<PAGE>
 
                                                                   Exhibit 10.17







                    EVEREST HEALTHCARE SERVICES CORPORATION

                             1998 STOCK AWARD PLAN
<PAGE>
 
                               TABLE OF CONTENTS
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ARTICLE I    ESTABLISHMENT....................................  1

        1.1  Purpose..........................................  1

ARTICLE II   DEFINITIONS......................................  1

        2.1  "Agreement" or "Award Agreement".................  1
        2.2  "Award"..........................................  1
        2.3  "Beneficiary"....................................  1
        2.4  "Board of Directors" or "Board"..................  1
        2.5  "Cause"..........................................  1
        2.6  "Code" or "Internal Revenue Code"................  2
        2.7  "Commission".....................................  2
        2.8  "Committee"......................................  2
        2.9  "Common Stock"...................................  2
       2.10  "Company"........................................  2
       2.11  "Company Affiliate"..............................  2
       2.12  "Disability".....................................  2
       2.13  "Effective Date".................................  3
       2.14  "Exchange Act"...................................  3
       2.15  "Fair Market Value"..............................  3
       2.16  "Grant Date".....................................  3
       2.17  "Incentive Stock Option".........................  3
       2.18  "Non-Qualified Stock Option".....................  3
       2.19  "Option".........................................  3
       2.20  "Option Period"..................................  3
       2.21  "Option Price"...................................  3
       2.22  "Participant"....................................  3
       2.23  "Plan"...........................................  4
       2.24  "Representative".................................  4
       2.25  "Restricted Stock"...............................  4
       2.26  "Retirement".....................................  4
       2.27  "Rule 144".......................................  4
       2.28  "Rule 16b-3"and "Rule 16a-1(c)(3)"...............  4
       2.29  "Securities Act".................................  4
       2.30  "Stock Option"...................................  5
       2.31  "Subscription Agreement".........................  5
       2.33  "Transfer".......................................  5

ARTICLE III  ADMINISTRATION...................................  5

        3.1  Committee Structure and Authority................  5
</TABLE>
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ARTICLE IV    STOCK SUBJECT TO PLAN..........................   8

         4.1  Number of Shares...............................   8
         4.2  Release of Shares..............................   8
         4.3  Restrictions on Shares.........................   8
         4.4  Stockholder Rights.............................   9
         4.5  Anti-Dilution..................................   9

ARTICLE V     ELIGIBILITY....................................  10

         5.1  Eligibility....................................  10

ARTICLE VI    STOCK OPTIONS..................................  10

         6.1  Grant of Stock Options to Participants.........  10
         6.2  Terms and Conditions...........................  11
         6.3  Termination by Reason of Death.................  14
         6.4  Termination by Reason of Disability............  14
         6.5  Other Termination..............................  14
         6.6  Certain Rights upon Termination of Employment
              Prior to a Public Offering.....................  14

ARTICLE VII   RESTRICTED STOCK...............................  14

         7.1  General........................................  14
         7.2  Awards and Certificates........................  15
         7.3  Terms and Conditions...........................  15

ARTICLE VIII  PROVISIONS APPLICABLE TO STOCK
              ACQUIRED UNDER THE PLAN........................  16

         8.1  Restriction on Disposition.....................  16
         8.2  Subscription Agreement.........................  17
         8.3  No Company Obligation..........................  17
         8.4  Limited Transfer During Offering...............  17

ARTICLE IX    CHANGE IN CONTROL PROVISIONS...................  17

         9.1  Impact of Event................................  17
         9.2  Sale of the Company............................  18

ARTICLE X     MISCELLANEOUS..................................  19
</TABLE> 


                                     -ii-
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        10.1  Amendments and Termination.....................  19
        10.2  Form and Timing of Payment Under Awards;
              Deferrals......................................  19
        10.3  Status of Awards Under Code Section 162(m).....  20
        10.4  Unfunded Status of Plan; Limits on
              Transferability................................  20
        10.5  General Provisions.............................  20
        10.6  Mitigation of Excise Tax.......................  22
        10.7  Rights with Respect to Continuance of
              Employment.....................................  22
        10.8  Awards in Substitution for Awards Granted
              by Other Corporations..........................  23
        10.9  Procedure for Adoption.........................  23
       10.10  Procedure for Withdrawal.......................  23
       10.11  Delay..........................................  23
       10.12  Headings.......................................  23
       10.13  Severability...................................  23
       10.14  Successors and Assigns.........................  24
       10.15  Entire Agreement...............................  24
</TABLE>







                                     -iii-
<PAGE>
 
                    EVEREST HEALTHCARE SERVICES CORPORATION
                             1998 STOCK AWARD PLAN


                                   ARTICLE I
                                   ---------

                                 ESTABLISHMENT
                                 -------------

      1.1 Purpose.

     The Everest Healthcare Services Corporation 1998 Stock Award Plan ("Plan")
is hereby established by Everest Healthcare Services Corporation ("Company")
effective as of March 5, 1998.  The purpose of the Plan is to promote the
overall financial objectives of the Company and its stockholders by motivating
those persons selected to participate in the Plan to achieve long-term growth in
stockholder equity in the Company and by retaining the association of those
individuals who are instrumental in achieving this growth.


                                   ARTICLE II
                                   ----------

                                  DEFINITIONS
                                  -----------

     For purposes of the Plan, the following terms are defined as set forth
below:

      2.1 "Agreement" or "Award Agreement" means, individually or collectively,
any agreement entered into pursuant to the Plan pursuant to which an Award is
granted to a Participant.

      2.2 "Award" means any Option or Restricted Stock, together with any other
right or interest, granted to a Participant under the Plan.

      2.3 "Beneficiary" means any person, trust or other entity which has been
designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefits specified under the
Plan upon such Participant's death or to which Awards or other rights are
transferred if and to the extent permitted hereunder.  If, upon a Participant's
death, there is no designated Beneficiary or surviving designated Beneficiary,
then the term Beneficiary means the person, trust or other entity entitled by
will or the laws of descent and distribution to receive such benefits.

      2.4 "Board of Directors" or "Board" means the Board of Directors of the
Company.

      2.5 "Cause" shall mean, for purposes of whether and when a Participant has
incurred a Termination of Employment for Cause, any act or an act of omission
which permits the Company or a Company Affiliate to terminate the employment of
the 
<PAGE>
 
Participant by the Company or a Company Affiliate for "cause" as defined in
such agreement or arrangement, or in the event there is no such agreement or
arrangement or the agreement or arrangement does not define the term "cause" or
a substantially equivalent term, then Cause shall mean (a) any act or failure to
act deemed to constitute cause under the Company's practices, policies or
guidelines applicable to the Participant or (b) the Participant's act or an act
of omission which constitutes gross misconduct with respect to the Company or a
Company Affiliate in any material respect, including, without limitation, an
act, or act of omission, of a criminal nature, the result of which is
detrimental to the interests of the Company or a Company Affiliate, or conduct,
or the omission of conduct, which constitutes a material breach of a duty the
Participant owes to the Company or a Company Affiliate.

      2.6 "Code" or "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, Treasury Regulations (including proposed regulations)
thereunder and any subsequent Internal Revenue Code.

      2.7 "Commission" means the Securities and Exchange Commission or any
successor agency.

      2.8 "Committee" means the person or persons appointed to administer this
Plan as further described herein.

      2.9 "Common Stock" means the shares of the regular voting Common Stock,
$.001 par value per share, of the Company, whether presently or hereafter
issued, and any other stock or security resulting from adjustment thereof as
described hereinafter or the common stock of any successor to the Company which
is designated for the purpose of the Plan.

      2.10 "Company" means Everest Healthcare Services Corporation, a
Delaware corporation, and includes any successor or assignee corporation or
corporations into which the Company may be merged, changed or consolidated, any
corporation for whose securities all or substantially all of the securities of
the Company shall be exchanged, and any assignee of or successor to all or
substantially all of the assets of the Company.

      2.11 "Company Affiliate" means any individual, corporation, partnership,
limited liability company, association, joint-stock company, trust,
unincorporated association or other entity (other than the Company) that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the Company including, without
limitation, any member of an affiliated group of which the Company is a common
parent corporation as provided in Section 1504 of the Code.

      2.12 "Disability" means any mental or physical illness, disability or
incapacity to the extent that the Participant shall be unable to perform his or
her duties, or the 

                                      -2-
<PAGE>
 
absence of the Participant with the Company or a Company Affiliate employment by
reason of any mental or physical illness, disability or incapacity for a period
of three months during any six-month period; provided, however, in either case,
that such illness, disability or incapacity shall be determined to be of a
permanent nature by a licensed physician selected by the Committee and
reasonably acceptable to the Participant. Notwithstanding the foregoing, a
Disability shall not qualify under this Plan if it is the result of (i) a
willfully self-inflicted injury or willfully self-induced sickness; or (ii) an
injury or disease contracted, suffered, or incurred while participating in a
criminal offense. The determination of Disability shall be made by the
Committee. The determination of Disability for purposes of this Plan shall not
be construed to be an admission of disability for any other purpose.

      2.13 "Effective Date" means March 5, 1998.

      2.14 "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.

      2.15 "Fair Market Value" means (a) prior to the date the Common Stock
is traded on a regular securities market, the fair market value as determined in
the sole discretion of the Committee; and (b) after the date the Common Stock is
traded on a regular securities market, unless otherwise determined by the
Committee, the fair market value per share of Common Stock as of any given date
shall be the closing sale price per share reported on a consolidated basis for
stock listed on the principal stock exchange or market on which Common Stock is
traded on the date as of which such value is being determined or, if there is no
sale on that date, then on the last previous day on which a sale was reported.

      2.16 "Grant Date" means the date as of which an Award is granted
pursuant to the Plan.

      2.17 "Incentive Stock Option" means any Stock Option intended to be
and designated as an "incentive stock option" within the meaning of Section 422
of the Code.

      2.18 "Non-Qualified Stock Option" means an Option to purchase Common
Stock in the Company granted under the Plan, the taxation of which is pursuant
to Section 83 of the Code.

      2.19 "Option" means a right, granted to a Participant under Section
6.1 hereof, to purchase Common Stock at a specified price during specified time
periods, or at a time based upon criteria determined by the Committee.

      2.20 "Option Period" means the period during which an Option shall be
exercisable in accordance with the related Agreement and Article VI.

                                      -3-
<PAGE>
 
      2.21 "Option Price" means the price at which the Common Stock may be
purchased under an Option as provided in Section 6.3(b).

      2.22 "Participant" means a person who satisfies the eligibility
conditions of Article V and to whom an Award has been granted by the Committee
under the Plan, and in the event a Representative is appointed for a Participant
or another person becomes a Representative, then the term "Participant" shall
mean such Representative.  The term shall also include a trust for the benefit
of the Participant, a partnership the interest of which is held by or for the
benefit of the Participant, the Participant's parents, spouse or descendants, or
a custodian under a uniform gifts to minors act or similar statute for the
benefit of the Participant's descendants, to the extent permitted by the
Committee and not inconsistent with Rule 16b-3 (if relevant) or the status of
the Option as an Incentive Stock Option, if intended. Notwithstanding the
foregoing, the term "Termination of Employment" shall mean the Termination of
Employment of the person to whom the Award was originally granted.

      2.23 "Plan" means the Everest Healthcare Services Corporation 1998
Stock Award Plan, as herein set forth and as may be amended from time to time.

      2.24 "Representative" means (a) the person or entity acting as the
executor or administrator of a Participant's estate pursuant to the last will
and testament of a Participant or pursuant to the laws of the jurisdiction in
which the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
Beneficiary of the Participant upon or following the Participant's death; or (d)
any person who has acquired any right, title or interest in or to the Common
Stock or an Option whether pursuant to community property law or other laws of
any jurisdiction by reason of the death of the Participant, or to whom an Option
has been transferred with the permission of the Committee or by operation of
law; provided, that only one of the foregoing shall be the Representative at any
point in time as determined under applicable law and recognized by the
Committee.

      2.25 "Restricted Stock" means Common Stock granted to a Participant
under Section 7.1 hereof that is subject to certain restrictions and to a risk
of forfeiture.

      2.26 "Retirement" means the Participant's Termination of Employment
after attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or a Company Affiliate, if the Participant is covered by such a
plan, or if the Participant is not covered by such a plan, then age 65, or age
55 with the accrual of 10 years of service.

      2.27 "Rule 144" means Rule 144 promulgated under the Securities Act.

                                      -4-
<PAGE>
 
      2.28 "Rule 16b-3"and "Rule 16a-1(c)(3)" mean Rule 16b-3 and Rule 16a-
1(c)(3), as from time to time in effect and applicable to the Plan and
Participants, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act.

      2.29 "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.

      2.30 "Stock Option" means a right, granted to a Participant under Section
6.1 hereof to purchase Common Stock.

      2.31 "Subscription Agreement" means an agreement, the execution of
which is a condition precedent to the Participant's receipt of any shares of
Common Stock hereunder.

     2.32 "Termination of Employment" means the occurrence of any act or event,
whether pursuant to an employment agreement or otherwise, that actually or
effectively causes or results in the person's ceasing, for whatever reason, to
be an officer, independent contractor, director or employee of the Company or of
any Company Affiliate, or to be an officer, independent contractor, director or
employee of any entity that provides services to the Company or a Company
Affiliate, including, without limitation, death, Disability, dismissal,
severance at the election of the Participant, Retirement, or severance as a
result of the discontinuance, liquidation, sale or transfer by the Company or
Company Affiliates of all businesses owned or operated by the Company or Company
Affiliates.  With respect to any person who is not an employee with respect to
the Company or a Company Affiliate, the Agreement shall establish what act or
event shall constitute a Termination of Employment for purposes of the Plan.  A
transfer of employment from the Company to a Company Affiliate, or from a
Company Affiliate to the Company, will not be a Termination of Employment,
unless expressly determined by the Committee.  A Termination of Employment shall
occur for an employee who is employed by a Company Affiliate if the Company
Affiliate shall cease to be a Company Affiliate and the Participant shall not
immediately thereafter become an employee of the Company or a Company Affiliate.

      2.33 "Transfer" means any sale, disposition, assignment, pledge,
hypothecation, encumbrance, transfer, conveyance, gift, alienation or other
transfer.

     In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.

                                      -5-
<PAGE>
 
                                  ARTICLE III
                                  -----------

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

      3.1 Committee Structure and Authority.  Prior to the date of the first
registration of an equity security of the Company under the Exchange Act (the
"Registration Date"), the Plan shall be administered by the Board of Directors
or a committee of one or more persons appointed to administer the Plan by the
Board of Directors.  From and after the Registration Date, the Plan shall be
administered by a committee comprised of one or more persons, which committee
shall be the compensation committee of the Board of Directors, unless such
committee does not exist or the Board establishes or identifies another
committee whose purpose is the administration of this Plan.  Only those members
of the Committee who participate in the decision relative to Awards under this
Plan shall be deemed to be the "Committee" for purposes of this Plan.  A
majority of the Committee shall constitute a quorum at any meeting thereof
(including by telephone conference) and the acts of a majority of the members
present, or acts approved in writing by a majority of the entire Committee
without a meeting, shall be the acts of the Committee for purposes of this Plan.
The Committee may authorize any one or more of its members or an officer of the
Company to execute and deliver documents on behalf of the Committee. A member of
the Committee shall not exercise any discretion with respect to himself or
herself under the Plan.  The Board shall have the authority to remove, replace
or fill any vacancy of any member of the Committee upon notice to the Committee
and the affected member.  Any member of the Committee may resign upon notice to
the Board.  The Committee may allocate among one or more of its members, or may
delegate to one or more of its agents, such duties and responsibilities as it
determines.

     Among other things, the Committee shall have the authority, subject to the
terms of this Plan (including, without limitation, Section 9.1):

          (a) to select those persons to whom Awards may be granted from time to
     time;

          (b) to determine whether and to what extent Awards or any combination
     thereof are to be granted hereunder;

          (c) to determine the number of shares of Common Stock to be covered by
     each Award granted hereunder;

          (d) to determine the terms and conditions of any Award granted
     hereunder (including, but not limited to, the Option Price, the Option
     Period, any exercise restriction or limitation and any exercise
     acceleration, forfeiture or waiver regarding any Award, any shares of
     Common Stock relating thereto, any performance criteria and the
     satisfaction of each criteria);

                                      -6-
<PAGE>
 
          (e) to adjust the terms and conditions, at any time or from time to
     time, of any Award, subject to the limitations of Section 10.1;

          (f) to determine to what extent and under what circumstances Common
     Stock and other amounts payable with respect to an Award shall be deferred;

          (g) to determine under what circumstances an Award may be settled in
     cash or Common Stock;

          (h) to provide for the forms of Agreements to be utilized in
     connection with the Plan;

          (i) to determine whether a Participant has a Disability or a
     Retirement;

          (j) to determine what securities law requirements are applicable to
     the Plan, Awards and the issuance of shares of Common Stock under the Plan
     and to require of a Participant that appropriate action be taken with
     respect to such requirements;

          (k) to cancel, with the consent of the Participant or as otherwise
     provided in the Plan or an Agreement, outstanding Awards;

          (l) to interpret and make final determinations with respect to the
     remaining number of shares of Common Stock available under this Plan;

          (m) to require, as a condition of the exercise of an Award or the
     issuance or transfer of a certificate of Common Stock, the withholding from
     a Participant of the amount of any Federal, state or local taxes as may be
     necessary in order for the Company or any other employer to obtain a
     deduction or as may be otherwise required by law;

          (n) to determine whether and with what effect a Participant has
     incurred a Termination of Employment;

          (o) to determine whether the Company or any other person has a right
     or obligation to purchase Common Stock from a Participant and, if so, the
     terms and conditions on which such Common Stock is to be purchased;

          (p) to determine the restrictions or limitations on the transfer of
     Common Stock obtained under the Plan;

          (q) to determine whether an Award is to be adjusted, modified or
     purchased, or is to become fully exercisable, under the Plan or the terms
     of an Agreement;

                                      -7-
<PAGE>
 
          (r) to determine the permissible methods of Award exercise and
     payment, including cashless exercise arrangements;

          (s) to adopt, amend and rescind such rules and regulations as, in its
     opinion, may be advisable in the administration of the Plan; and

          (t) to appoint and compensate agents, counsel, auditors or other
     specialists to aid it in the discharge of its duties.

     The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan, any Award issued under the Plan and any Subscription Agreement and to
otherwise supervise the administration of the Plan.  The Committee's policies
and procedures may differ with respect to Awards granted at different times or
to different Participants.

     Any determination made by the Committee pursuant to the provisions of the
Plan shall be made in its sole discretion, and in the case of any determination
relating to an Award, may be made at the time of the grant of the Award or,
unless in contravention of any express term of the Plan, an Agreement or
Subscription Agreement, at any time thereafter.  All decisions made by the
Committee pursuant to the provisions of the Plan shall be final and binding on
all persons, including the Company and Participants.  No determination shall be
subject to de novo review if challenged in court.


                                   ARTICLE IV
                                  -----------

                             STOCK SUBJECT TO PLAN
                             ---------------------

      4.1 Number of Shares.  Subject to the adjustment under Section 4.5, the
total number of shares of Common Stock reserved and available for distribution
pursuant to Awards under the Plan shall be 1.5 million shares of Common Stock
authorized for issuance on the Effective Date.  Such shares may consist, in
whole or in part, of authorized and unissued shares or treasury shares.

      4.2 Release of Shares.  Subject to the limitation of Section 4.1, the
Committee shall have full authority to determine the number of shares of Common
Stock available for Award, and in its discretion may include (without
limitation) as available for distribution any shares of Common Stock that have
ceased to be subject to an Award, any shares of Common Stock subject to any
Award that are forfeited, any shares of Common Stock subject to any Stock Option
Award that otherwise terminates without issuance of shares of Common Stock being
made to the Participant, or any shares (whether or not restricted) of Common
Stock that are received by the Company in connection with the exercise of an
Award, including the 

                                      -8-
<PAGE>
 
satisfaction of any tax liability or the satisfaction of a tax withholding
obligation. If any shares could not again be available for Options to a
particular Participant under applicable law, such shares shall be available
exclusively for Options to Participants who are not subject to such limitations.

      4.3 Restrictions on Shares.  Shares of Common Stock issued upon exercise
of a Stock Option as or in conjunction with an Award shall be subject to the
terms and conditions specified herein and to such other terms, conditions and
restrictions as the Committee in its discretion may determine or provide in the
Award Stock Option Agreement or Subscription Agreement.  The Company shall not
be required to issue or deliver any certificates for shares of Common Stock,
cash or other property prior to (a) the listing of such shares on any stock
exchange or NASDAQ (or other public market) on which the Common Stock may then
be listed (or regularly traded), (b) the completion of any registration or
qualification of such shares under Federal or state law, or any ruling or
regulation of any government body which the Committee determines to be necessary
or advisable, and (c) the satisfaction of any applicable withholding obligation
in order for the Company or a Company Affiliate to obtain a deduction with
respect to the exercise of a Stock Option or as may otherwise be required by
law, and (d) the satisfaction of all other conditions under this Plan, an Award
Agreement or Subscription Agreement.  The Company may cause any certificate for
any share of Common Stock to be delivered to be properly marked with a legend or
other notation reflecting the limitations on transfer of such Common Stock as
provided in this Plan or as the Committee may otherwise require.  The Committee
may require any person exercising an Award to make such representations and
furnish such information as it may consider appropriate in connection with the
issuance or delivery of the shares of Common Stock in compliance with applicable
law or otherwise.  All shares of Common Stock issued to a Participant in
connection with an Award shall be subject to the Subscription Agreement.  No
person shall have any right regarding the registration of shares of Common Stock
except and only to the extent expressly provided in the Subscription Agreement
and subject to any requirement or condition imposed by the Company or an
underwriter managing an offering of the Company's securities.  Fractional shares
shall not be delivered, but shall be rounded to the next lower whole number of
shares with appropriate payment for such fractional shares as shall reasonably
be determined by the Committee.

      4.4 Stockholder Rights.  No person shall have any rights of a stockholder
as to shares of Common Stock subject to an Award until, after proper exercise of
the Award and execution of a Subscription Agreement or other action required,
such shares shall have been recorded on the Company's official stockholder
records as having been issued and transferred.  Upon exercise of the Award or
any portion thereof, the Company will have a reasonable time in which to issue
the shares, and the Participant will not be treated as a stockholder for any
purpose whatsoever prior to such issuance.  No adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date such
shares are recorded as issued and 

                                      -9-
<PAGE>
 
transferred in the Company's official stockholder records, except as provided
herein or in an Agreement.

      4.5 Anti-Dilution.  In the event of any Company stock dividend, stock
split, reverse stock split, combination or exchange of shares, recapitalization
or other change in the capital structure of the Company, corporate separation or
division of the Company (including, but not limited to, a split-up, spin-off,
split-off or distribution to Company stockholders other than a normal cash
dividend), sale by the Company of all or a substantial portion of its assets
(measured on either a stand-alone or consolidated basis), reorganization, rights
offering, a partial or complete liquidation, or any other corporate transaction,
Company stock offering or event involving the Company and having an effect
similar to any of the foregoing, then the Committee may adjust or substitute, as
the case may be, the number of shares of Common Stock available for Awards under
the Plan, the number of shares of Common Stock covered by outstanding Awards,
the maximum number of Awards available for grant to any Participant for a stated
period of time (including the maximum number of Stock Appreciation Rights), the
exercise price per share of outstanding Awards, and performance conditions and
any other characteristics or terms of the Awards as the Committee shall deem
necessary or appropriate to reflect equitably the effects of such changes to the
Participants; provided, however, that the Committee may limit any such
adjustment so as to maintain the deductibility of the Awards under Section
162(m) of the Code and that any fractional shares resulting from such adjustment
shall be eliminated by rounding to the next lower whole number of shares with
appropriate payment for such fractional shares as shall reasonably be determined
by the Committee.


                                   ARTICLE V
                                   ---------

                                  ELIGIBILITY
                                  -----------

      5.1 Eligibility.  Except as herein provided, the persons who shall be
eligible to participate in the Plan and be granted Awards shall be those persons
who are directors, officers, employees, independent contractors, or consultants
of the Company or any subsidiary of the Company or professional corporations or
the equivalent owned by such persons, who shall be in a position, in the opinion
of the Committee, to make contributions to the growth, management, protection
and success of the Company and its subsidiaries.  Of those persons described in
the preceding sentence, the Committee may, from time to time, select persons to
be granted Awards and shall determine the terms and conditions with respect
thereto. In making any such selection and in determining the form of the Award
with respect to Participants, the Committee may give consideration to the
person's functions and responsibilities, the person's contributions to the
Company and its subsidiaries, the value of the individual's service to the
Company and its subsidiaries and such other 

                                      -10-
<PAGE>
 
factors deemed relevant by the Committee. The Committee may designate in writing
any person who is not eligible to participate in the Plan if such person would
otherwise be eligible to participate in this Plan.


                                   ARTICLE VI
                                  -----------

                                 STOCK OPTIONS
                                 -------------

      6.1 Grant of Stock Options to Participants.  The Committee shall have
authority to grant Stock Options under the Plan at any time or from time to time
to each Participant as the Committee determines.  The grant of a Stock Option to
such Participants shall occur as of the date the Committee determines.  Stock
Options may be either Incentive Stock Options or Non-Qualified Stock Options.
An Option shall entitle such Participant to receive shares of Common Stock upon
exercise of such Option, subject to the Participant's satisfaction in full of
any conditions, restrictions or limitations imposed in accordance with the Plan
or an Agreement (the terms and provisions of which may differ from other
Agreements), including, without limitation, payment of the Option Price.  On or
after the date which Section 162(m) of the Code is applicable to the Company,
during any calendar year, Options to purchase no more than 750,000 shares of
Common Stock (subject to adjustment under Section 4.5) shall be granted to any
Participant during any fiscal year.

     Each Option granted under this Plan shall be evidenced by an Agreement, in
a form approved by the Committee, which shall embody the terms and conditions of
such Option and which shall be subject to the express terms and conditions set
forth in the Plan.  Such Agreement shall become effective upon execution by the
Participant.  Only a person who is a common-law employee of the Company, any
parent corporation of the Company or a subsidiary (as such terms are defined in
Section 424 of the Code) on the date of grant shall be eligible to be granted an
Option which is intended to be and is an Incentive Stock Option.  To the extent
that any Stock Option is not designated as an Incentive Stock Option or even if
so designated does not qualify as an Incentive Stock Option, it shall constitute
a Non-Qualified Stock Option.

      6.2 Terms and Conditions.  Stock Options shall be subject to such terms
and conditions as shall be determined by the Committee, including the following:

          (a) Option Period.  The Option Period of each Stock Option shall be
     fixed by the Committee; provided that no Stock Option shall be exercisable
     more than ten (10) years after the date the Stock Option is granted.  In
     the case of an Incentive Stock Option granted to an individual who owns
     more than ten percent (10%) of the combined voting power of all classes of
     stock of the Company, a corporation which is a parent corporation of the
     Company or any subsidiary of the Company (each as defined in Section 424 of
     the 

                                      -11-
<PAGE>
 
     Code), the Option Period shall not exceed five (5) years from the date
     of grant. No Option which is intended to be an Incentive Stock Option shall
     be granted more than ten (10) years from the date the Plan is adopted by
     the Company or the date the Plan is approved by the stockholders of the
     Company, whichever is earlier.

          (b) Option Price.  The Option Price per share of the Common Stock
     purchasable under an Option shall be determined by the Committee; provided,
     however, that the Option Price per share of an Incentive Stock Option shall
     be not less than the Fair Market Value per share on the date the Option is
     granted. If an Option is intended to qualify as an Incentive Stock Option
     and is granted to an individual who owns or who is deemed to own stock
     possessing more than ten percent (10%) of the combined voting power of all
     classes of stock of the Company, a corporation which is a parent
     corporation of the Company or any subsidiary of the Company (each as
     defined in Section 424 of the Code), the Option Price per share shall not
     be less than one hundred ten percent (110%) of such Fair Market Value per
     share.

          (c) Exercisability.  Stock Options shall be exercisable at such time
     or times and subject to such terms and conditions as shall be determined by
     the Committee.  Subject to the Plan and unless otherwise provided in an
     Agreement, an Option shall be exercisable only during the Option Period,
     and only to the extent the Option is fully exercisable as provided in the
     Option Agreement.  Unless otherwise provided in an Agreement, an Option
     shall be exercisable only if the Participant does not incur a Termination
     of Employment prior to the date or dates established by the Committee and
     set forth in an Agreement except if, the Participant dies or incurs a
     Disability prior to a Termination of Employment, and the Participant
     satisfies all other conditions in the Plan or an Agreement.  If the
     Committee provides that any Stock Option is exercisable only in
     installments, the Committee may at any time waive such installment exercise
     provisions, in whole or in part.  In addition, the Committee may at any
     time accelerate the exercisability of any Stock Option or provide for
     acceleration on the satisfaction of performance standards.  If the
     Committee intends that an Option be an Incentive Stock Option, the
     Committee may, in its discretion, provide that the aggregate Fair Market
     Value (determined at the Grant Date) of the Common Stock as to which such
     Incentive Stock Option which is exercisable for the first time during any
     calendar year shall not exceed $100,000.

          (d) Method of Exercise.  Subject to the provisions of this Article VI,
     a Participant may exercise Stock Options, in whole or in part, at any time
     during the Option Period by the Participant's giving written notice of
     exercise on a form provided by the Committee (if available) to the Company
     specifying the number of shares of Common Stock subject to the Stock Option
     to be purchased and such other information as requested.  Except when
     waived by 

                                      -12-
<PAGE>
 
     the Committee, such notice shall be accompanied by payment in full of the
     purchase price by cash or check or such other form of payment as the
     Company may accept. If approved by the Committee (including approval at the
     time of exercise), payment in full or in part may also be made (i) by
     delivering Common Stock already owned by the Participant having a total
     Fair Market Value on the date of such delivery equal to the Option Price;
     (ii) by the execution and delivery of a note or other evidence of
     indebtedness (and any security agreement thereunder) satisfactory to the
     Committee and permitted in accordance with Section 6.2(e); (iii) by
     authorizing the Company to retain shares of Common Stock which would
     otherwise be issuable upon exercise of the Option having a total Fair
     Market Value on the date of delivery equal to the Option Price; (iv) by the
     delivery of cash or the extension of credit by a broker-dealer to whom the
     Participant has submitted a notice of exercise or otherwise indicated an
     intent to exercise an Option (in accordance with Part 220, Chapter II,
     Title 12 of the Code of Federal Regulations, so-called "cashless"
     exercise); (v) by certifying ownership of Common Stock owned by the
     Participant to the satisfaction of the Committee for latter delivery to the
     Company as specified by the Committee; or (vi) by any combination of the
     foregoing or by any other method permitted by the Committee. If payment of
     the Option Price of a Stock Option is made in whole or in part in the form
     of Restricted Stock, the number of shares of Common Stock to be received
     upon such exercise that is equal to the number of shares of Restricted
     Stock used for payment of the Option Price shall be subject to the same
     forfeiture restrictions or deferral limitations to which such Restricted
     Stock was subject, unless otherwise determined by the Committee. In the
     case of an Incentive Stock Option, the right to make a payment in the form
     of already owned shares of Common Stock of the same class as the Common
     Stock subject to the Stock Option may be authorized only at the time the
     Stock Option is granted. No shares of Common Stock shall be issued until
     full payment therefor, as determined by the Committee, has been made.
     Subject to any forfeiture restrictions or deferral limitations that may
     apply if a Stock Option is exercised using Restricted Stock, a Participant
     shall have all of the rights of a stockholder of the Company holding the
     class of Common Stock that is subject to such Stock Option (including, if
     applicable, the right to vote the shares and the right to receive
     dividends), when the Participant has given written notice of exercise, has
     paid in full for such shares and such shares have been recorded on the
     Company's official stockholder records as having been issued and
     transferred.

          (e) Company Loan or Guarantee.  Upon the exercise of any Option and
     subject to the pertinent Agreement and the discretion of the Committee, the
     Company may at the request of the Participant:

               (1) lend to the Participant an amount equal to such portion of
         the Option Price as the Committee may determine; or

                                      -13-
<PAGE>
 
               (2) guarantee a loan obtained by the Participant from a third-
         party for the purpose of tendering the Option Price.

     The terms and conditions of any loan or guarantee, including the term,
     interest rate and any security interest thereunder and whether the loan
     shall be with recourse, shall be determined by the Committee, except that
     no extension of credit or guarantee shall obligate the Company for an
     amount to exceed the lesser of the aggregate Fair Market Value per share of
     the Common Stock on the date of exercise, less the par value of the shares
     of Common Stock to be purchased upon the exercise of the Award, or the
     amount permitted under applicable laws or the regulations and rules of the
     Federal Reserve Board and any other governmental agency having
     jurisdiction.

          (f) Non-transferability of Options.  Except as provided herein or in
     an Agreement and then only consistent with the intent that the Option be an
     Incentive Stock Option, no Stock Option or interest therein shall be
     transferable by the Participant other than by will or by the laws of
     descent and distribution or by a designation of Beneficiary effective upon
     the death of the Participant.

      6.3 Termination by Reason of Death.  Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to death, any unexpired and unexercised Stock Option held by
such Participant shall thereafter be fully exercisable for a period of ninety
(90) days following the date of the appointment of a Representative or until the
expiration of the Option Period, whichever period is the shorter.

      6.4 Termination by Reason of Disability.  Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to a Disability, any unexpired and unexercised Stock Option
held by such Participant shall thereafter be fully exercisable by the
Participant for the period of ninety (90) days immediately following the date of
such Termination of Employment or until the expiration of the Option Period,
whichever period is shorter, and the Participant's death at any time following
such Termination of Employment due to Disability shall not affect the foregoing.
In the event of Termination of Employment by reason of Disability, if an
Incentive Stock Option is exercised after the expiration of the exercise periods
that apply for purposes of Section 422 of the Code, such Stock Option will
thereafter be treated as a Non-Qualified Stock Option.

      6.5 Termination for Cause.  Unless otherwise agreed to in writing by the
Committee, if the Participant incurs a Termination of Employment for Cause, any
Option granted to the Participant and outstanding shall be cancelled
immediately, no payment of any kind shall be made in respect of the Option and
the Participant shall have no further rights with respect to the Option.

                                      -14-
<PAGE>
 
      6.6 Other Termination.  Unless otherwise provided in an Agreement or
determined by the Committee, if a Participant incurs a Termination of Employment
for any reason other than death, Disability or Cause, any Stock Option held by
such Participant shall thereupon terminate, except that such Stock Option, to
the extent then exercisable, may be exercised for the lesser of the ninety (90)
day period commencing with the date of such Termination of Employment or until
the expiration of the Option Period.  Unless otherwise provided in an Agreement
or determined by the Committee, the death or Disability of a Participant after a
Termination of Employment otherwise provided herein shall not extend the time
permitted to exercise an Option.

      6.7 Certain Rights upon Termination of Employment.  Each Option Agreement
may provide that the Company shall have the right to purchase all or part (as
determined by the Committee) of any Option held by the Participant, upon such
terms and conditions as are set forth in the Option Agreement or as agreed to by
the Committee and the Participant.  Unless otherwise provided in an Agreement or
determined by the Committee, if the Participant violates any covenant regarding
proprietary information or noncompetition, the Option shall be cancelled and no
value shall or may be paid in respect of such Option and the Participant shall
have no further rights with respect to the Option.


                                   ARTICLE VII
                                  ------------

                                RESTRICTED STOCK
                                ----------------

      7.1 General.  The Committee shall have authority to grant Restricted Stock
under the Plan at any time or from time to time.  Shares of Restricted Stock may
be awarded either alone or in addition to other Awards granted under the Plan.
Restricted Stock may be either granted currently or on a deferred delivery
basis.  The Committee shall determine the persons to whom and the time or times
at which grants of Restricted Stock will be awarded, the number of shares of
Restricted Stock to be awarded to any Participant, the time or times within
which such Awards may be subject to forfeiture and any other terms and
conditions of the Awards.  Each Award shall be confirmed by, and be subject to
the terms of, an Agreement.  The Committee may condition the grant of Restricted
Stock upon the attainment of specified performance goals by the Participant or
by the Company or a Company Affiliate (including a division or department of the
Company or a Company Affiliate) for or within which the Participant is primarily
employed or upon such other factors or criteria as the Committee shall
determine.  The provisions of Restricted Stock Awards need not be the same with
respect to each Participant.

      7.2 Awards and Certificates.  Notwithstanding the limitations on issuance
of shares of Common Stock otherwise provided in the Plan, each Participant
receiving an Award of Restricted Stock shall be issued a certificate in respect
of such shares 

                                      -15-
<PAGE>
 
of Restricted Stock. Such certificate shall be registered in the name of such
Participant and shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Award as determined by the
Committee. The Committee may require that the certificates evidencing such
shares be held in custody by the Company until the restrictions thereon shall
have lapsed and that, as a condition of any Award of Restricted Stock, the
Participant shall have delivered a stock power, endorsed in blank, relating to
the Common Stock covered by such Award.

      7.3 Terms and Conditions.  Shares of Restricted Stock shall be subject to
the following terms and conditions:

          (a) Limitations on Transferability.  Subject to the provisions of the
     Plan and the Agreement, during a period set by the Committee commencing
     with the date of such Award (the "Restriction Period"), the Participant
     shall not be permitted to sell, dispose of, assign, transfer, pledge,
     hypothecate, convey, gift, alienate, encumber or otherwise transfer any
     interest in shares of Restricted Stock.

          (b) Rights.  Restricted stock may be granted for any price or no
     price. Except as provided in Section 7.3(a), the Participant shall have,
     with respect to the shares of Restricted Stock, all of the rights of a
     stockholder of the Company holding the class of Common Stock that is the
     subject of the Restricted Stock, including, if applicable, the right to
     vote the shares and the right to receive any cash dividends.  Unless
     otherwise determined by the Committee and subject to the Plan, cash
     dividends on the class of Common Stock that is the subject of the
     Restricted Stock shall be automatically deferred and reinvested in
     additional Restricted Stock, and dividends on the class of Common Stock
     that is the subject of the Restricted Stock payable in Common Stock shall
     be paid in the form of Restricted Stock of the same class as the Common
     Stock on which such dividend was paid.

          (c) Acceleration.  Based on service, performance by the Participant or
     by the Company or a Company Affiliate, including any division or department
     for which the Participant is employed, or such other factors or criteria as
     the Committee may determine, the Committee may provide for the lapse of
     restrictions in installments and may accelerate the vesting of all or any
     part of any Award and waive the restrictions for all or any part of such
     Award.

          (d) Forfeiture.  Unless otherwise provided in an Agreement or
     determined by the Committee, if the Participant incurs a Termination of
     Employment during the Restriction Period due to death or Disability, the
     restrictions shall lapse and the Participant shall be fully vested in the
     Restricted Stock.  Except to the extent otherwise provided in the
     applicable Agreement and the Plan, upon a Participant's Termination of
     Employment for any reason 

                                      -16-
<PAGE>
 
     during the Restriction Period other than death or Disability, all shares of
     Restricted Stock still subject to restriction shall be forfeited by the
     Participant, except that the Committee shall have the discretion to waive
     in whole or in part any or all remaining restrictions with respect to any
     or all of such Participant's shares of Restricted Stock.

          (e) Delivery.  If and when the Restriction Period expires without a
     prior forfeiture of the Restricted Stock subject to such Restriction
     Period, unlegended certificates (other than applicable securities law
     legends) for such shares shall be delivered to the Participant, except that
     the Award may provide for deferred delivery.

          (f) Election.  A Participant may elect to further defer receipt of the
     Restricted Stock for a specified period or until a specified event, subject
     in each case to the Committee's approval and to such terms as are
     determined by the Committee.  Subject to any exceptions adopted by the
     Committee, such election must be made one (1) year prior to completion of
     the Restriction Period.

                                  ARTICLE VIII
                                 -------------

             PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN
             ------------------------------------------------------

      8.1 Restriction on Disposition. Other than in accordance with the terms
and conditions of this Plan, an Agreement or a Subscription Agreement, any
attempted sale, transfer, conveyance, gift, assignment, pledge, encumbrance,
hypothecation, alienation or other disposition of a Stock Option or any of the
shares of Common Stock by the Participant is void and transfers no right, title,
or interest in or to such Stock Option or shares of Common Stock, or any portion
of them, to the purported buyer, transferee, donee, assignee, pledgee or
encumbrance holder.  Upon written consent of the Committee (which consent will
not be unreasonably withheld), the Participant may transfer the Option or some
or all of the shares of Common Stock (or any interest therein) to his or her
Representative; provided, however, prior to any such transfer, the Participant
and any such Representative shall execute and deliver to the Company a
counterpart of the Stock Option Agreement or Subscription Agreement indicating
the Representative's consent to be bound by its terms to the same extent as the
Participant and the Representative shall be deemed to be bound by the terms and
conditions of the Stock Option Agreement or Subscription Agreement to the same
extent as the Participant.

      8.2 Subscription Agreement. Shares of Common Stock issued upon the
exercise of an Option shall be subject to the terms and conditions of the
Subscription Agreement which may contain such terms as the Committee may
determine.  The Committee may in its sole discretion include in any Subscription
Agreement an obligation that the Participant sell to the Company the
Participant's shares of Common 

                                      -17-
<PAGE>
 
Stock received upon the exercise of an Option, upon such terms and conditions as
the Committee may determine and set forth in a Subscription Agreement.
Notwithstanding any provision herein to the contrary, the Company may upon
determination by the Committee assign its right to purchase shares of Common
Stock, whereupon the assignee of such right shall have all the rights, duties
and obligations of the Company with respect to the purchase of the shares of
Common Stock.

      8.3 No Company Obligation.  None of the Company, a Company Affiliate or
the Committee shall have any duty or obligation to affirmatively disclose to a
record or beneficial holder of Common Stock or an Award, and such holder shall
have no right to be advised of any material information regarding the Company or
any Company Affiliate at any time prior to, upon or in connection with receipt
or the exercise of an Award or the Company's purchase of Common Stock or an
Award from such holder in accordance with the terms hereof.

      8.4 Limited Transfer During Offering.  In the event there is an effective
registration statement under the Securities Act pursuant to which shares of
Common Stock shall be offered for sale in an underwritten offering, a
Participant shall not, during the period requested by the underwriters managing
the registered public offering, effect any public sale or distribution of shares
received directly or indirectly pursuant to the exercise of an Award.


                                   ARTICLE IX
                                  -----------

                          CHANGE IN CONTROL PROVISIONS
                          ----------------------------

      9.1 Impact of Event.  Notwithstanding any other provision of the Plan to
the contrary, unless otherwise provided in an Agreement, in the event of any
transaction between the Company and any Person pursuant to which such Person
acquires (i) a majority of the issued and outstanding shares of Common Stock, or
(ii) all or substantially all of the Company's assets on a consolidated basis (a
"Sale of the Company") the Committee shall have full discretion to do any or all
of the following with respect to an Award:

          (a) to provide that any Stock Options outstanding as of the date of
     such Sale of the Company and not then exercisable shall become fully
     exercisable to the full extent of the original grant.

          (b) to cause the restrictions and deferral limitations applicable to
     any Restricted Stock to lapse, and for such Restricted Stock to become free
     of all restrictions and become fully vested and transferable to the full
     extent of the original grant.

                                      -18-
<PAGE>
 
          (c) to cause any Award to be cancelled, provided notice of at least 15
     days thereof is provided before the date of cancellation;

          (d) to provide that the securities of another entity be substituted
     hereunder for the Common Stock and to make equitable adjustment with
     respect thereto;

          (e) to grant the Participant, by giving notice during a pre-set
     period, the right to surrender all or part of a stock-based Award to the
     Company and to receive cash in an amount equal to the amount by which the
     "Sale of the Company Price" (as defined in Section 9.2) per share of Common
     Stock on the date of such election shall exceed the amount which the
     Participant must pay to exercise the Award per share of Common Stock (the
     "Spread") multiplied by the number of shares of Common Stock granted under
     the Award;

          (f) to require the assumption of the obligation of the Company under
     the Plan subject to appropriate adjustment; and

          (g) to take any other action the Committee determines to take.

      9.2 Sale of the Company.  For purposes of the Plan, "Sale of the Company
Price" means the higher of (a) prior to the date the Common Stock is traded on a
regular securities market, the value per share of Common Stock to be received in
connection with the Sale of the Company, and (b) after the date the Common Stock
is traded on a regular securities market (i) the highest reported sales price of
a share of Common Stock in any transaction reported on the principal exchange on
which such shares are listed or on NASDAQ during the 60-day period prior to and
including the date of such sale or (ii) if the Sale of the Company is the result
of a tender or exchange offer, merger, consolidation, liquidation or sale of all
or substantially all of the assets of the Company (in each case a "Corporate
Transaction"), the highest price per share of Common Stock paid in such
Corporate Transaction, except that, in the case of Incentive Stock Options, such
price shall be based only on the Fair Market Value of the Common Stock on the
date any such Incentive Stock Option is exercised.  To the extent that the
consideration paid in any such Corporate Transaction consists all or in part of
securities or other non-cash consideration, the value of such securities or
other non-cash consideration shall be determined in the sole discretion of the
Committee.


                                    ARTICLE X
                                   ----------

                                 MISCELLANEOUS
                                 -------------

      10.1     Amendments and Termination.  The Board may amend, alter or
discontinue the Plan at any time, but no amendment, alteration or
discontinuation 

                                      -19-
<PAGE>
 
shall be made which would impair the rights of a Participant under an Award
theretofore granted without the Participant's consent, except such an amendment
(a) made to avoid an expense charge to the Company or a Company Affiliate, (b)
made to cause the Plan to qualify for the exemption provided by Rule 16b-3, (c)
to prevent the Plan from being disqualified from the exemption provided by Rule
16b-3 or (d) made to permit the Company or a Company Affiliate a deduction under
the Code.

     The Committee may amend the Plan at any time, provided that an amendment
shall be subject to the same limitations (and the exceptions to the limitations
as apply to any amendment by the Board), and any amendment shall be subject to
the approval of the Board.

     The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Participant without the Participant's consent or reduce an Option Price,
except such an amendment (a) made to avoid an expense charge to the Company or a
Company Affiliate, (b) made to cause the Plan to qualify for the exemption
provided by Rule 16b-3, (c) to prevent the Plan from being disqualified from the
exemption provided by Rule 16b-3 or (d) made to permit the Company or a Company
Affiliate a deduction under the Code.

     Notwithstanding anything in the Plan to the contrary, if any right under
this Plan would cause a transaction to be ineligible for pooling of interest
accounting that would, but for the right hereunder, be eligible for such
accounting treatment, the Committee may modify or adjust the right so that
pooling of interest accounting shall be available, including the substitution of
Common Stock having a Fair Market Value equal to the cash otherwise payable
hereunder for the right which caused the transaction to be ineligible for
pooling of interest accounting.

     10.2 Form and Timing of Payment Under Awards; Deferrals.  Subject to the
terms of the Plan and any applicable Agreement, payments to be made by the
Company or a Company Affiliate upon the exercise of an Award or settlement of an
Award may be made in such forms as the Committee shall determine, including,
without limitation, cash, Common Stock, other Awards or other property, and may
be made in a single payment or transfer, in installments, or on a deferred
basis.  The settlement of any Award may be accelerated, and cash paid in lieu of
Common Stock in connection with such settlement, in the discretion of the
Committee or upon occurrence of one or more specified events.  Installment or
deferred payments may be required by the Committee or permitted at the election
of the Participant.

      10.3     Status of Awards Under Code Section 162(m).  After Section 162(m)
of the Code applies to the Company, it is the intent of the Company that Awards
granted to persons who are Covered Employees within the meaning of Code Section
162(m) shall constitute "qualified performance-based compensation" satisfying
the requirements of Code Section 162(m).  Accordingly, the provisions of 

                                      -20-
<PAGE>
 
the Plan shall be interpreted in a manner consistent with Code Section 162(m).
If any provision of the Plan or any agreement relating to such an Award does not
comply or is inconsistent with the requirements of Code Section 162(m), such
provision shall be construed or deemed amended to the extent necessary to
conform to such requirements.

      10.4     Unfunded Status of Plan; Limits on Transferability.  It is
intended that the Plan be an "unfunded" plan for incentive and deferred
compensation.  The Committee may authorize the creation of trusts or other
arrangements to meet the obligations created under the Plan to deliver Common
Stock or make payments; provided, however, that, unless the Committee otherwise
determines, the existence of such trusts or other arrangements is consistent
with the "unfunded" status of the Plan. Unless otherwise provided in this Plan
or in an Agreement, no Award shall be subject to the claims of Participant's
creditors and no Award may be transferred, assigned, alienated or encumbered in
any way other than by will or the laws of descent and distribution or to a
Representative upon the death of the Participant.

      10.5     General Provisions.

          (a) Representation.  The Committee may require each person purchasing
     or receiving shares pursuant to an Award to represent to and agree with the
     Company in writing that such person is acquiring the shares without a view
     to the distribution thereof.  The certificates for such shares may include
     any legend which the Committee deems appropriate to reflect any
     restrictions on transfer.

          (b) No Additional Obligation.  Nothing contained in the Plan shall
     prevent the Company or a Company Affiliate from adopting other or
     additional compensation arrangements for its employees.  The grant of an
     Award shall in no way affect the right of the Company to adjust,
     reclassify, reorganize or otherwise change its capital or business
     structure or to merge, consolidate, dissolve, liquidate or sell or transfer
     all or any part of its business or assets.

          (c) Withholding.  No later than the date as of which an amount first
     becomes includible in the gross income of the Participant for Federal
     income tax purposes with respect to any Award, the Participant shall pay to
     the Company (or other entity identified by the Committee), or make
     arrangements satisfactory to the Company or other entity identified by the
     Committee regarding the payment of, any Federal, state, local or foreign
     taxes of any kind required by law to be withheld with respect to such
     amount required in order for the Company or an Affiliate to obtain a
     current deduction.  Unless otherwise determined by the Committee,
     withholding obligations may be settled with Common Stock, including Common
     Stock that is part of the Award that gives rise to the withholding
     requirement provided that any applicable requirements under Section 16 of
     the Exchange Act are satisfied.  The 

                                      -21-
<PAGE>
 
     obligations of the Company under this Plan shall be conditional on such
     payment or arrangements, and the Company and Company Affiliates shall, to
     the extent permitted by law, have the right to deduct any such taxes from
     any payment otherwise due to the Participant. If the Participant disposes
     of shares of Common Stock acquired pursuant to an Incentive Stock Option in
     any transaction considered to be a disqualifying transaction under the
     Code, the Participant must give written notice of such transfer and the
     Company shall have the right to deduct any taxes required by law to be
     withheld from any amounts otherwise payable to the Participant. The
     obligations of the Company under the Plan shall be conditional on such
     payment or arrangements, and the Company and Company Affiliates shall, to
     the extent permitted by law, have the right to deduct any such taxes from
     any payment otherwise due to the Participant.

          (d) Reinvestment.  The reinvestment of dividends in additional
     Restricted Stock at the time of any dividend payment shall be permissible
     only if sufficient shares of Common Stock are available under the Plan for
     such reinvestment (taking into account then outstanding Options and other
     Awards).

          (e) Representation.  The Committee shall establish such procedures as
     it deems appropriate for a Participant to designate a Representative to
     whom any amounts payable in the event of the Participant's death are to be
     paid.

          (f) Controlling Law.  The Plan and all Awards made and actions taken
     thereunder shall be governed by and construed in accordance with the laws
     of the State of Illinois (other than its law respecting choice of law)
     except to the extent the general corporation law of the State of Delaware
     or Federal law would be applicable.  The Plan shall be construed to comply
     with all applicable law and to avoid liability to the Company, a Company
     Affiliate or a Participant, including, without limitation, liability under
     Section 16(b) of the Exchange Act.

          (g) Offset.  Any amounts owed to the Company or a Company Affiliate by
     the Participant of whatever nature may be offset by the Company from the
     value of any shares of Common Stock, cash or other thing of value under
     this Plan or an Agreement to be transferred to the Participant, and no
     shares of Common Stock, cash or other thing of value under this Plan or an
     Agreement shall be transferred unless and until all disputes between the
     Company and the Participant have been fully and finally resolved and the
     Participant has waived all claims to such against the Company or a Company
     Affiliate.

          (h) Fail Safe.  With respect to persons subject to Section 16 of the
     Exchange Act, transactions under this Plan are intended to comply with all
     applicable conditions of Rule 16b-3 or Rule 16a-1(c)(3), as applicable.  To
     the extent any provision of the Plan or action by the Committee fails to so
     comply, 

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<PAGE>
 
     it shall be deemed null and void, to the extent permitted by law and deemed
     advisable by the Committee. Moreover, in the event the Plan does not
     include a provision required by Rule 16b-3 or Rule 16a-1(c)(3) to be stated
     herein, such provision (other than one relating to eligibility requirements
     or the price and amount of Awards) shall be deemed to be incorporated by
     reference into the Plan with respect to Participants subject to Section 16.

          (i) Right to Capitalize.  The grant of an Award shall in no way affect
     the right of the Company to adjust, reclassify, reorganize or otherwise
     change its capital or business structure or to merge, consolidate,
     dissolve, liquidate, sell or transfer all or any part of its business or
     assets.

      10.6  Mitigation of Excise Tax.  Subject to any agreement between the
Participant and the Company or a Company Affiliate, if any payment or right
accruing to a Participant under this Plan (without the application of this
Section 10.6), either alone or together with other payments or rights accruing
to the Participant from the Company or a Company Affiliate ("Total Payments"),
would constitute a "parachute payment" (as defined in Section 280G of the Code
and regulations thereunder), such payment or right shall be reduced to the
largest amount or greatest right that will result in no portion of the amount
payable or right accruing under the Plan being subject to an excise tax under
Section 4999 of the Code or being disallowed as a deduction under Section 280G
of the Code.  The determination of whether any reduction in the rights or
payments under this Plan is to apply shall be made by the Committee in good
faith after consultation with the Participant, and such determination shall be
conclusive and binding on the Participant.  The Participant shall cooperate in
good faith with the Committee in making such determination and providing the
necessary information for this purpose.  The foregoing provisions of this
Section 10.6 shall apply with respect to any person only if, after reduction for
any applicable Federal excise tax imposed by Section 4999 of the Code and
Federal income tax imposed by the Code, the Total Payments accruing to such
person would be less than the amount of the Total Payments as reduced, if
applicable, under the foregoing provisions of the Plan and after reduction for
only Federal income taxes.

      10.7  Rights with Respect to Continuance of Employment.  Nothing
contained herein shall be deemed to alter the relationship between the Company
or a Company Affiliate and a Participant, or the contractual relationship
between a Participant and the Company or a Company Affiliate if there is a
written contract regarding such relationship.  Nothing contained herein shall be
construed to constitute a contract of employment between the Company or a
Company Affiliate and a Participant.  The Company or a Company Affiliate and
each of the Participants continue to have the right to terminate the employment
or service relationship at any time for any reason, except as provided in a
written contract.  The Company or a Company Affiliate shall have no obligation
to retain the Participant in its employ or service as a result of this Plan.
There shall be no inference as to the length of employment or service hereby,
and the Company or a Company Affiliate reserves the same rights to terminate the

                                      -23-
<PAGE>
 
Participant's employment or service as existed prior to the individual's
becoming a Participant in this Plan.

      10.8  Awards in Substitution for Awards Granted by Other Corporations.
Awards (including cash in respect of fractional shares) may be granted under the
Plan from time to time in substitution for awards held by employees, directors
or service providers of other entities who are about to become officers,
directors or employees of the Company or a Company Affiliate.

      10.9  Procedure for Adoption.  Any Company Affiliate may by resolution
of such Company Affiliate's board of directors, with the consent of the Board of
Directors and subject to such conditions as may be imposed by the Board of
Directors, adopt the Plan for the benefit of its employees as of the date
specified in the board resolution.

      10.10  Procedure for Withdrawal.  Any Company Affiliate which has
adopted the Plan may, by resolution of the board of directors of such Company
Affiliate, with the consent of the Board of Directors and subject to such
conditions as may be imposed by the Board of Directors, terminate its adoption
of the Plan.

      10.11  Delay.  If at the time a Participant incurs a Termination of
Employment (other than due to Cause) or if at the time of a Sale of the Company,
the Participant is subject to "short-swing" liability under Section 16 of the
Exchange Act, any time period provided for under the Plan or an Agreement to the
extent necessary to avoid the imposition of liability shall be suspended and
delayed during the period the Participant would be subject to such liability,
but not more than six (6) months and one (1) day and not to exceed the Option
Period, whichever is shorter.  The Company shall have the right to suspend or
delay any time period described in the Plan or an Agreement if the Committee
shall determine that the action may constitute a violation of any law or result
in liability under any law to the Company, a Company Affiliate or a stockholder
of the Company until such time as the action required or permitted shall not
constitute a violation of law or result in liability to the Company, a Company
Affiliate or a stockholder of the Company.  The Committee shall have the
discretion to suspend the application of the provisions of the Plan required
solely to comply with Rule 16b-3 if the Committee shall determine that Rule 16b-
3 does not apply to the Plan.

      10.12  Headings.  The headings contained in this Plan are for reference
purposes only and shall not affect the meaning or interpretation of this Plan.
Except as otherwise indicated by the context, words in the masculine gender used
in the Plan include the feminine and neuter gender, the singular shall indicate
the plural, and the plural shall include the singular.

      10.13  Severability.  If any provision of this Plan shall for any reason
be held to be invalid or unenforceable, such invalidity or unenforceability
shall not effect 

                                      -24-
<PAGE>
 
any other provision hereby, and this Plan shall be construed as if such invalid
or unenforceable provision were omitted.

      10.14  Successors and Assigns.  This Plan shall inure to the benefit of
and be binding upon each successor and assign of the Company.  All obligations
imposed upon a Participant, and all rights granted to the Company hereunder,
shall be binding upon the Participant's heirs, legal representatives and
successors.

      10.15  Entire Agreement.  This Plan and the Agreement constitute the
entire agreement with respect to the subject matter hereof and thereof, provided
that in the event of any inconsistency between the Plan and the Agreement, the
terms and conditions of this Plan shall control.

     Executed this 5th day of March, 1998.


                              EVEREST HEALTHCARE SERVICES
                              CORPORATION



                              By: /s/ Craig W. Moore
                                 --------------------------------

                              Its: Chairman of the Board, CEO
                                  -------------------------------

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