<PAGE>
                                                                   EXHIBIT 10.22
 
              THE 1996 UNIT INCENTIVE PLAN OF PIMCO ADVISORS L.P.


          PIMCO Advisors L.P., a Delaware limited partnership (the
"Partnership"), has adopted The 1996 Unit Incentive Plan of PIMCO Advisors L.P.
(the "Plan"), effective December 1, 1996, for the benefit of its eligible
employees, consultants and board members. The Plan, which amends, restates and
supersedes in its entirety the Partnership's Class B LP Unit Option 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 Board
Members (as such term is defined below).

          The purposes of this Plan are as follows:

          (1)    To provide an additional incentive for Independent Board
Members, key Employees and consultants to further the growth, development and
financial success of the Partnership by personally benefiting through the
ownership of Class B Units (as defined below) and/or rights which recognize such
growth, development and financial success.

          (2)    To enable the Partnership to obtain and retain the services of
Independent Board Members, key Employees and consultants considered essential to
the long range success of the Partnership by offering them an opportunity to own
Class B Units in the Partnership and/or rights which will reflect the growth,
development and financial success of the Partnership.

                                   ARTICLE I

                                  DEFINITIONS

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

          1.2    Award Limit.  "Award Limit" shall mean 200,000 Class B LP
                 -----------                                              
Units.

          1.3    Board.  "Board" shall mean the Equity Board of the Partnership
                 -----                                                         
or any successor board established by the general partner(s) of the Partnership.

          1.4    Class B LP Units.  "Class B LP Units" shall mean Class B units
                 ----------------                                              
of limited partner interest in the Partnership, but excluding any warrants,
options or other rights to purchase Class B LP Units.

          1.5    Code.  "Code" shall mean the Internal Revenue Code of 1986, as
                 ----                                                          
amended.
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          1.6    Committee.  "Committee" shall mean the Unit Incentive
                 ---------                                            
Committee of the Board, or another committee, or a subcommittee of the Board,
appointed as provided in Section 9.1.

          1.7    Corporate Subsidiary.  "Corporate Subsidiary" shall mean any
                 --------------------                                        
corporation in an unbroken chain of corporations if 50 percent or more of the
total combined voting power of all classes of stock of the first corporation is
owned by the Partnership, and each of the corporations other than the last
corporation in the unbroken chain then owns stock possessing 50 percent or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.

          1.8    Deferred Units.  "Deferred Units" shall mean Class B LP Units
                 --------------                                               
awarded under Article VII of this Plan.

          1.9    Employee.  "Employee" shall mean any officer or other employee
                 --------                                                      
(as defined in accordance with Section 3401(c) of the Code) of the Partnership,
or of any corporation that is then a Corporate Subsidiary, or of any
partnership, limited liability company or corporation that is then a Partnership
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.

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

          1.11   Fair Market Value.  "Fair Market Value" of a security as of a
                 -----------------                                            
given date shall mean

          (a)    with respect to Class B LP Units, an amount established
     by the Committee (or the Board, in the case of Restricted Units
     granted to Independent Board Members) acting in good faith; and

          (b)    with respect to any other successor security which may
     be issued pursuant to this Plan, (i) the closing price of such
     security on the principal exchange on which it is 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 such security was not traded on the trading day previous to
     such date, then on the next preceding date on which a trade
     occurred, or (ii) if such security is not traded on an exchange
     but are quoted on the Nasdaq Stock Market or a successor
     quotation system, the mean between the closing representative bid
     and asked prices for the security on the trading day previous to
     such date as reported by the Nasdaq Stock Market or such
     successor quotation system, or (iii) if such security is not
     publicly-traded on an exchange and is not quoted on the Nasdaq
     Stock Market or a successor quotation system, the Fair Market
     Value of the security as established by the Committee (or the
     Board, in the case of Restricted Units granted to Independent
     Board Members) acting in good faith.

                                       2
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          1.12   Grantee.  "Grantee" shall mean an Employee or consultant
                 -------                                                 
granted a Unit Payment, Unit Appreciation Right or an award of Deferred Units
under this Plan.

          1.13   Incentive Unit Option.  "Incentive Unit Option" shall mean an
                 ---------------------                                        
Option which conforms to the provisions of Section 422 of the Code concerning
"incentive stock options" and which is designated as an Incentive Unit Option by
the Committee.

          1.14   Independent Board Member.  "Independent Board Member" shall
                 ------------------------                                   
mean a member of the Board who is not an Employee of the Partnership.

          1.15   Member.  "Member" shall mean a member of the Board.
                 ------                                             

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

          1.17   Option.  "Option" shall mean a Class B Unit option granted
                 ------                                                    
under Article III of this Plan.  An Option granted under this Plan shall, as
determined by the Committee, be either a Non-Qualified Unit Option or an
Incentive Unit Option; provided, however, that Options granted to consultants
shall be Non-Qualified Unit Options.

          1.18   Optionee.  "Optionee" shall mean an Employee or consultant
                 --------                                                  
granted an Option under this Plan.

          1.19   Partnership.  "Partnership" shall mean PIMCO Advisors L.P., a
                 -----------                                                  
Delaware limited partnership.

          1.20   Partnership Subsidiary.  "Partnership Subsidiary" shall mean
                 ----------------------                                      
any partnership or limited liability company 50% or more of the profits or
capital interest of which is owned, directly or indirectly, by the Partnership
or a Corporate Subsidiary.  "Partnership Subsidiary" shall also mean any
corporation that would be a Corporate Subsidiary with respect to a partnership
or limited liability company that is a Partnership Subsidiary if such
partnership or limited liability company were treated as the Partnership.

          1.21   Payment.  "Payment" shall mean the amount paid and/or applied
                 -------                                                      
by an Optionee pursuant to Section 5.2(d) of this Plan.

          1.22   Plan.  "Plan" shall mean The 1996 Unit Incentive Plan of PIMCO
                 ----                                                          
Advisors L.P.

          1.23   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.

          1.24   Restricted Units .  "Restricted Units" shall mean Class B LP
                 -----------------                                           
Units awarded under Article VI of this Plan.

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<PAGE>
 
          1.25   Restricted Unitholder.  "Restricted Unitholder" shall mean an
                 ---------------------                                        
Independent Board Member, Employee or consultant granted an award of Restricted
Units under Article VI of this Plan.

          1.26   Restructuring.  "Restructuring" shall have the meaning
                 -------------                                         
ascribed thereto in the Amended and Restated Agreement of Limited Partnership of
the Partnership, as the same may be amended or restated from time to time.

          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   Securities Act.  "Securities Act" shall mean the Securities
                 --------------                                             
Act of 1933, as amended.

          1.29   Termination of Consultancy.  "Termination of Consultancy" shall
                 --------------------------                                     
mean the time when the engagement of an Optionee, Grantee or Restricted
Unitholder as a consultant to the Partnership, a Corporate Subsidiary or a
Partnership Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation,
discharge, death or retirement; but excluding terminations where there is a
simultaneous commencement of employment with the Partnership, a Corporate
Subsidiary or a Partnership 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 particular leaves of absence constitute
Terminations of Consultancy.  Notwithstanding any other provision of this Plan,
the Partnership or any Corporate Subsidiary or Partnership 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.

          1.30   Termination of Membership.  "Termination of Membership" shall
                 -------------------------                                    
mean the time when a Restricted Unitholder who is an Independent Board Member
ceases to be a Board Member for any reason, including, but not by way of
limitation, a termination by resignation, failure to be elected, removal, death
or retirement; but excluding (i) terminations where there is simultaneously
established an employment relationship between the former Board Member and the
Partnership or any Corporate Subsidiary or Partnership Subsidiary and (ii) at
the discretion of the Committee, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Partnership or a
Corporate Subsidiary or Partnership Subsidiary with the former Board Member.
The Board, in its sole and absolute discretion, shall determine the effect of
all matters and questions relating to Termination of Membership with respect to
Independent Board Members.

          1.31   Termination of Employment.  "Termination of Employment" shall
                 -------------------------                                    
mean the time when the employee-employer relationship between the Optionee,
Grantee or Restricted Unitholder and the Partnership or any Corporate Subsidiary
or Partnership Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a 

                                       4
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termination by resignation, discharge, death, disability or retirement; but
excluding (i) at the discretion of the Committee, terminations where there is a
simultaneous reemployment or continuing employment of an Optionee, Grantee or
Restricted Unitholder by the Partnership or any Corporate Subsidiary or
Partnership 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 Partnership or a
Corporate Subsidiary or Partnership 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 particular leaves of
absence constitute Terminations of Employment; provided, however, that, with
respect to Incentive Unit Options, 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 Partnership or any Corporate Subsidiary or
Partnership 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.

          1.32   Units.  "Units" shall mean Class B LP Units.
                 -----                                       

          1.33   Unit Appreciation Right.  "Unit Appreciation Right" shall mean
                 -----------------------                                       
a unit appreciation right granted under Article VIII of this Plan.

          1.34   Unitholders.  "Unitholders" shall mean holders of Class B
                 -----------                                              
Units.

          1.35   Unit Payment.  "Unit Payment" shall mean (i) a payment in the
                 ------------                                                 
form of Class B LP Units, or (ii) an option or other right to purchase Class B
LP Units, as part of a deferred compensation arrangement, made in lieu of all or
any portion of the compensation, including, but not by way of 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.

                                       5
<PAGE>
 
                                  ARTICLE II

                             UNITS SUBJECT TO PLAN

          2.1    Units Subject to Plan.
                 --------------------- 

          (a)    The securities subject to Options, awards of Restricted Units,
awards of Deferred Units, Unit Payments or Unit Appreciation Rights shall be
Class B LP Units.  The aggregate number of Class B LP Units which may be issued
upon exercise of such Options or rights or upon any such awards under the Plan,
including those issued upon exercise of awards previously made under the Class B
Unit Option Plan which this Plan amends and restates, shall not exceed
10,000,000.  The Class B Units issuable upon exercise of such Options or rights
or upon any such awards may be either previously authorized but unissued Class B
Units or treasury Units.

          (b)    The maximum number of Class B LP Units which may be subject to
Options, rights or other awards 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, Class B Units subject to Options which are cancelled
continue to be counted against the Award Limit and if, after grant of an Option,
the price of Class B Units subject to such Option is reduced, the transaction is
treated as a cancellation of the Option and a grant of a new Option and both the
Option deemed to be canceled and the Option deemed to be granted are counted
against the Award Limit.  Furthermore, to the extent required by Section 162(m)
of the Code, if, after grant of a Unit Appreciation Right, the base amount on
which unit appreciation is calculated is reduced to reflect a reduction in the
Fair Market Value of Units, the transaction is treated as a cancellation of the
Unit Appreciation Right and a grant of a new Unit Appreciation Right and both
the Unit Appreciation Right deemed to be canceled and the Unit Appreciation
Right deemed to be granted are counted against the Award Limit.

          2.2    Add-Back of Options and Other Rights.  If any Option, or other
                 ------------------------------------                          
right to acquire Class B Units under any other award under this Plan, expires or
is cancelled without having been fully exercised, or is exercised in whole or in
part for cash as permitted by this Plan, the number of Class B Units 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.  Class B Units which are delivered by the Optionee or Grantee or withheld
by the Partnership 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 Restricted
Units are forfeited by the Grantee or repurchased by the Partnership pursuant to
Section 6.8 hereof, such Class B Units may again be optioned, granted or awarded
hereunder, subject to the limitations of Section 2.1.

                                       6
<PAGE>
 
                                   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; provided, however, that notwithstanding anything in Section 3.4(a)(i) to
the contrary, no Option may be granted by the Committee except and unless the
recipient thereof shall have been recommended by the Operating Board of the
Partnership or the Operating Committee thereof.

          3.2    Disqualification for Unit Ownership.  No person may be granted
                 -----------------------------------                           
an Incentive Unit Option under this Plan if such person, at the time the
Incentive Unit Option is granted, owns securities possessing more than ten
percent (10%) of the total combined voting power of all classes of securities of
the Partnership or securities of any then existing Corporate Subsidiary or
Partnership Subsidiary unless such Incentive Unit Option conforms to the
applicable provisions of Section 422 of the Code.

          3.3    Qualification of Incentive Unit Options.  No Incentive Unit
                 ---------------------------------------                    
Option shall be granted unless such Option, when granted, qualifies as an
"incentive stock option" under Section 422 of the Code.  No Incentive Unit
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 Class
     B Units to be subject to such Options granted to the selected key Employees
     or consultants;

                 (iii) Determine whether such Options are to be Incentive Unit
     Options or Non-Qualified Unit 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.

                                       7
<PAGE>
 
          (b)    Upon the selection of a key Employee or consultant to be
granted an Option, the Committee shall instruct the Secretary of the Partnership
to issue the Option and may impose such conditions on the grant of the Option as
it deems appropriate.  Without limiting the generality of the preceding
sentence, the Committee may, in its discretion and on such terms as it deems
appropriate, require as a condition on the grant of an Option to an Employee or
consultant that the Employee or consultant surrender for cancellation some or
all of the unexercised Options, awards of Restricted Units or Deferred Units,
Unit Appreciation Rights, Unit Payments or other rights which have been
previously granted to him under this Plan or otherwise.  An Option, the grant of
which is conditioned upon such surrender, may have an option price lower (or
higher) than the exercise price of such surrendered Option or other award, may
cover the same (or a lesser or greater) number of Class B Units as such
surrendered Option or other award, may contain such other terms as the Committee
deems appropriate, and shall be exercisable in accordance with its terms,
without regard to the number of Class B Units, the price, the exercise period or
any other term or condition of such surrendered Option or other award.

          (c)    Any Incentive Unit 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.

                                  ARTICLE IV

                               TERMS OF OPTIONS

          4.1   Option Agreement.  Each Option shall be evidenced by a written
                ----------------                                              
Unit Option Agreement, which shall be executed by the Optionee and an authorized
officer of the Partnership and which shall contain such terms and conditions as
the Committee shall determine, consistent with this Plan.  Unit 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.  Unit Option Agreements evidencing Incentive Unit
Options shall 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 Class B Unit of Class B Units
                ------------                                              
subject to each Option shall be set by the Committee; provided, however, that
(i) in the case of Incentive Unit Options and 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 the
underlying Class B LP Unit on the date the Option is granted; (ii) in the case
of Incentive Unit Options 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 securities of the Partnership or of any Corporate
Subsidiary or Partnership Subsidiary, such price shall not be less than 110% of
the Fair Market Value of the underlying Class B LP Unit on the date the Option
is granted.

                                       8
<PAGE>
 
          4.3   Option Term.  The term of an Option shall be set by the
                -----------                                            
Committee in its discretion; provided, however, that, in the case of Incentive
Unit Options, the term shall not be more than ten (10) years from the date the
Incentive Unit Option is granted, or five (5) years from such date if the
Incentive Unit 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 securities of the Partnership or of any Corporate
Subsidiary or Partnership Subsidiary.  Except as limited by requirements of
Section 422 of the Code and regulations and rulings thereunder applicable to
Incentive Unit 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, 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 unless otherwise determined by the Committee
at the time of grant of an Option, Options shall become fully vested on the date
which is thirty (30) days prior to the effective date of any transaction
described in Section 4.4(b)(iii)(A) or (B) unless in connection with any such
transaction, arrangements have been made for the continuation of such Options or
the substantial economic equivalent thereof.  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 vests.

          (b)   Except as otherwise determined by the Committee in connection
with an award, Options granted under the Plan shall be exercisable only (i)
following January 1, 1998 in accordance with the terms hereof, (ii) during the
30-day period prior to and including the effective date of the dissolution or
liquidation of the Partnership, or (iii) unless arrangements have been made for
the continuation of such Options or the economic equivalent thereof, during the
30-day period prior to and including the effective date of (A) the sale of all
or substantially all the assets of the Partnership or (B) the merger or
consolidation of the Partnership with another entity in which the Partnership
(or any successor entity in which the Unitholders of the Partnership hold at
least fifty percent (50%) of the total common equity outstanding immediately
following the transaction) is not the surviving entity, in each case in a
transaction effectively constituting a sale of the Partnership or its business
to a third party or parties (and accordingly not in connection with a
Restructuring).  The Partnership shall give written notice to any Optionee that
Options held hereunder have become exercisable under the circumstances described
in clause (ii) or (iii) of this paragraph at least thirty (30) days prior to the
effective date of the relevant transaction.  Except as otherwise determined by
the Committee in connection with the grant of Options, in any of the
circumstances set forth in clauses (i), (ii) or (iii) hereof, Options held by
the relevant Optionee shall be exercisable only to the extent vested as of the
date of 

                                       9
<PAGE>
 
exercise, and Options (including vested Options and any unvested Options) held
upon the first to occur of (x) the expiration of any period set forth in clause
(ii) or (iii) of this paragraph, or (y) the date which is the end of the
Partnership's tenth full fiscal year after the date of grant of the relevant
Options, shall expire and terminate.

          (c)   No portion of an Option which is unexercisable at Termination of
Employment or Termination of Consultancy, as applicable, shall thereafter become
exercisable, except as may be otherwise provided by the Committee either in the
Unit Option Agreement or by action of the Committee following the grant of the
Option.

          (d)   To the extent that the aggregate Fair Market Value of Class B
Units 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 unit option plans of the Partnership and any
Corporate Subsidiary or Partnership Subsidiary) exceeds $100,000, such Options
shall be treated as Non-Qualified Unit 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(d), the Fair Market Value of Class B Units shall be
determined as of the time the Option with respect to such Class B Units is
granted.

          4.5   Consideration.  In consideration of the granting of an Option,
                -------------                                                 
the Optionee shall agree, in the written Unit Option Agreement, to remain in the
employ of, or to consult for, the Partnership or any Corporate Subsidiary or
Partnership Subsidiary for a period of at least one year (or such shorter period
as may be fixed in the Unit Option Agreement or by action of the Committee
following the grant of the Option) after the Option is granted.  Nothing in this
Plan or in any Unit Option Agreement hereunder shall confer upon any Optionee
any right to continue in the employ of, or as a consultant for, the Partnership
or any Corporate Subsidiary or Partnership Subsidiary, or shall interfere with
or restrict in any way the rights of the Partnership and any Corporate
Subsidiary or Partnership 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 Class B Units and the Committee may require that, by the terms of the
Option, a partial exercise be made with respect to a minimum number of Class B
Units.

          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 Partnership or his office:

                                       10
<PAGE>
 
          (a)   A written notice complying with the applicable rules established
by the Committee or the Board 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;

          (b)   Such representations and documents as the Committee or the
Board, in its absolute discretion, deems necessary or advisable to effect
compliance with all applicable provisions of the Securities Act and any other
federal or state securities laws or regulations.  The Committee or Board may, in
its absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance including, without limitation, placing
legends on Unit 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 Partnership for the
Class B Units with respect to which the Option, or portion thereof, is
exercised.  However, the Committee may in its discretion (i) allow a delay in
payment up to thirty (30) days from the date the Option, or portion thereof, is
exercised; (ii) allow payment, in whole or in part, through the delivery of
Class B Units owned by the Optionee, duly endorsed for transfer to the
Partnership with a Fair Market Value on the date of delivery equal to the
aggregate exercise price of the Option or exercised portion thereof; (iii)
subject to the timing requirements of Section 5.3, allow payment, in whole or in
part, through the surrender of Class B Units 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 (vi) allow payment through any combination of the consideration
provided in the foregoing subparagraphs (ii), (iii), (iv) and (v).  In the case
of a promissory note, the Committee 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 Partnership when
or where such loan or other extension of credit is prohibited by law.

          5.3   Certain Timing Requirements.  At the discretion of the
                ---------------------------                           
Committee, Class B Units issuable to the Optionee upon exercise of the Option
may be used to satisfy the Option exercise price or the tax withholding
consequences of such exercise, in the case of persons subject to Section 16 of
the Exchange Act, only (i) during the period beginning on the third business day
following the date of release of the quarterly or annual summary statement of
sales and earnings of the Partnership and ending on the twelfth business day
following such date or (ii) pursuant to an irrevocable written election by the
Optionee to use Class B Units issuable to the Optionee upon exercise of the
Option to pay all or part of the Option price or the 

                                       11
<PAGE>
 
withholding taxes made at least six months prior to the payment of such Option
price or withholding taxes.

          5.4   Conditions to Issuance of Unit Certificates.  The Partnership
                -------------------------------------------                  
shall not be required to issue or deliver any certificate or certificates for
Class B Units purchased upon the exercise of any Option or portion thereof prior
to fulfillment of all of the following conditions:

          (a)   The completion of any registration or other qualification of
such Class B Units 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;

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

          (c)   The lapse of such reasonable period of time following the
exercise of the Option as the Committee or Board may establish from time to time
for reasons of administrative convenience; and

          (d)   The receipt by the Partnership of full payment for such Class B
Units, including payment of any applicable withholding tax.

          5.5   Rights as Unitholders.  The holders of Options shall not be,
                ---------------------                                       
nor have any of the rights or privileges of, Unitholders in respect of any Class
B Units purchasable upon the exercise of any part of an Option unless and until
certificates representing such Class B Units have been issued by the Partnership
to such holders.

          5.6   Ownership and Transfer Restrictions.  The Committee, in its
                -----------------------------------                        
absolute discretion, may impose such restrictions on the ownership and
transferability of Class B Units purchasable upon the exercise of an Option as
it deems appropriate.  Any such restriction shall be set forth in the respective
Unit Option Agreement and may be referred to on the certificates evidencing such
units.  The Committee may require the Employee to give the Partnership prompt
notice of any disposition of Class B Units acquired by exercise of an Incentive
Unit Option within (i) two years from the date of granting such Option to such
Employee or (ii) one year after the transfer of such units to such Employee.
The Committee may direct that the certificates evidencing Class B Units acquired
by exercise of an Option refer to such requirement to give prompt notice of
disposition.

          5.7   Treatment of Issuance of Units Upon Exercise.  In connection
                --------------------------------------------                
with the issuance of any Class B Units upon the exercise of Options hereunder,
the Optionee shall be deemed to have (i) received a cash bonus from the
Partnership equal to the Unit Price (as defined in the Partnership Agreement) on
the date of issuance multiplied by the number of Class B Units issued (without
regard to any withholding that would apply to such bonus if actually paid), less
the Payment paid to the Partnership upon exercise of such Options pursuant to
Section 

                                       12
<PAGE>
 
5.2(d), and (ii) contributed cash in the amount of such cash bonus plus the
Payment to the Partnership as a Contribution in exchange for a Capital Account
(as such terms are defined in the Partnership Agreement) equal, on a per Unit
basis, to the relevant Unit Price on the date of issuance.

                                  ARTICLE VI

                           AWARD OF RESTRICTED UNITS

          6.1   Eligibility.  Any Employee or consultant selected by the
                -----------                                             
Committee pursuant to Section 6.2(a)(i) shall be eligible to be granted
Restricted Units.  Each Independent Board Member shall be eligible to be granted
Restricted Units at the times and in the manner set forth in Section 6.3.

          6.2   Award of Restricted Unit s to Eligible Employees and Consultants
                ----------------------------------------------------------------

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

                   (i) 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 Units; and

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

          (b)   The Committee shall establish the purchase price, if any, and
form of payment for Restricted Units. In all cases, legal consideration shall be
required for each issuance of Restricted Units.

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

          (d)   Notwithstanding anything herein to the contrary, no Restricted
Unit may be granted by the Committee under this Section 6.2 except and unless
the recipient thereof shall have been recommended by the Operating Board of the
Partnership or the Operating Committee thereof.

          6.3   Award of Restricted Unit s to Independent Board Members.  During
                -------------------------------------------------------         
the term of the Plan, each person who is an Independent Board Member shall be
eligible to make an election to receive all or any portion (but with a minimum
of 20%, if any such election is made) of his annual retainer fee in the form of
Restricted Units.  Such an election must be in writing, must be delivered to the
Secretary of the Partnership and shall apply to retainer fees payable from and
after the date that the election is made.  Unless otherwise permitted by the

                                       13
<PAGE>
 
Board, such elections shall be made no more than once with respect to
compensation payable in any calendar year. The number of Restricted Units to be
issued pursuant to such an election shall be determined by dividing the portion
of the Independent Board Member's retainer fee that is to be paid in Restricted
Units by ninety-one percent of the Fair Market Value of a Class B LP Unit on the
date that the Restricted Units are issued.  Restricted Units shall be issued on
the date that the retainer fee would otherwise be paid.  All restrictions on
such units shall lapse at the expiration of the Independent Board Member's term;
provided however, that in no event may Restricted Units be sold, assigned or
otherwise transferred until at least six months have elapsed from (but
excluding) the date on which the Restricted Units were issued.  Unless otherwise
permitted by the Board, an election with respect to compensation payable in a
given calendar year shall be irrevocable.  Upon effectiveness of this Plan, each
Independent Board Member shall be granted _______ Restricted Units, with all
restrictions on such units to lapse (subject to Section 10.5) six months from
(but excluding) the date of grant.

          6.4   Restricted Unit Agreement.  Restricted Units shall be issued
                -------------------------                                   
only pursuant to a written Restricted Unit Agreement, which shall be executed by
the selected key Employee or consultant and an authorized officer of the
Partnership and which shall contain such terms and conditions as the Committee
(or the Board, in the case of Restricted Units granted to Independent Board
Members) shall determine, consistent with this Plan.

          6.5   Consideration.  As consideration for the issuance of Restricted
                -------------                                                  
Units, in addition to payment of any purchase price, the Restricted Unitholder
shall agree, in the written Restricted Unit Agreement, to remain in the employ
of or to consult for the Partnership or any Corporate Subsidiary or Partnership
Subsidiary for a period of at least one year after the Restricted Units are
issued (or such shorter period as may be fixed in the Restricted Unit Agreement
or by action of the Committee following grant of Restricted Units), or, in the
case of Independent Board Members, to serve as an Independent Board Member until
the expiration of their term.  Nothing in this Plan or in any Restricted Unit
Agreement hereunder shall confer on any Restricted Unitholder any right to
continue in the employ of, or as a consultant for, the Partnership or any
Corporate Subsidiary or Partnership Subsidiary, or to serve as an Independent
Board Member, or shall interfere with or restrict in any way the rights of the
Partnership and any Corporate Subsidiary or Partnership Subsidiary, which are
hereby expressly reserved, to discharge or remove any Restricted Unitholder at
any time for any reason whatsoever, with or without good cause.

          6.6   Rights as Unitholders.  Upon delivery of the Restricted Units
                ---------------------                                        
to the escrow holder pursuant to Section 6.9, the Restricted Unitholder shall
have, unless otherwise provided by the Committee (or the Board, in the case of
Restricted Units granted to Independent Board Members), all the rights of a
holder of Class B LP Units with respect to such Class B Units, subject to the
restrictions in his Restricted Unit Agreement, including the right to receive
distributions paid or made with respect to the Class B Units; provided, however,
that in the discretion of the Committee (or the Board, in the case of Restricted
Units granted to Independent Board Members), any extraordinary distributions
with respect to Class B Units shall be subject to the restrictions set forth in
Section 6.7.

                                       14
<PAGE>
 
          6.7   Restriction.  All Restricted Units issued under this Plan
                -----------                                              
(including any Units received by holders thereof with respect to Restricted
Units as a result of unit distributions, unit splits or any other form of
recapitalization) shall, pursuant to the terms of each individual Restricted
Unit Agreement, be subject to such restrictions as the Committee (or the Board,
in the case of Restricted Units granted to Independent Board Members) shall
provide, which restrictions may include, without limitation, restrictions
concerning voting rights and transferability and restrictions based on duration
of employment with the Partnership, Partnership performance and individual
performance; provided, however, that no Restricted Units granted to a person
subject to Section 16 of the Exchange Act shall be sold, assigned or otherwise
transferred until at least six months have elapsed from (but excluding) the date
on which the Restricted Units were issued, and provided, further, that by action
taken after Restricted Units are issued, the Committee (or the Board, in the
case of Restricted Units granted to Independent Board Members) 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 Unit Agreement.
Restricted Units may not be sold or encumbered until all restrictions are
terminated or expire.  Unless provided otherwise by the Committee (or the Board,
in the case of Restricted Units granted to Independent Board Members), if no
consideration was paid by the Restricted Unitholder upon issuance, a Restricted
Unitholder's rights in unvested Restricted Units shall lapse upon Termination of
Employment or, if applicable, upon Termination of Consultancy or Termination of
Membership with the Partnership.

          6.8   Repurchase of Restricted Units.  The Committee (or the Board,
                ------------------------------                               
in the case of Restricted Units granted to Independent Board Members) shall
provide in the terms of each individual Restricted Unit Agreement that the
Partnership shall have the right to repurchase from the Restricted Unitholder
the Restricted Units then subject to restrictions under the Restricted Unit
Agreement immediately upon a Termination of Employment or, if applicable, upon a
Termination of Consultancy or Termination of Membership between the Restricted
Unitholder and the Partnership, at a cash price per Restricted Unit equal to the
price per Class B Unit paid by the Restricted Unitholder for such Restricted
Units; provided, however, that provision may be made that no such right of
repurchase shall exist in the event of a Termination of Employment, Termination
of Consultancy or Termination of Membership without cause, or following a change
in control of the Partnership or because of the Restricted Unitholder's
retirement, death, disability or otherwise.

          6.9   Escrow.  The Secretary of the Partnership, or such other escrow
                ------                                                         
holder as the Committee (or the Board, in the case of Restricted Units granted
to Independent Board Members) may appoint, shall retain physical custody of each
certificate representing Restricted Units until all of the restrictions imposed
under the Restricted Unit Agreement with respect to the Class B Units evidenced
by such certificate expire or shall have been removed.

          6.10  Legend.  In order to enforce the restrictions imposed upon
                ------                                                    
Restricted Units hereunder, the Committee (or the Board, in the case of
Restricted Units granted to Independent Board Members) shall cause a legend or
legends to be placed on certificates representing all Restricted Units that are
still subject to restrictions under Restricted Unit 

                                       15
<PAGE>
 
Agreements, which legend or legends shall make appropriate reference to the
conditions imposed thereby.

                                  ARTICLE VII

                        UNIT PAYMENTS AND DEFERRED UNITS

          7.1   Unit Payments.  Any key Employee or consultant selected by the
                -------------                                                 
Committee may receive Unit Payments in the manner determined from time to time
by the Committee.  The number of Class B LP Units 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 Units or other specific performance criteria
determined appropriate by the Committee, determined on the date such Unit
Payment is made or on any date thereafter.  Notwithstanding anything herein to
the contrary, no Unit Payment may be granted by the Committee except and unless
the recipient thereof shall have been recommended by the Operating Board of the
Partnership or the Operating Committee thereof.

          7.2   Deferred Units.  Any key Employee or consultant selected by the
                --------------                                                 
Committee may be granted an award of Deferred Units in the manner determined
from time to time by the Committee.  The number of Deferred Units 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 Class B LP Units 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.  Class B Units underlying a Deferred Unit award will not be issued
until the Deferred Unit award has vested, pursuant to a vesting schedule or
performance criteria set by the Committee; provided however, that no Deferred
Units granted to a person subject to Section 16 of the Exchange Act shall vest
until at least six months have elapsed from (but excluding) the date on which
the Deferred Units were issued.  Unless otherwise provided by the Committee, a
Grantee of Deferred Units shall have no rights as a Unitholder with respect to
such Deferred Units until such time as the award has vested and the Class B
Units underlying the award have been issued.  Notwithstanding anything herein to
the contrary, no Deferred Units may be granted by the Committee except and
unless the recipient thereof shall have been recommended by the Operating Board
of the Partnership or the Operating Committee thereof.

          7.3   Deferred Unit Agreement, Unit Payment Agreement.  Each award of
                -----------------------------------------------                
Deferred Units and/or Unit Payments shall be evidenced by a written agreement,
which shall be executed by the Grantee and an authorized officer of the
Partnership and which shall contain such terms and conditions as the Committee
shall determine, consistent with this Plan.

          7.4   Term.  The term of an award of Deferred Units and/or Unit
                ----                                                     
Payments shall be set by the Committee in its discretion.

          7.5   Exercise or Payment Upon Termination of Employment.  An award
                --------------------------------------------------           
of Deferred Units and/or Unit Payments is exercisable or payable only while the
Grantee is an Employee or consultant; provided, however, that the Committee may
determine that the award 

                                       16
<PAGE>
 
of Deferred Units and/or Unit Payments may be exercised or paid subsequent to
Termination of Employment or Termination of Consultancy without cause, or
following a change in control of the Partnership, or because of the Grantee's
retirement, death, disability or otherwise.


          7.6   Consideration.  In consideration of the granting of an award of
                -------------                                                  
Deferred Units and/or Unit Payments, the Grantee shall agree, in a written
agreement, to remain in the employ of, or to consult for, the Partnership or any
Corporate Subsidiary or Partnership Subsidiary for a period of at least one year
after such award of Deferred Units and/or Unit Payments 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 Partnership or any Corporate Subsidiary or Partnership Subsidiary, or
shall interfere with or restrict in any way the rights of the Partnership and
any Corporate Subsidiary or Partnership Subsidiary, which are hereby expressly
reserved, to discharge any Grantee at any time for any reason whatsoever, with
or without good cause.

                                       17
<PAGE>
 
                                 ARTICLE VIII

                            UNIT APPRECIATION RIGHTS

          8.1   Grant of Unit Appreciation Rights.  A Unit Appreciation Right
                ---------------------------------                            
may be granted to any key Employee or consultant selected by the Committee.  A
Unit 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 Unit 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 Unit Appreciation Right Agreement,
which shall be executed by the Grantee and an authorized officer of the
Partnership.  The Committee, in its discretion, may determine whether a Unit
Appreciation Right is to qualify as performance-based compensation as described
in Section 162(m)(4)(C) of the Code and Unit Appreciation Right Agreements
evidencing Unit 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.  Without limiting the generality of the foregoing,
the Committee may, in its discretion and on such terms as it deems appropriate,
require as a condition of the grant of a Unit Appreciation Right to an Employee
or consultant that the Employee or consultant surrender for cancellation some or
all of any unexercised Options or awards of Restricted Units, Deferred Units,
Unit Appreciation Rights, Unit Payments or other rights which have been
previously granted to the Employee or consultant under this Plan or otherwise.
A Unit Appreciation Right, the grant of which is conditioned upon such
surrender, may have an exercise price lower (or higher) than the exercise price
of the surrendered Option or other award, may cover the same (or a lesser or
greater) number of Class B Units as such surrendered Option or other award, may
contain such other terms as the Committee deems appropriate, and shall be
exercisable in accordance with its terms, without regard to the number of Class
B Units, the price, the exercise period or any other term or condition of such
surrendered Option or other award.  Notwithstanding anything herein to the
contrary, no Unit Appreciation Rights may be granted by the Committee except and
unless the recipient thereof shall have been recommended by the Operating Board
of the Partnership or the Operating Committee thereof.

          8.2   Coupled Unit Appreciation Rights
                ---------------------------------

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

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

          (c)   A CUAR shall entitle the Grantee (or other person entitled to
exercise the Option pursuant to this Plan) to surrender to the Partnership
unexercised a portion of the Option to which the CUAR relates (to the extent
then exercisable pursuant to its terms) and to 

                                       18
<PAGE>
 
receive from the Partnership in exchange therefor an amount determined by
multiplying the difference obtained by subtracting the Option exercise price
from the Fair Market Value of a Class B LP Unit on the date of exercise of the
CUAR by the number of Class B LP Units with respect to which the CUAR shall have
been exercised, subject to any limitations the Committee may impose.

          8.3   Independent Unit Appreciation Rights
                -------------------------------------

          (a) An Independent Unit Appreciation Right ("IUAR") shall be unrelated
to any Option and shall have a term set by the Committee.  An IUAR shall be
exercisable in such installments as the Committee may determine; provided,
however, that unless the Committee otherwise provides in the terms of the IUAR,
no IUAR 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 IUAR was granted.  An IUAR shall cover such number of Class B Units
as the Committee may determine.  The exercise price per Class B Unit of Class B
Units subject to each IUAR shall be set by the Committee.  An IUAR is
exercisable only while the Grantee is an Employee or consultant; provided,
however, that the Committee may determine that the IUAR may be exercised
subsequent to Termination of Employment or Termination of Consultancy without
cause, or following a change in control of the Partnership, or because of the
Grantee's retirement, death, disability or otherwise.

          (b) An IUAR shall entitle the Grantee (or other person entitled to
exercise the IUAR pursuant to this Plan) to exercise all or a specified portion
of the IUAR (to the extent then exercisable pursuant to its terms) and to
receive from the Partnership an amount determined by multiplying the difference
obtained by subtracting the exercise price per Class B Unit of the IUAR from the
Fair Market Value of a Class B LP Unit on the date of exercise of the IUAR by
the number of Class B LP Units with respect to which the IUAR 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 or in Class B Units (based on the Fair Market Value of
such Class B Units as of the date the Unit Appreciation Right is exercised) or a
combination thereof, as determined by the Committee.  To the extent such payment
is effected in Class B Units, it shall be made subject to satisfaction of all
provisions of Section 5.4 hereinabove pertaining to Options.

          (b) Grantees of Unit Appreciation Rights who are subject to Section 16
of the Exchange Act may, in the discretion of the Board or Committee, be
required to comply with any timing or other restrictions under Rule 16b-3
applicable to the settlement or exercise of a Unit Appreciation Right.

          8.5   Consideration.  In consideration of the granting of a Unit
                -------------                                             
Appreciation Right, the Grantee shall agree, in the written Unit Appreciation
Right Agreement, to remain in the employ of, or to consult for, the Partnership
or any Corporate Subsidiary or Partnership 

                                       19
<PAGE>
 
Subsidiary for a period of at least one year after the Unit Appreciation Right
is granted (or such shorter period as may be fixed in the Unit Appreciation
Right Agreement or by action of the Committee following grant of the Unit
Appreciation Right). Nothing in this Plan or in any Unit Appreciation Right
Agreement hereunder shall confer on any Grantee any right to continue in the
employ of, or as a consultant for, the Partnership or any Corporate Subsidiary
or Partnership Subsidiary, or shall interfere with or restrict in any way the
rights of the Partnership and any Corporate Subsidiary or Partnership
Subsidiary, which are hereby expressly reserved, to discharge any Grantee at any
time for any reason whatsoever, with or without good cause.

                                  ARTICLE IX

                                ADMINISTRATION

          9.1   Unit Incentive Committee.  The Unit Incentive Committee (or a
                ------------------------                                     
subcommittee of the Board assuming the functions of the Committee under this
Plan) shall consist of two or more Independent Board Members appointed by and
holding office at the pleasure of the Board, each of whom is a "disinterested
person" as defined by Rule 16b-3 and, if such person were a director of a
corporation, would otherwise meet the requirements for an "outside director" for
purposes of Section 162(m) of the Code.  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 or awards of Restricted Units, Deferred
Units, Unit Appreciation Rights or Unit 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 Restricted Units granted to Independent Board Members.  Any such
grant or award under this Plan need not be the same with respect to each
Optionee, Grantee or Restricted Unitholder.  Any such interpretations and rules
with respect to Incentive Unit 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.

                                       20
<PAGE>
 
          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 Partnership.  The Committee may, with the approval of
the Board, employ attorneys, consultants, accountants, appraisers, brokers or
other persons.  The Committee, the Partnership and the Partnership's officers
and Board Members 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 Unitholders, the
Partnership 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
Units, Deferred Units, Unit Appreciation Rights or Unit Payments, and all
members of the Committee and the Board shall be fully protected by the
Partnership in respect of any such action, determination or interpretation.

                                   ARTICLE X

                           MISCELLANEOUS PROVISIONS

          10.1  Not Transferable.  Options, Restricted Unit awards, Deferred
                ----------------                                            
Unit awards, Unit Appreciation Rights or Unit 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 units underlying such rights
or awards have been issued, and all restrictions applicable to such units have
lapsed.  No Option, Restricted Unit award, Deferred Unit award, Unit
Appreciation Right, Unit Payment or interest or right therein shall be liable
for the debts, contracts or engagements of the Optionee, Grantee or Restricted
Unitholder 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 Unit 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 .  This Plan
                --------------------------------------------------            
may be wholly or partially amended or otherwise modified, suspended or
terminated at any time or from 

                                       21
<PAGE>
 
time to time by the Committee or the Board. However, without approval of the
Partnership's Unitholders given within twelve months before or after the action
by the Committee, no action of the Committee may, except as provided in Section
10.3, increase the limits imposed in Section 2.1 on the maximum number of Class
B Units which may be issued under this Plan or modify the Award Limit, and no
action of the Committee may be taken that would otherwise require Unitholder
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 Unit awards, Deferred Unit awards, Unit Appreciation
Rights or Unit Payments, alter or impair any rights or obligations under any
Options, Restricted Unit awards, Deferred Unit awards, Unit Appreciation Rights
or Unit Payments theretofore granted or awarded, unless the award itself
otherwise expressly so provides. No Options, Restricted Units, Deferred Units,
Unit Appreciation Rights or Unit Payments may be granted or awarded during any
period of suspension or after termination of this Plan, and in no event may any
Incentive Unit 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 Partnership's Unitholders under Section 10.5.

          10.3  Changes in Units or Assets of the Partnership ; Acquisition or
                --------------------------------------------------------------
Liquidation of the Partnership and Other Corporate Events.
--------------------------------------------------------- 

          (a)   Subject to Section 10.3(e) but notwithstanding any other term of
this Plan, in the event that the Committee determines that any unit distribution
(whether in the form of cash, units, other securities or other property),
recapitalization, reclassification, unit split, reverse unit 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 Partnership, or
exchange of units or other securities of the Partnership, any issuance of
warrants or other rights to purchase units or other securities of the
Partnership, or any other similar transaction or event, in the Committee's sole
discretion (or in the case of Restricted Units granted to Independent Board
Members, the Board's sole discretion), affects the Units 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 Unit award, Unit
Appreciation Right, Deferred Unit award or Unit Payment, then the Committee (or
the Board, in the case of Restricted Units granted to Independent Board Members)
shall, in such manner as it may deem equitable, adjust any or all of:

                   (i) the number and kind of units (or other securities or
     property) with respect to which Options, Unit Appreciation Rights or Unit
     Payments may be granted under the Plan, or which may be granted as
     Restricted Units or Deferred Units (including, but not limited to,
     adjustments of the limitations in Section 2.1 or the 

                                       22
<PAGE>
 
     maximum number and kind of Class B Units which may be issued and
     adjustments of the Award Limit),

                 (ii) the number and kind of units (or other securities or
     property) subject to outstanding Options, Unit Appreciation Rights or Unit
     Payments, and in the number and kind of outstanding Restricted Units or
     Deferred Units, and

                 (iii) the grant or exercise price with respect to any Option,
     Unit Appreciation Right or Unit Payment.

          (b)   Subject to Section 10.3(e) but notwithstanding any other term of
this Plan, in the event of any transaction or other event described in Section
10.3(a) which results in Class B Units being exchanged for or converted into
cash, securities (including securities of another partnership or a corporation)
or other property, the Committee will have the right to terminate this Plan as
of the date of the event or transaction, in which case all Options, rights and
other awards granted under this Plan shall become the right to receive such
cash, securities or other property, net of any applicable exercise price.

          (c)   Subject to Section 10.3(e) but notwithstanding any other term of
this Plan, in the event of any transaction or other event described in Section
10.3(a) or any unusual or nonrecurring transactions or events affecting the
Partnership, any affiliate of the Partnership, or the financial statements of
the Partnership or any affiliate, or of changes in applicable laws, regulations
or accounting principles, the Committee (or the Board, in the case of Restricted
Units granted to Independent Board Members) 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 Restricted Units granted to Independent
Board Members) 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 Restricted Units granted to Independent Board Members) may provide,
     either automatically or upon the Optionee's request, for (x) the purchase
     of any such Option, Unit Appreciation Right or Unit Payment, or any
     Restricted Units or Deferred Units for an amount of cash equal to the
     amount that could have been attained upon the exercise of such Option,
     right or award, (y) realization of the Optionee's rights had such Option,
     right or award been currently exercisable or payable or (z) the replacement
     of such Option, right or award with other rights or property selected by
     the Committee (or the Board, in the case of Restricted Units granted to
     Independent Board Members);

                 (ii) In its sole and absolute discretion, the Committee (or the
     Board, in the case of Restricted Units granted to Independent Board
     Members) may provide, either by the terms of such Option, Unit Appreciation
     Right, Unit Payment, award of 

                                       23
<PAGE>
 
     Restricted Units or Deferred Units or by action taken prior to the
     occurrence of such transaction or event that it cannot be exercised 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 Restricted Units granted to Independent Board Members) may provide,
     either by the terms of such Option, Unit Appreciation Right, Unit Payment,
     Restricted Unit or Deferred Unit 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 units covered thereby, notwithstanding anything to the contrary
     in (i) Section 4.4 or (ii) the provisions of such Option, Unit Appreciation
     Right or Unit Payment, or Restricted Unit or Deferred Unit.

                 (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 Restricted Units granted to Independent Board Members) may provide,
     either by the terms of such Option, Unit Appreciation Right, Unit Payment,
     award of Restricted Units or Deferred Units or by action taken prior to the
     occurrence of such transaction or event, that upon such event, such Option,
     right or award shall be assumed by the successor partnership or
     corporation, or a parent or subsidiary thereof, or shall be substituted for
     by options, rights or awards covering securities of the successor, or a
     parent or subsidiary thereof, with appropriate adjustments as to the number
     and kind of securities and prices; and

                 (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 Restricted Units granted to Independent Board Members) may make
     adjustments in the number and kind of units (or other securities or
     property) subject to outstanding Options, Unit Appreciation Rights or Unit
     Payments, and in the number and kind of outstanding Restricted Units or
     Deferred Units 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 (or the Board in the case
     of Restricted Units granted to Independent Board Members) may provide
     either by the terms of a Restricted Unit award or Deferred Unit award or by
     action taken prior to the occurrence of such transaction or event that, for
     a specified period of time prior to such event, the restrictions imposed
     under a Restricted Unit Agreement or a Deferred Unit Agreement upon some or
     all Restricted Units or Deferred Units may be terminated, and, in the case
     of Restricted Units, that some or all of such Restricted Units may cease to
     be subject to repurchase under Section 6.8 after such event.

               (vii)  None of the foregoing discretionary terms of this Section
     10.3(c) shall be permitted with respect to Restricted Units granted under
     Section 6.3 to 

                                       24
<PAGE>
 
     Independent Board Members to the extent that such discretion would be
     inconsistent with the requirements of Rule 16b-3.

          (d)   Subject to Section 10.3(e) and 10.9, the Committee (or the Board
in the case of Restricted Units granted to Independent Board Members) may, in
its discretion, include such further provisions and limitations in any Option,
Unit Appreciation Right, Unit Payment or Restricted Unit or Deferred Unit
agreement or certificate, as it may deem equitable and in the best interests of
the Partnership.

          (e)   With respect to Incentive Unit Options and Options and Unit
Appreciation Rights intended to qualify as performance-based compensation under
Section 162(m), 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 Unit Appreciation Right to fail to so qualify
under Section 162(m), 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 violate Section 16 or the exemptive conditions of
Rule 16b-3.  The number of Class B Units subject to any Option, right or award
shall always be rounded to the next whole number.

          10.4  Restructuring.  In the event of a Restructuring or similar
                -------------                                             
transaction, the Committee (or the Board, in the case of Restricted Units
granted to Independent Board Members) shall make such adjustments as it deems
appropriate and equitable in the number and kind of units (or other securities
or property) subject to outstanding Options, Unit Appreciation Rights or Unit
Payments, and in the number and kind of outstanding Restricted Units or Deferred
Units 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; and, in
particular, shall have the right to cause any outstanding awards under this Plan
to be assumed by, and converted into awards for the securities of, any corporate
or other successor issuer to the publicly-traded securities of the Partnership.

          10.5  Approval of Plan by Unitholders.  This Plan will be submitted
                -------------------------------                              
for the approval of the Partnership's Unitholders within twelve months after the
date of the Board's initial adoption of the Plan.  Options, Unit Appreciation
Rights or Unit Payments may be granted and Restricted Units or Deferred Units
may be awarded prior to such Unitholder approval, provided that such Options,
Unit Appreciation Rights or Unit Payments shall not be exercisable and such
Restricted Units or Deferred Units shall not vest prior to the time when this
Plan is approved by the Unitholders, and provided further that if such approval
has not been obtained at the end of said twelve-month period, all Options, Unit
Appreciation Rights or Unit Payments previously granted and all Restricted Units
or Deferred Units previously awarded under this Plan shall thereupon be
cancelled and become null and void.

          10.6  Tax Withholding.  The Partnership shall be entitled to require
                ---------------                                               
payment in cash or deduction from other compensation payable to each Optionee,
Grantee or Restricted 

                                       25
<PAGE>
 
Unitholder of any sums required by federal, state or local tax law to be
withheld with respect to the issuance, vesting or exercise of any Option,
Restricted Unit, Deferred Unit, Unit Appreciation Right or Unit Payment. Subject
to the timing requirements of Section 5.3, the Committee (or the Board, in the
case of Restricted Units granted to Independent Board Members) may in its
discretion and in satisfaction of the foregoing requirement allow such Optionee,
Grantee or Restricted Unitholder to elect to have the Partnership withhold Class
B Units otherwise issuable under such Option or other award (or allow the return
of Class B Units) having a Fair Market Value equal to the sums required to be
withheld.

          10.7  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, Unit Appreciation Right or Unit Payment granted under this Plan, or the
issuance of Restricted Units or Deferred Units awarded under this Plan.  The
terms and conditions of any such loan shall be set by the Committee.

          10.8  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 Restricted Units granted to Independent
Board Members) shall have the right (to the extent consistent with the
requirements 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 Class B Units underlying such award,
must be paid to the Partnership, 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
Membership 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
Partnership, or which is inimical, contrary or harmful to the interests of the
Partnership, as further defined by the Committee (or the Board, as applicable).

          10.9  Limitations Applicable to Section 16 Persons  and Performance-
                -------------------------------------------------------------
Based Compensation.  Notwithstanding any other provision of this Plan, this
------------------                                                         
Plan, and any Option, Unit Appreciation Right or Unit Payment granted, or
Restricted Units or Deferred Units 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, Unit Appreciation Rights, Unit
Payments, Restricted Units and Deferred Units 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 Plan,
any Option or Unit Appreciation Right 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 

                                       26
<PAGE>
 
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.

          10.10  Effect of Plan Upon Options and Compensation Plans.  The
                 --------------------------------------------------      
adoption of this Plan shall amend, restate and supersede in its entirety the
Partnership's Class B LP Unit Option Plan, but shall not affect any other
compensation or incentive plans in effect for the Partnership or any Corporate
Subsidiary or Partnership Subsidiary.  Nothing in this Plan shall be construed
to limit the right of the Partnership (i) to establish any other forms of
incentives or compensation for Employees, Independent Board Members or
consultants of the Partnership or any Corporate Subsidiary or Partnership
Subsidiary or (ii) to grant or assume options or other rights otherwise than
under this Plan in connection with any lawful partnership action 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, units or assets of any corporation, partnership, firm or
association.

          10.11  Compliance with Laws.  This Plan, the granting and vesting of
                 --------------------                                         
Options, Restricted Unit awards, Deferred Unit awards, Unit Appreciation Rights
or Unit Payments under this Plan and the issuance and delivery of Units and the
payment of money under this Plan or under Options, Unit Appreciation Rights or
Unit Payments granted or Restricted Units or Deferred Units 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 laws
and federal margin requirements) and to such approvals by any listing,
regulatory or governmental authority as may, in the opinion of counsel for the
Partnership, 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 Partnership, provide such
assurances and representations to the Partnership as the Partnership may deem
necessary or desirable to assure compliance with all applicable legal
requirements.  To the extent permitted by applicable law, the Plan, Options,
Restricted Unit awards, Deferred Unit awards, Unit Appreciation Rights or Unit
Payments granted or awarded hereunder shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.

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

          10.13  Governing Law.  This Plan and any agreements hereunder shall be
                 -------------
administered, interpreted and enforced under the internal laws of the State of
California without regard to conflicts of laws thereof.

                                       27
<PAGE>
 
                                    *  *  *

          I hereby certify that the foregoing Plan was duly adopted by the
Equity Board of PIMCO Advisors L.P. effective December 1, 1996.

          Executed on this ____ day of _______________, 199__.



 
                                     ------------------------------------------
                                     By:  William D. Cvengros
                                          Chief Executive Officer

                                       28