiliate of the Company, or the financial statements of the
Company or any affiliate, or of changes in applicable laws, regulations, or
accounting principles, the Committee (or the Board, in the case of Options
granted to Independent Directors) in its discretion is hereby authorized to take
any one or more of the following actions whenever the Committee (or the Board,
in the case of Options granted to Independent Directors) determines that such
action is appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan or
with respect to any option, right or other award under this Plan, to facilitate
such transactions or events or to give effect to such changes in laws,
regulations or principles:

                             (i) In its sole and absolute discretion, and on
         such terms and conditions as it deems appropriate, the Committee (or
         the Board, in the case of Options granted to Independent Directors) may
         provide, either by the terms of the agreement or by action taken prior
         to the occurrence of such transaction or event and either automatically
         or upon the optionee's request,


                                       21

<PAGE>   22

         for either the purchase of any such Option, Performance Award, Stock
         Appreciation Right, Dividend Equivalent, or Stock Payment, or any
         Restricted Stock or Deferred Stock for an amount of cash equal to the
         amount that could have been attained upon the exercise of such option,
         right or award or realization of the optionee's rights had such option,
         right or award been currently exercisable or payable or fully vested or
         the replacement of such option, right or award with other rights or
         property selected by the Committee (or the Board, in the case of
         Options granted to Independent Directors) in its sole discretion;

                             (ii) In its sole and absolute discretion, the
         Committee (or the Board, in the case of Options granted to Independent
         Directors) may provide, either by the terms of such Option, Performance
         Award, Stock Appreciation Right, Dividend Equivalent, or Stock Payment,
         or Restricted Stock or Deferred Stock or by action taken prior to the
         occurrence of such transaction or event that it cannot vest, be
         exercised or become payable after such event;

                             (iii) In its sole and absolute discretion, and on
         such terms and conditions as it deems appropriate, the Committee (or
         the Board, in the case of Options granted to Independent Directors) may
         provide, either by the terms of such Option, Performance Award, Stock
         Appreciation Right, Dividend Equivalent, or Stock Payment, or
         Restricted Stock or Deferred Stock or by action taken prior to the
         occurrence of such transaction or event, that for a specified period of
         time prior to such transaction or event, such option, right or award
         shall be exercisable as to all shares covered thereby, notwithstanding
         anything to the contrary in (i) Section 4.4 or (ii) the provisions of
         such Option, Performance Award, Stock Appreciation Right, Dividend
         Equivalent, or Stock Payment, or Restricted Stock or Deferred Stock;

                             (iv) In its sole and absolute discretion, and on
         such terms and conditions as it deems appropriate, the Committee (or
         the Board, in the case of Options granted to Independent Directors) may
         provide, either by the terms of such Option, Performance Award, Stock
         Appreciation Right, Dividend Equivalent, or Stock Payment, or
         Restricted Stock or Deferred Stock or by action taken prior to the
         occurrence of such transaction or event, that upon such event, such
         option, right or award be assumed by the successor or survivor
         corporation, or a parent or subsidiary thereof, or shall be substituted
         for by similar options, rights or awards covering the stock of the
         successor or survivor corporation, or a parent or subsidiary thereof,
         with appropriate adjustments as to the number and kind of shares and
         prices;

                             (v) In its sole and absolute discretion, and on
         such terms and conditions as it deems appropriate, the Committee (or
         the Board, in the case of Options granted to Independent Directors) may
         make adjustments in the number and type of shares of Common Stock (or
         other securities or property) subject to outstanding Options,
         Performance Awards, Stock Appreciation Rights, Dividend Equivalents, or
         Stock Payments, and in the number and kind of outstanding Restricted
         Stock or Deferred Stock and/or in the terms and conditions of
         (including the grant or exercise price), and the criteria included in,
         outstanding options, rights and awards and options, rights and awards
         which may be granted in the future;

                             (vi) In its sole and absolute discretion, and on
         such terms and conditions as it deems appropriate, the Committee may
         provide either by the terms of a Restricted Stock award or Deferred
         Stock award or by action taken prior to the occurrence of such event
         that, for a specified period of time prior to such event, the
         restrictions imposed under a Restricted Stock Agreement or a Deferred
         Stock Agreement upon some or all shares of Restricted Stock or Deferred
         Stock may be terminated, and, in the case of Restricted Stock, some or
         all shares of


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<PAGE>   23

         such Restricted Stock may cease to be subject to repurchase under
         Section 6.6 or forfeiture under Section 6.5 after such event;

                             (vii) In the event of a Change in Control, each
         Option granted to a key Employee, consultant or Independent Director
         shall become fully vested and exercisable as to all shares covered
         thereby upon such Change in Control, notwithstanding anything to the
         contrary in Section 4.4 or the vesting schedule of such Options; and

                             (viii) In the event of any Corporate Transaction,
         each outstanding Option, Performance Award, Stock Appreciation Right,
         Dividend Equivalent, Stock Payment, Restricted Stock, or Deferred Stock
         award shall, immediately prior to the effective date of the Corporate
         Transaction, automatically become fully exercisable for all of the
         shares of Common Stock at the time subject to such rights or fully
         vested, as applicable, and may be exercised for any or all of those
         shares as fully-vested shares of Common Stock. However, an outstanding
         right shall not so accelerate if and to the extent: (i) such right is,
         in connection with the Corporate Transaction, either to be assumed by
         the successor or survivor corporation (or parent thereof) or to be
         replaced with a comparable right with respect to shares of the capital
         stock of the successor or survivor corporation (or parent thereof) or
         (ii) the acceleration of exercisability of such right is subject to
         other limitations imposed by the Committee (or Board in the case of
         Independent Directors) at the time of grant. The determination of
         comparability of rights under clause (i) above shall be made by the
         Committee (or Board in the case of Independent Directors), and its
         determination shall be final, binding and conclusive.

                  (c) Subject to Section 10.3(d) and 10.8, the Committee (or the
Board, in the case of Options granted to Independent Directors) may, in its
discretion, include such further provisions and limitations in any Option,
Performance Award, Stock Appreciation Right, Dividend Equivalent, or Stock
Payment, or Restricted Stock or Deferred Stock agreement or certificate, as it
may deem equitable and in the best interests of the Company.

                  (d) With respect to Options, Stock Appreciation Rights and
performance or incentive awards described in Article VII which are granted to
Section 162(m) Participants and are intended to qualify as performance-based
compensation under Section 162(m)(4)(C), no adjustment or action described in
this Section 10.3 or in any other provision of the Plan shall be authorized to
the extent that such adjustment or action would cause the Plan to violate
Section 422(b)(1) of the Code or would cause such option or stock appreciation
right to fail to so qualify under Section 162(m)(4)(C), as the case may be, or
any successor provisions thereto. Furthermore, no such adjustment or action
shall be authorized to the extent such adjustment or action would result in
short-swing profits liability under Section 16 or violate the exemptive
conditions of Rule 16b-3 unless the Committee (or the Board, in the case of
Options granted to Independent Directors) determines that the option or other
award is not to comply with such exemptive conditions. The number of shares of
Common Stock subject to any option, right or award shall always be rounded to
the next whole number.

                  10.4 Approval of Plan by Stockholders. This Plan will be
submitted for the approval of the Company's stockholders within 12 months after
the date of the Board's initial adoption of this Plan. Options, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments may be
granted and Restricted Stock or Deferred Stock may be awarded prior to such
stockholder approval, provided that such Options, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments shall not be
exercisable and such Restricted Stock or Deferred Stock shall not vest prior to
the time when this Plan is approved by the stockholders, and provided further
that if such approval


                                       23

<PAGE>   24

has not been obtained at the end of said 12-month period, all Options,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments previously granted and all Restricted Stock or Deferred Stock
previously awarded under this Plan shall thereupon be canceled and become null
and void.

                  10.5 Tax Withholding. The Company shall be entitled to require
payment in cash or deduction from other compensation payable to each Optionee,
Grantee or Restricted Stockholder of any sums required by federal, state or
local tax law to be withheld with respect to the issuance, vesting, exercise or
payment of any Option, Restricted Stock, Deferred Stock, Performance Award,
Stock Appreciation Right, Dividend Equivalent or Stock Payment. The Committee
(or the Board, in the case of Options granted to Independent Directors) may in
its discretion and in satisfaction of the foregoing requirement allow such
Optionee, Grantee or Restricted Stockholder to elect to have the Company
withhold shares of Common Stock otherwise issuable under such Option or other
award (or allow the return of shares of Common Stock) having a Fair Market Value
equal to the sums required to be withheld.

                  10.6 Loans. The Committee may, in its discretion, extend one
or more loans to key Employees in connection with the exercise or receipt of an
Option, Performance Award, Stock Appreciation Right, Dividend Equivalent or
Stock Payment granted under this Plan, or the issuance of Restricted Stock or
Deferred Stock awarded under this Plan. The terms and conditions of any such
loan shall be set by the Committee.

                  10.7 Forfeiture Provisions. Pursuant to its general authority
to determine the terms and conditions applicable to awards under the Plan, the
Committee (or the Board, in the case of Options granted to Independent
Directors) shall have the right (to the extent consistent with the applicable
exemptive conditions of Rule 16b-3) to provide, in the terms of Options or other
awards made under the Plan, or to require the recipient to agree by separate
written instrument, that (i) any proceeds, gains or other economic benefit
actually or constructively received by the recipient upon any receipt or
exercise of the award, or upon the receipt or resale of any Common Stock
underlying such award, must be paid to the Company, and (ii) the award shall
terminate and any unexercised portion of such award (whether or not vested)
shall be forfeited, if (a) a Termination of Employment, Termination of
Consultancy or Termination of Directorship occurs prior to a specified date, or
within a specified time period following receipt or exercise of the award, or
(b) the recipient at any time, or during a specified time period, engages in any
activity in competition with the Company, or which is inimical, contrary or
harmful to the interests of the Company, as further defined by the Committee (or
the Board, as applicable).

                  10.8 Limitations Applicable to Section 16 Persons and
Performance-Based Compensation. Notwithstanding any other provision of this
Plan, and any Option, Performance Award, Stock Appreciation Right, Dividend
Equivalent or Stock Payment granted, or Restricted Stock or Deferred Stock
awarded, to any individual who is then subject to Section 16 of the Exchange
Act, shall be subject to any additional limitations set forth in any applicable
exemptive rule under Section 16 of the Exchange Act (including any amendment to
Rule 16b-3 of the Exchange Act) that are requirements for the application of
such exemptive rule. To the extent permitted by applicable law, the Plan,
Options, Performance Awards, Stock Appreciation Rights, Dividend Equivalents,
Stock Payments, Restricted Stock and Deferred Stock granted or awarded hereunder
shall be deemed amended to the extent necessary to conform to such applicable
exemptive rule. Furthermore, notwithstanding any other provision of this


                                       24

<PAGE>   25

Plan, any Option, Stock Appreciation Right or performance or incentive award
described in Article VII which is granted to a Section 162(m) Participant and is
intended to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall be subject to any additional limitations set
forth in Section 162(m) of the Code (including any amendment to Section 162(m)
of the Code) or any regulations or rulings issued thereunder that are
requirements for qualification as performance-based compensation as described in
Section 162(m)(4)(C) of the Code, and this Plan shall be deemed amended to the
extent necessary to conform to such requirements.

                  10.9 Effect of Plan Upon Options and Compensation Plans. The
adoption of this Plan shall not affect any other compensation or incentive plans
in effect for the Company or any Subsidiary. Nothing in this Plan shall be
construed to limit the right of the Company (i) to establish any other forms of
incentives or compensation for Employees, Directors or Consultants of the
Company or any Subsidiary or (ii) to grant or assume options or other rights or
awards otherwise than under this Plan in connection with any proper corporate
purpose including but not by way of limitation, the grant or assumption of
options in connection with the acquisition by purchase, lease, merger,
consolidation or otherwise, of the business, stock or assets of any corporation,
partnership, limited liability company, firm or association.

                  10.10 Compliance with Laws. This Plan, the granting and
vesting of Options, Restricted Stock awards, Deferred Stock awards, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments under
this Plan and the issuance and delivery of shares of Common Stock and the
payment of money under this Plan or under Options, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments granted or
Restricted Stock or Deferred Stock awarded hereunder are subject to compliance
with all applicable federal and state laws, rules and regulations (including but
not limited to state and federal securities law and federal margin requirements)
and to such approvals by any listing, regulatory or governmental authority as
may, in the opinion of counsel for the Company, be necessary or advisable in
connection therewith. Any securities delivered under this Plan shall be subject
to such restrictions, and the person acquiring such securities shall, if
requested by the Company, provide such assurances and representations to the
Company as the Company may deem necessary or desirable to assure compliance with
all applicable legal requirements. To the extent permitted by applicable law,
the Plan, Options, Restricted Stock awards, Deferred Stock awards, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments
granted or awarded hereunder shall be deemed amended to the extent necessary to
conform to such laws, rules and regulations.

                  10.11 Titles. Titles are provided herein for convenience only
and are not to serve as a basis for interpretation or construction of this Plan.


                                       25

<PAGE>   26
                  10.12 Governing Law. This Plan and any agreements hereunder
shall be administered, interpreted and enforced under the internal laws of the
State of Delaware without regard to conflicts of laws thereof.






                                       26