<PAGE>
                                                                    EXHIBIT 10.5


                               STOCK OPTION PLAN
                                       OF
                       SAFEGUARD HEALTH ENTERPRISES, INC.

                     (As Amended Through February 7, 1997)



     SAFEGUARD HEALTH ENTERPRISES, INC., a corporation organized under the laws
of the State of Delaware, hereby adopts the following Amended Stock Option Plan
of SafeGuard Health Enterprises, Inc., as is attached hereto, marked Exhibit A
and incorporated by this reference herein.

     We hereby certify that the attached Amended Stock Option Plan was duly
adopted by the Board of Directors of SafeGuard Health Enterprises, Inc., a
Delaware corporation, at a duly called, authorized and convened meeting of the
Board of Directors held on February 7, 1997.



Date:   2/7/97                      /s/ STEVEN J. BAILEYS, D.D.S
      ----------                    -----------------------------
                                    STEVEN J. BAILEYS, D.D.S.
                                    Chairman, President and Chief
                                    Executive Officer


                                    /s/ RONALD I. BRENDZEL, J.D.
                                    ----------------------------
                                    RONALD I. BRENDZEL, J.D.
                                    Senior Vice President and
                                    Secretary
<PAGE>

                               STOCK OPTION PLAN
                                       OF
                       SAFEGUARD HEALTH ENTERPRISES, INC.

               (As amended and restated through February 7, 1997)


          SAFEGUARD HEALTH ENTERPRISES, INC., a corporation organized under the
laws of the State of Delaware, hereby adopts this Stock Option Plan of Safeguard
Health Enterprises, Inc.  The purposes of this Plan are as follows:

          (1) To further the growth, development and financial success of the
Company by providing additional incentives to certain of its Directors and
executive and other key Employees who have been or will be given responsibility
for the management or administration of the Company's business affairs, by
assisting them to become owners of capital stock of the Company and thus to
benefit directly from its growth, development and financial success.

          (2) To enable the Company to obtain and retain the services of the
type of Directors and professional, technical and managerial Employees
considered essential to the long range success of the Company by providing and
offering them an opportunity to become owners of capital stock of the Company
under options, some of which are intended to qualify as "incentive stock
options" under Section 422 of the Internal Revenue Code.

          The Plan shall be divided into two separate components: the
Discretionary Option Grant Program described in Articles III through VI and the
Automatic Option Grant Program described in Article VII.  Under the
Discretionary Option Grant Program, eligible individuals may, at the discretion
of the Plan Administrator, be granted stock options to purchase shares of Common
Stock in accordance with the provisions of Articles III through VI.  Under the
Automatic Option Grant Program, each eligible member of the Board will
automatically receive periodic option grants to purchase shares of Common Stock
in accordance with the provisions of Article VII.

          Unless the context clearly indicates otherwise, the provisions of
Articles I, II and VIII of the Plan shall apply to both the Discretionary Option
Grant Program and the Automatic Option Grant Program and shall accordingly
govern the interests of all individuals under the Plan.

                                   ARTICLE I

                                   DEFINITION
                                   ----------

Section 1.1 - General
-----------   -------

          Whenever the following terms are used in this Plan, they shall have
the meaning specified below unless the context clearly indicates to the
contrary.

                                      -1-
<PAGE>

Section 1.2 - Board
-----------   -----

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

Section 1.3 - Code
-----------   ----

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

Section 1.4 - Committee
-----------   ---------

          "Committee" shall mean the committee appointed by the Board pursuant
to Section 6.1(a) to administer the provisions of the Discretionary Stock Option
Grant Program.

Section 1.5 - Company
-----------   -------

          "Company" shall mean Safeguard Health Enterprises, Inc.

Section 1.6 - Director
-----------   --------

          "Director" shall mean a member of the Board.

Section 1.7 - Employee
-----------   --------

          "Employee" shall mean any employee (as defined in accordance with the
Regulations and Revenue Rulings then applicable under Section 3401(c) of the
Code) of the Company or of any corporation which is then a Parent or Subsidiary,
whether such employee is so employed at the time this Plan is adopted or becomes
so employed subsequent to the adoption of this Plan.

Section 1.8 - Incentive Stock Option
-----------   ----------------------

          "Incentive Stock Option" shall mean an Option qualifying under Section
422 of the Code and designated as such by the Plan Administrator.

Section 1.9 - Non-Employee Director
-----------   ---------------------

          "Non-Employee Director" shall mean any Director who qualifies as a
"non-employee director" within the meaning of Rule 16b-3 promulgated by the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended.

Section 1.10 - Non-Qualified Stock Option
-------------  --------------------------

          "Non-Qualified Stock Option" shall mean an Option which is not an
Incentive Stock Option and which is designated as a Non-Qualified Stock Option
by the Plan Administrator.

                                      -2-
<PAGE>

Section 1.11 - Officer
------------   -------

          "Officer" shall mean an officer of the Company or of any Parent or
Subsidiary.

Section 1.12 - Option
------------   ------

          "Option" shall mean an option to purchase capital stock of the
Company, granted under the Plan.  "Options" includes both Incentive Stock
Options and Non-Qualified Stock Options, except that for purposes of Article
VII, such term shall refer solely to Non-Qualified Stock Options.

Section 1.13 - Optionee
------------   --------

          "Optionee" shall mean an Employee or non-Employee member of the Board
to whom an Option is granted under the Plan.

Section 1.14 - Parent Corporation
------------   ------------------

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

Section 1.15 - Plan
------------   ----

          The "Plan" shall mean this Stock Option Plan of Safeguard Health
Enterprises, Inc.

Section 1.16 - Plan Administrator
------------   ------------------

          "Plan Administrator" shall mean the Board or the Committee appointed
to administer the Discretionary Option Grant provisions of the Plan, to the
extent such entity is carrying out its administrative functions under the Plan
in accordance with the provisions of Article VI.

Section 1.17 - Pronouns
------------   --------

          The masculine pronoun shall include the feminine and neuter and the
singular shall include the plural, where the context so indicates.

Section 1.18 - Secretary
------------   ---------

          "Secretary" shall mean the Secretary of the Company.

Section 1.19 - 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

                                      -3-
<PAGE>

unbroken chain owns at the time of determination stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock in one
of the other corporations in such chain.

Section 1.20 - Termination of Employment
------------   -------------------------

          "Termination of Employment" shall mean the time when the employee-
employer relationship between the Optionee and the Company or any Parent or
Subsidiary corporation, is terminated for any reason, with or without cause, at
any time, including, but not by way of limitation, a termination by resignation,
discharge, death or retirement, but excluding terminations where there is a
simultaneous reemployment by the Company or any Parent or Subsidiary
corporation.  The Plan Administrator, in its absolute discretion, shall
determine the effect of all other matters and questions relating to the
Optionee's 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 particular leaves of absence
constitute Terminations of Employment; provided, however, that, with respect to
Incentive Stock Options, a leave of absence shall constitute a Termination of
Employment if, and to the extent that, such leave of absence interrupts
employment for the purposes of Section 422(a)(2) of the Code and then applicable
Treasury Regulations and other administrative authority under said Section.

                                   ARTICLE II

                             SHARES SUBJECT TO PLAN
                             ----------------------


Section 2.1 - Shares Subject to the Plan
-----------   --------------------------

          The shares of stock subject to Options shall be shares of the
Company's authorized common stock ("Common Stock").  The aggregate number of
such shares which may be issued over the term of the Plan shall not exceed
1,700,000.  The total number of shares issuable from time to time under the Plan
shall be subject to periodic adjustment in accordance with the provisions of
Section 2.3 below.

          Should an Option expire or terminate for any reason prior to exercise
or surrender in full, the shares subject to the portion of the Option not so
exercised or surrendered shall be available for subsequent Option grants under
the Plan.  Shares subject to any Option or portion thereof surrendered in
accordance with Section 7.10 of the Plan and all share issuances under the Plan,
whether or not such shares are subsequently repurchased by the Company pursuant
to its repurchase rights under the Plan, shall reduce on a share-for-share basis
the number of shares of Common Stock available for subsequent Option grants
under this Plan.  In addition, should the option price of an outstanding Option
under the Plan be paid with shares of Common Stock, then the number of shares of
Common Stock subsequently available for issuance under the Plan shall be reduced
by the gross number of shares for which the Option is exercised, and not by the
net number of shares of Common Stock actually issued to the Optionee.

                                      -4-
<PAGE>

Section 2.2 - Limitation on Incentive Stock Option Grants
-----------   -------------------------------------------

          The aggregate fair market value (determined as of the respective date
or dates of grant) of the shares of Common Stock for which one or more Incentive
Stock Options granted to any Employee under the Plan (or any other stock option
plan of the Company or its Parent or Subsidiary corporations) may for the first
time become exercisable as Incentive Stock Options under the Federal tax laws
during any one (1) calendar year shall not exceed the sum of One Hundred
Thousand Dollars ($100,000) or such greater amount as may be permitted under
subsequent amendments to Section 422 of the Internal Revenue Code.  To the
extent the Employee holds two (2) or more such Options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability thereof as Incentive Stock Options under the Federal tax laws
shall be applied on the basis of the order in which such Options are granted.
In the event the applicable $100,000 limitation is in fact exceeded in any
calendar year, the Option may nevertheless be exercised for those excess shares
as a Non-Qualified Stock Option.

Section 2.3 - Changes in Company's Shares
-----------   ---------------------------

          In the event that the outstanding shares of Common Stock of the
Company are hereafter changed into or exchanged for a different number or kind
of shares or other securities of the Company, or of another corporation, by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, stock dividend or combination of shares,
appropriate adjustments shall be made by the Stock Option Committee in the
number and kind of shares for the purchase of which Options may be granted,
including adjustments of the limitations in Sections 2.1 and 2.2 on the maximum
number and kind of shares which may be issued on exercise of Options.

                                  ARTICLE III

                       GRANTING OF DISCRETIONARY OPTIONS
                       ---------------------------------


Section 3.1 - Eligibility for Option Grants
-----------   -----------------------------

          (a) The persons eligible to receive Option grants pursuant to the
Discretionary Option Grant Program shall be limited to the following
individuals:

               (i) such Employee-members of the Board as the Committee shall
     select from time to time; and

               (ii) such other key Employees (including officers who are not
     Directors) as the Plan Administrator shall select from time to time.

          (b) The Plan Administrator shall have the sole and exclusive
authority, within the scope of its administrative functions under the Plan, to
select the eligible individuals who are to receive Option grants under the
Discretionary Option Grant Program and to determine the number of shares to be
covered by each such Option grant, the status of the granted Option as either an

                                      -5-
<PAGE>

Incentive Stock Option or a Non-Qualified Stock Option, the time or times at
which such Option is to become exercisable and the maximum term for which the
Option is to remain outstanding.

          (c) Non-Employee members of the Board (including members of the
Committee) shall not be eligible to participate in the Discretionary Option
Grant Program.  However, non-Employee members of the Board shall be eligible to
receive periodic Option grants pursuant to the Automatic Option Grant provisions
of Article VII.

          (d) Upon the selection of an eligible individual to receive an Option
grant under the Discretionary Option Grant Program, the Plan Administrator shall
instruct the Secretary to issue such Option and may impose such conditions on
the grant of such Option as it deems appropriate.  Without limiting the
generality of the preceding sentence, the Plan Administrator may, in its
discretion and on such terms as it deems appropriate, require as a condition to
the grant of the Option that the Optionee surrender for cancellation some or all
of the unexercised Options which have been previously granted to him.  Any
Option the grant of which is unconditioned upon such surrender may have an
option price lower (or higher) than the option price of the surrendered Option,
may cover the same (or a lesser or greater) number of shares as the surrendered
Option, may contain such other terms as the Plan Administrator deems appropriate
and shall be exercisable in accordance with its terms, without regard to the
number of shares, price, option period or any other term or condition of the
surrendered Option.

                                   ARTICLE IV

                      TERMS OF DISCRETIONARY OPTION GRANTS
                      ------------------------------------


Section 4.1 - Option Agreement
-----------   ----------------

          Each Option issued under the Discretionary Option Grant Program shall
be evidenced by a written Stock Option Agreement, which shall be executed by the
Optionee and authorized Officers of the Company and which shall contain such
terms and conditions as the Plan Administrator shall determine, consistent with
the Plan.  Stock Option Agreements evidencing Incentive Stock Options shall
contain such terms and conditions as may be necessary to qualify such Options as
"incentive stock options" under Section 422 of the Code.

Section 4.2 - Option Price
-----------   ------------

          (a) The price of the shares subject to each Option shall be set by the
Plan Administrator; provided, however, that the price per share shall be not
less than one hundred percent (100%) of the fair market value of such shares on
the date such Option is granted; provided, further, that, in the case of an
Incentive Stock Option granted to an individual then owning (within the meaning
of Section 424(d) of the Code) more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any Subsidiary or any
Parent corporation (a "10% Stockholder"), the price per share shall not be less
than one hundred ten percent (110%) of the fair market value of such shares on
the date such Option is granted.

                                      -6-
<PAGE>

          (b) For the purpose of Section 4.2(a) and all other valuation purposes
under the Plan, the fair market value of a share of the Company's stock on the
date the Option is granted shall be: (i) the closing price of a share of the
Company's Stock on the principal exchange on which shares of the Company's stock
are then trading, if any, on such date, or, if shares were not traded on such
date, then on the next preceding trading day during which a sale occurred; or
(ii) if such stock is not traded on an exchange but quoted on NASDAQ or a
successor quotation system, (1) the last sale price (if the stock is then listed
as a National Market Issue) or (2) the mean between the closing representative
bid and asked prices (in all other cases) for the stock on such date as reported
by NASDAQ or such successor quotation system; or (iii) if such stock is not
publicly traded on an exchange and not quoted on NASDAQ or a successor quotation
system, the mean between the closing bid and asked prices for the stock on such
date as determined in good faith by the Committee effecting the Option grant; or
(iv) if the Company's stock is not publicly traded, the fair market value
established by such Plan Administrator acting in good faith.

Section 4.3 - Commencement of Exercisability
-----------   ------------------------------

          (a) No Option may be exercised in whole or in part during the first
year after such Option is granted.  Thereafter the Optionee may, within the
specified term of the Option and pursuant to the provisions of this Agreement,
purchase the Optioned Shares in accordance with the following schedule:

               (i) One-third of the Optioned Shares at any time after the
     expiration of twelve (12) months measured from the date of grant.

               (ii) An additional one-third of the Optioned Shares at any time
     after the expiration of twenty-four (24) months measured from the date of
     grant.

               (iii)  The final one-third of the Optioned Shares at any time
     after the expiration of thirty-six (36) months measured from the date of
     grant.

          Within the limitations provided in this Section 4.3 but subject to the
other provisions of this Agreement, an Optionee may, on any two (2) occasions in
each fiscal year during the term of the Option, purchase any or all of the
Optioned Shares for which the Option is at the time exercisable; provided
however, that each exercise shall be for not less than twenty-five (25) shares
or the minimum installment set forth in this Section 4.3, if a smaller number of
shares.  In no event, however, shall an Option be exercisable for any fractional
shares.

          (b) Subject to the provisions of Sections 4.3(a) and 4.3(c), Options
shall become exercisable at such times and in such installments (which may be
cumulative) as the Plan Administrator shall provide in the terms of the
individual Option; provided, however, that by a resolution adopted after an
Option is granted, the Plan Administrator may, on such terms and conditions as
it may determine to be appropriate and subject to Sections 4.3(a) and 4.3(c),
accelerate the time at which such Option or any portion thereof may be
exercised.

                                      -7-
<PAGE>

          (c) No portion of an Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.

Section 4.4 - Expiration of Options
-----------   ---------------------

          (a) No Incentive Stock Option may be exercised to any extent by anyone
after the first to occur of the following events:

               (i) The expiration of ten (10) years from the date the Option was
     granted;

               (ii) In the case of a 10% Stockholder, the expiration of five (5)
     years from the date that the Option was granted;

               (iii)  Except in the case of any Optionee who is disabled (within
     the meaning of Section 22(e)(3) of the Code) at the time Employee status
     terminates, the expiration of thirty (30) days from the date of the
     Optionee's Termination of Employment for any reason other than such
     Optionee's death unless the Optionee dies within said thirty (30) days;

               (iv) In the case of an Optionee who is disabled (within the mean
     of Section 22(e)(3) of the Code) at the time Employee status terminates,
     the expiration of six (6) months from the date of the Optionee's
     Termination of Employment for any reason other than such Optionee's death
     unless the Optionee dies within said six (6) month period;

               (v) The expiration of ninety (90) days from the date of the
     Optionee's death.

          No Non-Qualified Stock Option may be exercised to any extent by anyone
after the expiration of ten (10) years and one (1) day from the date the Option
was granted.

          (b) Subject to the provisions of Section 4.4(a), the Plan
Administrator shall provide, as part of the terms of the Option, when such
Option expires and becomes unexercisable; and (without limiting the generality
of the foregoing) the Plan Administrator may provide as part of the terms of the
Option that such Option is to expire immediately upon a Termination of
Employment for any reason.

Section 4.5 - Consideration
-----------   -------------

          In consideration of the granting of the Option, the Optionee shall
agree, in the written Stock Option Agreement, to remain in the employ of the
Company or a Parent or Subsidiary corporation for a period of at least one (1)
year 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 the Company or any Parent or Subsidiary corporation or shall interfere
with or restrict

                                      -8-
<PAGE>

in any way the rights of the Company and any such Parent or Subsidiary
corporation, which are hereby expressly reserved, to discharge any Optionee at
any time for any reason whatsoever, with or without good cause.

Section 4.6 - Adjustments in Outstanding Options
-----------   ----------------------------------

          In the event that the outstanding shares of the stock subject to
Options are changed into or exchanged for a different number or kind of shares
of the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split-up, stock
dividend or combination of shares, the Plan Administrator shall make an
appropriate and equitable adjustment in the number and kind of shares as to
which all outstanding Options, or portions thereof then unexercised, shall be
exercisable, to the end that after such event the Optionee's proportionate
interest (vis-a-vis the other stockholders of the Company) shall be maintained
as before the occurrence of such event.  Such adjustment in an outstanding
Option shall be made without change in the total price applicable to the Option
or the unexercised portion of the Option (except for any change in the aggregate
price resulting from rounding-off of share quantities or prices) and with any
necessary corresponding adjustment in option price per share; provided, however,
that, in the case of Incentive Stock Options, each such adjustment shall be made
in such manner as not to constitute a "modification" within the meaning of
Section 424(h) (3) of the Code.  Any such adjustment made by the Primary
Committee (or the Board) shall be final and binding upon all Optionees, the
Company and all other interested persons.

Section 4.7 - Merger, Consolidation, Exchange, Acquisition, Liquidation or
-----------   ------------------------------------------------------------
Dissolution
-----------

          In its absolute discretion, and on such terms and conditions as it
deems appropriate, the Plan Administrator may provide as part of the terms of
the Option that such Option cannot be exercised after the merger or
consolidation of the Company into another corporation, the acquisition by
another corporation of all or substantially all of the Company's assets or
eighty percent (80%) or more of the Company's then outstanding voting stock or
the liquidation or dissolution of the Company; and if the Plan Administrator so
provides, it may, in its absolute discretion and on such terms and conditions as
it deems appropriate, also provide either by the terms of such Option or by a
resolution adopted prior to the occurrence of such merger, consolidation,
exchange, acquisition, liquidation or dissolution, that, for some period of time
prior to such event, such Option shall be exercisable as to all shares covered
thereby, notwithstanding anything to the contrary in Section 4.3(a), Section
4.3(b) and/or in any installment provisions of such Option.

                                   ARTICLE V

                       EXERCISE OF DISCRETIONARY OPTIONS
                       ---------------------------------

Section 5.1 - Persons Eligible to Exercise
-----------   ----------------------------

          During the lifetime of the Optionee, only he may exercise an Option
granted to him, or any portion thereof.  After the death of the Optionee, any
exercisable portion of an Option may, prior to the time when such portion
becomes unexercisable under Section 4.4 or Section 4.7, be

                                      -9-
<PAGE>

exercised by his personal representative or by any person empowered to do so
under the deceased Optionee's Will or under the then applicable laws of descent
and distribution.

Section 5.2 - Partial Exercise
-----------   ----------------

          At any time and from time to time prior to the time when any
exercisable Option or exercisable portion thereof becomes unexercisable under
Section 4.4 or Section 4.7, such Option or portion thereof may be exercised in
whole or in part; provided, however, that the Company shall not be required to
issue fractional shares and the Plan Administrator may, as part of the terms of
the Option, require any partial exercise to be with respect to a specified
minimum number of shares.

Section 5.3 - Manner of Exercise
-----------   ------------------

          An exercisable Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or his office of all of the
following prior to the time when such Option or such portion becomes
unexercisable under Section 4.4 or Section 4.7:

          (a) Notice in writing signed by the Optionee or other person then
entitled to exercise such Option or portion, stating that such Option or portion
is exercised, such notice complying with all applicable rules established by the
Plan Administrator; and

          (b) Payment of the option price for the purchased shares in any of the
following forms:

               (i) full payment in a cashiers' check or wire transfer payable to
     the Company's order; or

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

               (iii)  payment effected through a broker-dealer sale and
     remittance procedure pursuant to which the Optionee shall provide
     irrevocable written instruction (I) to the designated brokerage firm to
     effect the immediate sale of the purchased shares and to remit to the
     Company, out of the sale proceeds available on the settlement date, an
     amount equal to the aggregate option price payable for the purchased shares
     plus all applicable federal and state income and employment taxes required
     to be withheld by the Company in connection with such purchase and sale and
     (II) to the Company to deliver the certificates for the purchased shares
     directly to such brokerage firm in order to complete the sale transaction;
     or

               (iv) any combination of the consideration provided in the
     foregoing subsections (i), (ii) and (iii).

                                      -10-
<PAGE>

          For purposes of this subsection 5.3(b), the Exercise Date shall be the
date on which written notice of the Option exercise is received by the Company.
Except to the extent the sale and remittance procedure is utilized in connection
with the Option exercise, payment of the option price for the purchased shares
must accompany such exercise notice; and

          (c) Such representations and documents as the Plan Administrator may,
in its absolute discretion, deem 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 Plan
Administrator may, in its absolute discretion, also take whatever additional
actions it deems appropriate to effect such compliance including, without
limitation, placing legends on share certificates and issuing stop-transfer
orders to transfer agents and registrars; and

          (d) In the event that the Option or portion thereof shall be exercised
pursuant to Section 5.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the Option
or portion thereof.

Section 5.4 - Conditions to Issuance of Stock Certificates
-----------   --------------------------------------------

          The shares of stock issuable and deliverable upon the exercise of an
Option, or any portion thereof, may be either previously authorized but unissued
shares or issued shares which have then been reacquired by the Company.  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; and

          (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 Plan Administrator shall, in its absolute discretion, deem necessary
or advisable; and

          (c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Plan Administrator shall, in its absolute
discretion, determine to be necessary or advisable; and

          (d) The payment to the Company of all amounts which it is required to
withhold under federal, state or local law in connection with the exercise of
the Option; and

          (e) The lapse of such reasonable period of time following the exercise
of the Option as the Plan Administrator may establish from time to time for
reasons of administrative convenience.

                                      -11-
<PAGE>

Section 5.5 - 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.

Section 5.6 - Transfer Restrictions
-----------   ---------------------

          The Plan Administrator, in its absolute discretion, may impose such
restrictions on the transferability of the shares purchasable upon the exercise
of the Option as it deems appropriate, and 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 Plan Administrator may require an
Optionee to give the Company prompt notice of any disposition of shares of
stock, acquired by exercise of an Incentive Stock Option, within two (2) years
from the date of granting such Option or one (1) year after the transfer of such
shares to such Optionee.  The Plan Administrator may direct that the
certificates evidencing shares acquired by exercise of an Option refer to such
requirement to give prompt notice of disposition.

                                   ARTICLE VI

                                 ADMINISTRATION
                                 --------------


Section 6.1 - Administration of Plan
-----------   ----------------------

          The Plan shall be administered in accordance with the following
standards:

          (a) The Discretionary Option Grant Program shall be administered by
the Plan Administrator, which shall be the Board or, in the discretion of the
Board, a Committee appointed by the Board and composed solely of two (2) or more
Non-Employee Directors.  Members of the Committee shall serve for such term as
the Board may determine and shall be subject to removal by the Board at any
time.  Subject to the provisions of the Plan, the Plan Administrator shall have
the sole and exclusive authority to grant Options under the Discretionary Option
Grant Program, to accelerate the exercisability of such Options, and to make all
determinations necessary or advisable for the administration of the
Discretionary Option Grant Program.

          (b) The Plan Administrator shall have full power and authority
(subject to the express provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for the proper administration of the Plan
functions within the scope of its administrative authority and to make any and
all determinations with respect to those functions which it may deem necessary
or advisable.  All decisions of the Plan Administrator taken in good faith and
within the scope of its administrative authority under the Plan shall be final
and binding on the Optionee, the Company and all other parties who have an
interest in any outstanding Option granted pursuant to such authority.

                                      -12-
<PAGE>

          (c) Administration of the Automatic Option Grant provisions of Article
VII shall be self-executing in accordance with the express terms and conditions
of such Article VII, and the Plan Administrator shall exercise no discretionary
functions with respect to the Option grants made pursuant to such Article VII.

Section 6.2 - Compensation; Professional Assistance; Good Faith Actions
-----------   ---------------------------------------------------------

          Individuals serving as Plan Administrator shall not receive
compensation for their services as such, but all expenses and liabilities they
incur in connection with the administration of the Plan shall be borne by the
Company.  The Plan Administrator may, with the approval of the Board, employ
attorneys, consultants, accountants, appraisers, brokers or other persons.  The
Plan Administrator, together with the Company and its Officers and Directors,
shall be entitled to rely upon the advice, opinions or valuations of any such
persons.  No individual serving as Plan Administrator shall be personally liable
for any action, determination or interpretation made in good faith with respect
to the Plan or the Options, and such individuals shall be fully protected by the
Company with respect to any such action, determination or interpretation.

                                  ARTICLE VII

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

Section 7.1 - Eligible Optionees
-----------   ------------------

          (a) Each individual serving as a non-Employee member of the Board at
any time on or after November 9, 1992, shall be eligible to receive periodic
automatic Option grants pursuant to the provisions of this Article VII.
However, in no event will any non-Employee Board member be eligible to receive
Option grants under this Article VII program, if such individual has previously
served as an Employee of the Company or any Parent or Subsidiary corporation.

          (b) Except for the Option grants to be made pursuant to the provisions
of this Article VII, non-Employee Board members shall not be eligible to receive
any additional Option grants under this Plan.

Section 7.2 - Grant Dates
-----------   -----------

          Option grants will be made under this Article VII on the dates
specified below:

               (i) On November 9, 1992, each individual who is at the time
     serving as a non-Employee member of the Board shall automatically be
     granted on that date a Non-Qualified Stock Option to purchase two thousand
     (2,000) shares of Common Stock upon the terms and conditions of this
     Article VII.

          (ii) On the second Monday of November of each subsequent year,
     commencing with the 1993 calendar year, each member of the Board shall
     automatically be granted on that date a Non-Qualified Stock Option to
     purchase two

                                      -13-
<PAGE>

     thousand (2,000) shares of Common Stock upon the terms and conditions of
     this Article VII, or such other number of shares of Common Stock as may be
     fixed by the Board from time to time.

          There shall be no limit on the number of such share Option grants any
one non-Employee Board member may receive over his period of service on the
Board.  The number of shares subject to each automatic Option grant (including
grants to be made in the future) shall be subject to periodic adjustment
pursuant to the applicable provisions of Section 4.7.

Section 7.3 - Option Price
-----------   ------------

          The option price per share shall be equal to one hundred percent
(100%) of the fair market value per share of Common Stock on the automatic grant
date.

Section 7.4 - Payment
-----------   -------

          The option price shall be payable in one of the alternative forms
specified below:

          (i) full payment in a cashiers check or wire transfer payable to the
     Company's order; or

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

          (iii)  payment effected through a broker-dealer sale and remittance
     procedure pursuant to which the Optionee shall provide irrevocable written
     instructions (I) to the designated brokerage firm to effect the immediate
     sale of the purchased shares and to remit to the Company, out of the sale
     proceeds available on the settlement date, an amount equal to the aggregate
     option price payable for the purchased shares and (II) to the Company to
     deliver the certificates for the purchased shares directly to such
     brokerage firm in order to complete the sale transaction; or

          (iv) any combination of the consideration provided in the foregoing
     subsections (i), (ii), and (iii).

          For purposes of this subsection 7.4, the Exercise Date shall be the
date on which written notice of the Option exercise is received by the Company.
Except to the extent the sale and remittance procedure is utilized in connection
with the Option exercise, payment of the option price for the purchased shares
must accompany such exercise notice.

Section 7.5 - Option Term
-----------   -----------

          Each automatic grant under this Article VII shall have a maximum term
of ten (10) years measured from the automatic grant date.

                                      -14-
<PAGE>

Section 7.6 - Exercisability
-----------   --------------

          Each automatic Option shall become exercisable for the Option shares
one (1) year after the grant date.

Section 7.7 - Termination of Board Service
-----------   ----------------------------

          (a) Should the Optionee cease service as a Board member for any reason
while holding one or more automatic Option grants under this Article VII, then
such options granted hereunder not exercised by the Board member at the time of
termination of Board membership, shall terminate and cease to be exercisable as
of such date.

          (b) In no event shall any automatic grant under this Article VII
remain exercisable after the specified expiration date of the ten (10) year
Option term.  Upon the expiration of the applicable exercise period in
accordance with subparagraph (a) above or (if earlier) upon the expiration of
the ten (10) year Option term, the automatic Option grant shall terminate and
cease to be exercisable.

Section 7.8 - Stockholder Rights
-----------   ------------------

          The holder of an automatic Option grant under this Article VII shall
have no stockholder rights with respect to any shares covered by such Option
until such individual shall have exercised the Option, paid the option price for
the purchased shares and been issued a stock certificate for such shares.

Section 7.9 - Corporate Transaction
-----------   ---------------------

          In the event of any of the following stockholder-approved transactions
to which the Company is a party (a "Corporate Transaction"): any merger or
consolidation of the Company into another corporation, the acquisition by
another corporation of all or substantially all of the Company's assets or the
liquidation or dissolution of the Company, the exercisability of each automatic
Option grant at the time outstanding under this Article VII shall automatically
accelerate so that each such option shall, immediately prior to the specified
effective date for the Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock at the time subject to
such Option and may be exercised for all or any portion of such shares.  Upon
the consummation of the Corporate Transaction, all automatic Option grants under
this Article VII shall terminate and cease to be outstanding.

Section 7.10 - Change in Control
------------   -----------------

          In connection with any Change in Control of the Company, the
exercisability of each automatic Option grant at the time outstanding under this
Article VII shall automatically accelerate so that each such Option shall,
immediately prior to the specified effective date for the Change in Control,
become fully exercisable with respect to the total number of shares of Common
Stock at

                                      -15-
<PAGE>

the time subject to such Option and may be exercised for all or any portion of
such shares. For purposes of this Article VII, a Change in Control shall be
deemed to occur when any person or related group or persons (other than the
Company or a person that directly or indirectly controls, is controlled by, or
is under common control with, the Company) directly or indirectly acquires
beneficial ownership [within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended (the "1934 Act")] of securities possessing more
than eighty percent (80%) 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.

          The shares of Common Stock subject to each Option surrendered in
connection with the Change in Control shall not be available for subsequent
issuance under this Plan.

          The automatic Option grants outstanding under this Article VII shall
in no way affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.

Section 7.11 - Remaining Terms
------------   ---------------

          The remaining terms and conditions of each automatic Option grant
shall be as set forth in the prototype Directors Automatic Option Grant
Agreement.

Section 7.12 - Amendment of the Automatic Grant Provisions
------------   -------------------------------------------

          The provisions of this Automatic Option Grant Program, including any
automatic Option grants outstanding under this Article VII, may not be amended
at intervals more frequently than once every six (6) months, other than to the
extent necessary to comply with applicable federal income tax laws and
regulations.

                                  ARTICLE VIII

                            MISCELLANEOUS PROVISIONS
                            ------------------------

Section 8.1 - Options Not Transferable
-----------   ------------------------

          During the lifetime of the Optionee, Options granted under either the
Discretionary Option Grant Program or the Automatic Option Grant Program (and
any stock appreciation rights attaching thereto) shall be exercisable only by
the Optionee and shall not be assignable or transferable by the Optionee other
than by a transfer of the Option effected by the Optionee's will or by the laws
of descent and distribution following the Optionee's death.  Accordingly, except
for such permitted transfer, the Option (or any interest or right therein or
part thereof) shall not 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

                                      -16-
<PAGE>

judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any such attempted disposition thereof
shall be null and void and of no effect.

Section 8.2 - Amendment, Suspension or Termination of the Plan
-----------   ------------------------------------------------

          (a) The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from  time to time by the Board;
provided, however, that (I) no such amendment or modification shall, without the
consent of the Option holders, adversely affect their rights and obligations
under their Options and (II) any amendment to the Automatic Option Grant program
shall be effected in compliance with the limitations of Section 7.12.  In
addition, the Board shall not, without the approval of the Company's
stockholders, (i) materially increase the maximum number of shares issuable
under the Plan, except for permissible adjustments under Section 2.3, (ii)
materially modify the eligibility requirements for the grant of Options under
the Plan, (iii) materially increase the benefits accruing to participants under
the Plan or (iv) increase the maximum number of  shares for which Automatic
Option Grants may be periodically made pursuant to the provisions of Article
VII.

          (b) No Option may be granted during any period of suspension nor after
termination of the Plan, and in no event may any Option be granted under this
Plan after the earlier of the following events:

               (i)  December 31, 2006; or

          (ii) the date on which all shares available for issuance under the
     Plan shall have been issued or canceled pursuant to the exercise or
     surrender of the Options granted hereunder.

          If the date of termination is determined under clauses (i) above, then
options outstanding on such date shall thereafter continue to have force and
effect in accordance with the provisions of the instruments evidencing such
options.

Section 8.3 - Effective Date of Plan
-----------   ----------------------

          (a) The Plan was initially adopted by the Board on April 25, 1984, and
approved by the Company's stockholders on May 22, 1984.  On November 9, 1992,
the Board approved a restatement of the Plan, effective as of such date, to (i)
increase the number of shares of Common Stock reserved for issuance under the
Plan by an additional 450,000 shares, (ii) bring the Plan in compliance with the
applicable requirements of SEC Rule 16b-3, as amended May 1, 1991, under the
1934 Act, (iii) revise the Incentive Stock Option provisions of the Plan to
conform to applicable changes in the federal tax laws, (iv) establish the
Automatic Option Grant Program for non-Employee Board members and (v) extend the
term of the Plan to December 31, 2002.  The November 1992 restatement was
approved by the Company's stockholders on May 26, 1993.  On February 7, 1997,
the Board approved an Amendment to the Plan, effective as of such date, to (i)
increase the number of shares of Common Stock reserved for issuance under the
Plan by an additional 500,000 shares, and (ii) extend the term of the Plan to
December 31, 2006.  The February

                                      -17-
<PAGE>

1997 Amendment will be submitted to stockholder approval at the 1997 Annual
Meeting and no options granted on the basis of the 500,000 share increase shall
become exercisable in whole or in part unless and until such stockholder
approval shall have been obtained at the 1997 Annual Meeting.

          The November 1992 restatement shall apply only to options granted
under the Plan from and after the November 9, 1992, effective date.  Each option
issued and outstanding under the Plan immediately prior to such effective date
shall continue to be governed by the terms and conditions of the Plan (and the
instrument evidencing such option) as in effect on the date such option was
previously granted, and nothing in the November 1992 restatement shall be deemed
to affect or otherwise modify the rights or obligations of the holders of such
options with respect to the acquisition of shares of Common Stock thereunder.

          (b) The sale and remittance procedure for the exercise of outstanding
options shall be available for all options granted under the Plan after November
9, 1992, and for all Non-Qualified Stock Options outstanding under the Plan on
such date.  The Plan Administrator may also allow such procedure to be utilized
in connection with one or more disqualifying dispositions of Incentive Stock
Option shares effected after such date.

          (c) Options may be granted under this Plan to purchase shares of
Common Stock in excess of the number of shares then available for issuance under
the Plan, provided (i) an amendment to increase the maximum number of shares
issuable under the Plan is adopted by the Board prior to the initial grant of
any such option and is thereafter submitted to the Company's stockholders for
approval and (ii) each option so granted is not to become exercisable, in whole
or in part, at any time prior to the obtaining of such stockholder approval.

Section 8.4 - Effect of Plan Upon Other 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 Parent or Subsidiary
corporation.  Nothing in this Plan shall be construed to limit the right of the
Company or any Parent or Subsidiary corporation (a) to establish any other forms
of incentives or compensation for employees of the Company or any Parent or
Subsidiary corporation or (b) to grant or assume options 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, firm or association.

Section 8.5 - Titles
-----------   ------

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

                                      -18-