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                                                                   EXHIBIT 10.16



                            THE AMENDED AND RESTATED
                         1996 EQUITY PARTICIPATION PLAN
                                       OF
                              SUNTERRA CORPORATION

        Sunterra Corporation (formerly known as Signature Resorts, Inc.), a
Maryland corporation, has adopted The Amended and Restated 1996 Equity
Participation Plan of Sunterra Corporation (the "Plan"), effective March 29,
1999, for the benefit of its eligible employees, consultants and directors. The
Plan consists of two plans, one for the benefit of key Employees (as such term
is defined below), Independent Directors (as such term is defined below) and
consultants and another solely for the benefit of Independent Directors. The
Plan is an amendment and restatement of The 1996 Equity Participation Plan of
Signature Resorts, Inc., which was adopted by Signature Resorts, Inc. on June
13, 1996.

        The purposes of this Plan are as follows:

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

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

                                   ARTICLE I.

                                   DEFINITIONS

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

        1.2. Award Limit. "Award Limit" shall mean six hundred seventy-five
thousand (675,000) shares of Common Stock.

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

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

                (a) any person or related group of persons (other than the
        Company or a person that directly or indirectly controls, is controlled
        by, or is under common control with, the Company) directly or indirectly
        acquires beneficial ownership (within the meaning of Rule 13d-3 under
        the Exchange Act) of securities possessing more than fifty percent (50%)
        of the total combined voting power of the Company's outstanding




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        securities pursuant to a tender or exchange offer made directly to the
        Company's stockholders which the Board does not recommend such
        stockholders to accept; or

                (b) there is a change in the composition of the Board over a
        period of twenty-four (24) consecutive months (or less) such that a
        majority of the Board members (rounded up to the nearest whole number)
        ceases, by reason of one or more proxy contests for the election of
        Board members, to be comprised of individuals who either (i) have been
        Board members continuously since the beginning of such period or (ii)
        have been elected or nominated for election as Board members during such
        period by at least a majority of the Board members described in clause
        (i) who were still in office at the time such election or nomination was
        approved by the Board.

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

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

        1.7. Common Stock. "Common Stock" shall mean the common stock of the
Company, par value $.01 per share, and any equity security of the Company issued
or authorized to be issued in the future, but excluding any preferred stock and
any warrants, options or other rights to purchase Common Stock. Debt securities
of the Company convertible into Common Stock shall be deemed equity securities
of the Company.

        1.8. Company. "Company" shall mean Sunterra Corporation (formerly known
as Signature Resorts, Inc.), a Maryland corporation.

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

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

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

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

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




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        1.11.  Director.  "Director" shall mean a member of the Board.

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

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

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

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

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

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

        1.18. Independent Director. "Independent Director" shall mean a member
of the Board who is not an Employee of the Company.

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

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




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

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

        1.23. Plan. "Plan" shall mean The Amended and Restated 1996 Equity
Participation Plan of Sunterra Corporation.

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

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

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

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

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

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

        1.30. Subsidiary. "Subsidiary" shall mean (i) any corporation in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing 50 percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain and (ii) any
partnership or limited liability company in which the Company (A) directly or
indirectly holds a managing partner or managing member interest or (B) is
entitled to 50 percent or more of the profits or assets upon dissolution.

        1.31. Termination of Consultancy. "Termination of Consultancy" shall
mean the time when the engagement of an Optionee, Grantee or Restricted
Stockholder as a consultant to the Company or a Subsidiary is terminated for any
reason, with or without cause, including, but not by way of limitation, by
resignation, discharge, death or retirement; but excluding terminations



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where there is a simultaneous commencement of employment with the Company or any
Subsidiary. The Committee, in its absolute discretion, shall determine the
effect of all matters and questions relating to Termination of Consultancy,
including, but not by way of limitation, the question of whether a Termination
of Consultancy resulted from a discharge for good cause, and all questions of
whether particular leaves of absence constitute Terminations of Consultancy.
Notwithstanding any other provision of this Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate a consultant's service at
any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.

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

        1.33. Termination of Employment. "Termination of Employment" shall mean
the time when the employee-employer relationship between an Optionee, Grantee or
Restricted Stockholder and the Company or any Subsidiary is terminated for any
reason, with or without cause, including, but not by way of limitation, a
termination by resignation, discharge, death, disability or retirement; but
excluding (i) terminations where there is a simultaneous reemployment or
continuing employment of an Optionee, Grantee or Restricted Stockholder by the
Company or any Subsidiary, (ii) at the discretion of the Committee, terminations
which result in a temporary severance of the employee-employer relationship, and
(iii) at the discretion of the Committee, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Company or a
Subsidiary with the former employee. The Committee, in its absolute discretion,
shall determine the effect of all matters and questions relating to Termination
of Employment, including, but not by way of limitation, the question of whether
a Termination of Employment resulted from a discharge for good cause, and all
questions of whether particular leaves of absence constitute Terminations of
Employment; provided, however, that, with respect to Incentive Stock 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 Company or any Subsidiary has an absolute and unrestricted right to
terminate an Employee's employment at any time for any reason whatsoever, with
or without cause, except to the extent expressly provided otherwise in writing.

                                   ARTICLE II.

                             SHARES SUBJECT TO PLAN

        2.1. Shares Subject to Plan.



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               (a) The shares of stock subject to Options, awards of Restricted
Stock, Performance Awards, Dividend Equivalents, awards of Deferred Stock, Stock
Payments or Stock Appreciation Rights shall be Common Stock, initially shares of
the Company's Common Stock, par value $.01 per share. The aggregate number of
such shares which may be issued upon exercise of such options or rights or upon
any such awards under the Plan shall not exceed five million three hundred
eighty thousand (5,380,000) shares of Common Stock. The shares of Common Stock
issuable upon exercise of such options or rights or upon any such awards may be
either previously authorized but unissued shares or treasury shares.

               (b) The maximum number of shares which may be subject to options
or Stock Appreciation Rights granted under the Plan to any individual in any
fiscal year shall not exceed the Award Limit.

        2.2. Add-back of Options and Other Rights. If any Option, or other right
to acquire shares of Common Stock under any other award under this Plan, expires
or is canceled without having been fully exercised, or is exercised in whole or
in part for cash as permitted by this Plan, the number of shares subject to such
Option or other right but as to which such Option or other right was not
exercised prior to its expiration, cancellation or exercise may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Furthermore, any shares subject to Options or other awards which are
adjusted pursuant to Section 10.3 and become exercisable with respect to shares
of stock of another corporation shall be considered cancelled and may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Shares of Common Stock which are delivered by the Optionee or Grantee or
withheld by the Company upon the exercise of any Option or other award under
this Plan, in payment of the exercise price thereof, may again be optioned,
granted or awarded hereunder, subject to the limitations of Section 2.1. If any
share of Restricted Stock is forfeited by the Grantee or repurchased by the
Company pursuant to Section 6.6 hereof, such share may again be optioned,
granted or awarded hereunder, subject to the limitations of Section 2.1.
Notwithstanding the provisions of this Section 2.2, no shares of Common Stock
may again be optioned, granted or awarded if such action would cause an
Incentive Stock Option to fail to qualify as an incentive stock option under
Section 422 of the Code.

                                  ARTICLE III.
                               GRANTING OF OPTIONS

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

        3.2. Disqualification for Stock Ownership. No person may be granted an
Incentive Stock Option under this Plan if such person, at the time the Incentive
Stock Option is granted, owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
then existing Subsidiary or parent corporation (within the



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meaning of Section 422 of the Code) unless such Incentive Stock Option conforms
to the applicable provisions of Section 422 of the Code.

        3.3. Qualification of Incentive Stock Options. No Incentive Stock Option
shall be granted unless such Option, when granted, qualifies as an "incentive
stock option" under Section 422 of the Code. No Incentive Stock Option shall be
granted to any person who is not an Employee.

        3.4. Granting of Options

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

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

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

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

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

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

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

               (d) During the term of the Plan, each person who is an
Independent Director as of the date of the consummation of the initial public
offering of Common Stock automatically shall be granted (i) an Option to
purchase fifteen thousand (15,000) shares of Common Stock (subject to adjustment
as provided in Section 10.3) on the date of such initial public offering and
(ii) an Option to purchase fifteen thousand (15,000) shares of Common Stock
(subject to adjustment as provided in Section 10.3) on the third anniversary of
such grant; provided that



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such Independent Director serves as a member of the Board on such third
anniversary. During the term of the Plan, a person who is initially elected to
the Board after the consummation of the initial public offering of Common Stock
and who is an Independent Director at the time of such initial election
automatically shall be granted (i) an Option to purchase fifteen thousand
(15,000) shares of Common Stock (subject to adjustment as provided in Section
10.3) on the date of such initial election and (ii) an Option to purchase
fifteen thousand (15,000) shares of Common Stock (subject to adjustment as
provided in Section 10.3) on the third anniversary of such grant; provided that
such Independent Director serves as a member of the Board on such third
anniversary. Members of the Board who are employees of the Company and who
subsequently retire from the Company but remain on the Board, to the extent that
they are eligible, will receive Options as described in clause (i) of the
preceding sentence upon retirement from the Company and shall be eligible to
receive additional Options as described in and pursuant to the terms of clause
(ii) of the preceding sentence. All the foregoing Option grants authorized by
this Section 3.4(d) are subject to stockholder approval of the Plan.

                                   ARTICLE IV.

                                TERMS OF OPTIONS

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

        4.2. Option Price. The price per share of the shares subject to each
Option shall be set by the Committee; provided, however, that such price shall
be no less than 85% of the Fair Market Value of a share of Common Stock on the
date the Option is granted, and (i) in the case of Incentive Stock 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 a share of Common Stock on the date the Option is granted;
(ii) in the case of Incentive Stock Options granted to an individual then owning
(within the meaning of Section 424(d) of the Code) more than 10% of the total
combined voting power of all classes of stock of the Company or any Subsidiary
or parent corporation thereof (within the meaning of Section 422 of the Code)
such price shall not be less than 110% of the Fair Market Value of a share of
Common Stock on the date the Option is granted; and (iii) in the case of grants
to Independent Directors, such price shall equal 100% of the Fair Market Value
of a share of Common Stock pursuant to Section 3.4(d) on the date the Option is
granted; provided, however, that the price of each share subject to each Option
granted to Independent Directors on the date of the initial public offering of
Common Stock shall equal the initial public offering price per share of Common
Stock.




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        4.3. Option Term. The term of an Option shall be set by the Committee in
its discretion; provided, however, that such term shall not be more than ten
(10) years from the date the Option is granted, and (i) in the case of grants to
Independent Directors pursuant to Section 3.4(d), the term shall be ten (10)
years from the date the Option is granted, without variation or acceleration
hereunder, but subject to Section 5.6, and (ii) in the case of Incentive Stock
Options, the term shall not be more than five (5) years from the date the
Incentive Stock Option is granted if the Incentive Stock Option is granted to an
individual then owning (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company or any Subsidiary or parent corporation thereof (within the meaning of
Section 422 of the Code). Except as limited by requirements of Section 422 of
the Code and regulations and rulings thereunder applicable to Incentive Stock
Options, the Committee may, subject to the terms hereof, 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 Options
granted to Independent Directors pursuant to Section 3.4(d) shall become
exercisable in cumulative annual installments of 33 1/3% on each of the first,
second and third anniversaries of the date of Option grant, without variation or
acceleration hereunder except as provided in Section 10.3(b). At any time after
grant of an Option, the Committee may, in its sole and absolute discretion and
subject to whatever terms and conditions it selects, accelerate the period
during which an Option (except an Option granted to an Independent Director
pursuant to Section 3.4(d)) vests.

               (b) No portion of an Option which is unexercisable at Termination
of Employment, Termination of Directorship or Termination of Consultancy, as
applicable, shall thereafter become exercisable, except as may be otherwise
provided by the Committee in the case of Options granted to Employees,
Independent Directors or consultants either in the Stock Option Agreement or by
action of the Committee following the grant of the Option.

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




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

                                   ARTICLE V.

                               EXERCISE OF OPTIONS

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

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

               (a) A written notice complying with the applicable rules
established by the Committee (or the Board, in the case of Options granted to
Independent Directors pursuant to Section 3.4(d)) 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 the case of Options granted to Independent Directors pursuant to
Section 3.4(d)), in its absolute discretion, deems necessary or advisable to
effect compliance with all applicable provisions of the Securities Act of 1933,
as amended, and any other federal or state securities laws or regulations. The
Committee or Board may, in its absolute discretion, also take whatever
additional actions it deems appropriate to effect such compliance including,
without limitation, placing legends on share certificates and issuing
stop-transfer notices to agents and registrars;

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

               (d) Full cash payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is exercised.
However, the Committee (or the Board, in the case of Options granted to
Independent Directors pursuant to Section 3.4(d)), 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



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shares of Common Stock owned by the Optionee, duly endorsed for transfer to the
Company with a Fair Market Value on the date of delivery equal to the aggregate
exercise price of the Option or exercised portion thereof; (iii) allow payment,
in whole or in part, through the delivery of property of any kind which
constitutes good and valuable consideration; (iv) allow payment, in whole or in
part, through the delivery of a full recourse promissory note bearing interest
(at no less than such rate as shall then preclude the imputation of interest
under the Code) and payable upon such terms as may be prescribed by the
Committee or the Board, or (v) allow payment through any combination of the
consideration provided in the foregoing subparagraphs (ii), (iii) and (iv). In
the case of a promissory note, the Committee (or the Board, in the case of
Options granted to Independent Directors pursuant to Section 3.4(d)) may also
prescribe the form of such note and the security to be given for such note. The
Option may not be exercised, however, by delivery of a promissory note or by a
loan from the Company when or where such loan or other extension of credit is
prohibited by law.

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

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

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

               (c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee (or Board, in the case
of Options granted to Independent Directors pursuant to Section 3.4(d)) shall,
in its absolute discretion, determine to be necessary or advisable;

               (d) The lapse of such reasonable period of time following the
exercise of the Option as the Committee (or Board, in the case of Options
granted to Independent Directors pursuant to Section 3.4(d)) may establish from
time to time for reasons of administrative convenience; and

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

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

        5.5. Ownership and Transfer Restrictions. The Committee (or Board, in
the case of Options granted to Independent Directors pursuant to Section
3.4(d)), in its absolute discretion,



                                       11
<PAGE>   12


may impose such restrictions on the ownership and transferability of the shares
purchasable upon the exercise of an Option as it deems appropriate. Any such
restriction shall be set forth in the respective Stock Option Agreement and may
be referred to on the certificates evidencing such shares. The Committee may
require the Employee to give the Company prompt notice of any disposition of
shares of Common Stock acquired by exercise of an Incentive Stock Option within
(i) two years from the date of granting such Option to such Employee or (ii) one
year after the transfer of such shares to such Employee. The Committee may
direct that the certificates evidencing shares acquired by exercise of an Option
refer to such requirement to give prompt notice of disposition.

        5.6. Limitations on Exercise of Options Granted to Independent Directors
Pursuant to Section 3.4(d). No Option granted to an Independent Director
pursuant to Section 3.4(d) may be exercised to any extent by anyone after the
first to occur of the following events:

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

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

               (c) the expiration of three (3) months from the date of the
Optionee's Termination of Directorship for any reason other than such Optionee's
death or his permanent and total disability, unless the Optionee dies within
said three-month period; or

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

                                   ARTICLE VI.

                            AWARD OF RESTRICTED STOCK

        6.1.   Award of Restricted Stock.

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

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

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

               (b) The Committee shall establish the purchase price, if any, and
form of payment for Restricted Stock; provided, however, that such purchase
price shall be no less than



                                       12
<PAGE>   13


the par value of the Common Stock to be purchased, unless otherwise permitted by
applicable state law. In all cases, legal consideration shall be required for
each issuance of Restricted Stock.

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

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

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

        6.4. Rights as Stockholders. Upon delivery of the shares of Restricted
Stock to the escrow holder pursuant to Section 6.7, the Restricted Stockholder
shall have, unless otherwise provided by the Committee, all the rights of a
stockholder with respect to said shares, subject to the restrictions in his
Restricted Stock Agreement, including the right to receive all dividends and
other distributions paid or made with respect to the shares; provided, however,
that in the discretion of the Committee, any extraordinary distributions with
respect to the Common Stock shall be subject to the restrictions set forth in
Section 6.5.

        6.5. Restriction. All shares of Restricted Stock issued under this Plan
(including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other form
of recapitalization) shall, in the terms of each individual Restricted Stock
Agreement, be subject to such restrictions as the Committee shall provide, which
restrictions may include, without limitation, restrictions concerning voting
rights and transferability and restrictions based on duration of employment with
the Company, Company performance and individual performance; provided, however,
that by action taken after the Restricted Stock is issued, the Committee may, on
such terms and conditions as it may determine to be appropriate, remove any or
all of the restrictions imposed by the terms of the Restricted Stock Agreement.
Restricted Stock may not be sold or encumbered until all restrictions are



                                       13
<PAGE>   14



terminated or expire. Unless provided otherwise by the Committee, if no
consideration was paid by the Restricted Stockholder upon issuance, a Restricted
Stockholder's rights in unvested Restricted Stock shall lapse upon Termination
of Employment or, if applicable, upon Termination of Consultancy or Termination
of Directorship with the Company.

        6.6. Repurchase of Restricted Stock. The Committee shall provide in the
terms of each individual Restricted Stock Agreement that the Company shall have
the right to repurchase from the Restricted Stockholder the Restricted Stock
then subject to restrictions under the Restricted Stock Agreement immediately
upon a Termination of Employment or, if applicable, upon a Termination of
Consultancy or Termination of Directorship between the Restricted Stockholder
and the Company, at a cash price per share equal to the price paid by the
Restricted Stockholder for such Restricted Stock; provided, however, that
provision may be made that no such right of repurchase shall exist in the event
of a Termination of Employment or Termination of Consultancy without cause, or
following a change in control of the Company or because of the Restricted
Stockholder's retirement, death or disability, or otherwise.

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

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

                                  ARTICLE VII.

                    PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS,
                         DEFERRED STOCK, STOCK PAYMENTS

        7.1. Performance Awards. Any key Employee, Independent Director or
consultant selected by the Committee may be granted one or more Performance
Awards. The value of such Performance Awards may be linked to the market value,
book value, net profits or other measure of the value of Common Stock or other
specific performance criteria determined appropriate by the Committee, in each
case on a specified date or dates or over any period or periods determined by
the Committee, or may be based upon the appreciation in the market value, book
value, net profits or other measure of the value of a specified number of shares
of Common Stock over a fixed period or periods determined by the Committee. In
making such determinations, the Committee shall consider (among such other
factors as it deems relevant in light of the specific type of award) the
contributions, responsibilities and other compensation of the particular key
Employee, Independent Director or consultant.

        7.2. Dividend Equivalents. Any key Employee, Independent Director or
consultant selected by the Committee may be granted Dividend Equivalents based
on the dividends declared



                                       14
<PAGE>   15


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

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

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

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

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

        7.7. Exercise Upon Termination of Employment. A Performance Award,
Dividend Equivalent, award of Deferred Stock and/or Stock Payment is exercisable
or payable only while the Grantee is an Employee, Independent Director or
consultant; provided that the Committee may determine that the Performance
Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment may be
exercised or paid subsequent to Termination of Employment or



                                       15
<PAGE>   16


Termination of Consultancy without cause, or following a change in control of
the Company, or because of the Grantee's retirement, death or disability, or
otherwise.

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

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

                                  ARTICLE VIII.

                            STOCK APPRECIATION RIGHTS

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

        8.2. Coupled Stock Appreciation Rights

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

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




                                       16
<PAGE>   17

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

        8.3. Independent Stock Appreciation Rights

               (a) An Independent Stock Appreciation Right ("ISAR") shall be
unrelated to any Option and shall have a term set by the Committee. An ISAR
shall be exercisable in such installments as the Committee may determine. An
ISAR shall cover such number of shares of Common Stock as the Committee may
determine. The exercise price per share of Common Stock subject to each ISAR
shall be set by the Committee. An ISAR is exercisable only while the Grantee is
an Employee, Independent Director or consultant; provided that the Committee may
determine that the ISAR may be exercised subsequent to Termination of Employment
or Termination of Consultancy without cause, or following a change in control of
the Company, or because of the Grantee's retirement, death or disability, or
otherwise.

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

        8.4. Payment and Limitations on Exercise

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

               (b) Grantees of Stock Appreciation Rights may, in the discretion
of the Board or Committee, be required to comply with any timing or other
restrictions including a window-period requirement deemed advisable or prudent
by the Board or Committee or otherwise with respect to the settlement or
exercise of a Stock Appreciation Right.

        8.5. Consideration. In consideration of the granting of a Stock
Appreciation Right, the Grantee shall agree, in the written Stock Appreciation
Right Agreement, to remain in the employ of (or to consult for or serve as an
Independent Director of, as applicable) the Company or any Subsidiary for a
period of at least one year after the Stock Appreciation Right is granted or, in
the



                                       17
<PAGE>   18

case of an Independent Director, to the end of such Independent Director's
current Board term (or such shorter period as may be fixed in the Stock
Appreciation Right Agreement or by action of the Committee or the Board
following grant of the Restricted Stock). Nothing in this Plan or in any Stock
Appreciation Right Agreement hereunder shall confer on any Grantee any right to
continue in the employ of, or as a consultant for, the Company or any Subsidiary
or shall interfere with or restrict in any way the rights of the Company and any
Subsidiary, which are hereby expressly reserved, to discharge any Grantee at any
time for any reason whatsoever, with or without good cause.

                                   ARTICLE IX.

                                 ADMINISTRATION

        9.1. Compensation Committee. Prior to the closing of the Company's
initial public offering of equity securities (the "Offering"), the Compensation
Committee shall consist of the entire Board. Following the closing of the
Offering, the Compensation Committee (or another committee or a subcommittee of
the Board assuming the functions of the Committee under this Plan) shall consist
solely of two or more Independent Directors appointed by and holding office at
the pleasure of the Board, each of whom is (i) a "non-employee director" (as
defined by Rule 16b-3), (ii) to the extent required by the applicable provisions
of Rule 16b-3, a "disinterested person" (as defined by Rule 16b-3) and (iii) 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, awards of Restricted Stock or Deferred
Stock, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or
Stock Payments are granted or awarded, and to adopt such rules for the
administration, interpretation, and application of this Plan as are consistent
therewith and to interpret, amend or revoke any such rules. Notwithstanding the
foregoing, the full Board, acting by a majority of its members in office, shall
conduct the general administration of the Plan with respect to grants to
Independent Directors. Any such grant or award under this Plan need not be the
same with respect to each Optionee, Grantee or Restricted Stockholder. Any such
interpretations and rules with respect to Incentive Stock Options shall be
consistent with the provisions of Section 422 of the Code. In its absolute
discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under this Plan except with respect to
matters which under Rule 16b-3 or Section 162(m) of the Code, or any regulations
or rules issued thereunder, are required to be determined in the sole discretion
of the Committee.

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




                                       18
<PAGE>   19

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

                                   ARTICLE X.

                            MISCELLANEOUS PROVISIONS

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

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

        10.2. Amendment, Suspension or Termination of this Plan. Except as
otherwise provided in this Section 9.2, this Plan may be wholly or partially
amended or otherwise



                                       19
<PAGE>   20


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

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

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

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

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




                                       20
<PAGE>   21

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

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

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

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

                      (i) In its sole and absolute discretion, and on such terms
        and conditions as it deems appropriate, the Committee (or the Board, in
        the case of grants to Independent Directors) may provide, either by the
        terms of the agreement or by action taken prior to the occurrence of
        such transaction or event and either automatically or upon the
        Optionee's request, for either the purchase of any such Option,
        Performance Award, Stock Appreciation Right, Dividend Equivalent, or
        Stock Payment, or any Restricted Stock or Deferred Stock for an amount
        of cash equal to the amount that could have been attained upon the
        exercise of such option, right or award or realization of the Optionee's
        rights had such option, right or award been currently exercisable or
        payable or fully vested or the replacement of such option, right or
        award with other rights or property selected by the Committee (or the
        Board, in the case of grants to Independent Directors) in its sole
        discretion;

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




                                       21
<PAGE>   22

                      (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 grants to Independent Directors) may provide,
        either by the terms of such Option, Performance Award, Stock
        Appreciation Right, Dividend Equivalent, or Stock Payment, or Restricted
        Stock or Deferred Stock or by action taken prior to the occurrence of
        such transaction or event, that for a specified period of time prior to
        such transaction or event, such option, right or award shall be
        exercisable as to all shares covered thereby, notwithstanding anything
        to the contrary in (i) Section 4.4 or (ii) the provisions of such
        Option, Performance Award, Stock Appreciation Right, Dividend
        Equivalent, or Stock Payment, or Restricted Stock or Deferred Stock;

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

                      (vi) In its sole and absolute discretion, and on such
        terms and conditions as it deems appropriate, the Committee may provide
        either by the terms of a Restricted Stock award or Deferred Stock award
        or by action taken prior to the occurrence of such event that, for a
        specified period of time prior to such event, the restrictions imposed
        under a Restricted Stock Agreement or a Deferred Stock Agreement upon
        some or all shares of Restricted Stock or Deferred Stock may be
        terminated, and, in the case of Restricted Stock, some or all shares of
        such Restricted Stock may cease to be subject to repurchase under
        Section 6.6 or forfeiture under Section 6.5 after such event.

                      (vii) None of the foregoing discretionary terms of this
        Section 10.3(b) shall be permitted with respect to Options granted under
        Section 3.4(d) to Independent Directors to the extent that such
        discretion would be inconsistent with the applicable exemptive
        conditions of Rule 16b-3. In the event of a Change in Control or a
        Corporate Transaction, to the extent that the Board does not have the
        ability under Rule 16b-3 to



                                       22
<PAGE>   23


        take or to refrain from taking the discretionary actions set forth in
        Section 10.3(b)(iii) above, each Option granted to an Independent
        Director shall be exercisable as to all shares covered thereby upon such
        Change in Control or during the five days immediately preceding the
        consummation of such Corporate Transaction and subject to such
        consummation, notwithstanding anything to the contrary in Section 4.4 or
        the vesting schedule of such Options. In the event of a Corporate
        Transaction, to the extent that the Board does not have the ability
        under Rule 16b-3 to take or to refrain from taking the discretionary
        actions set forth in Section 10.3(b)(ii) above, no Option granted to an
        Independent Director may be exercised following such Corporate
        Transaction unless such Option is, in connection with such Corporate
        Transaction, either assumed by the successor or survivor corporation (or
        parent or subsidiary thereof) or replaced with a comparable right with
        respect to shares of the capital stock of the successor or survivor
        corporation (or parent or subsidiary thereof).

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

               (d) With respect to Incentive Stock Options and Options and Stock
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 stock 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 result in short-swing profits liability
under Section 16 or violate the exemptive conditions of Rule 16b-3 unless the
Committee (or the Board, in the case of grants to Independent Directors)
determines that the option or other award is not to comply with such exemptive
conditions. The number of shares of Common Stock subject to any option, right or
award shall always be rounded to the next whole number.

               (e) In the event of any Corporate Transaction or Change in
Control, each outstanding Option, Performance Award, Stock Appreciation Right,
Dividend Equivalent, Stock Payment, Restricted Stock or Deferred Stock award
shall, immediately prior to the effective date of the Corporate Transaction or
Change in Control, automatically become fully exercisable for all of the shares
of Common Stock underlying such right, as applicable, and may be exercised for
any or all of those shares as fully-vested shares of Common Stock.

        10.4. Approval of Plan by Stockholders. This Plan will be submitted for
the approval of the Company's stockholders within twelve months after the date
of the Board's initial adoption of this Plan. Options, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments may be granted and
Restricted Stock or Deferred Stock may be awarded prior to such stockholder
approval, provided that such Options, Performance Awards,



                                       23
<PAGE>   24


Stock Appreciation Rights, Dividend Equivalents or Stock Payments shall not be
exercisable and such Restricted Stock or Deferred Stock shall not vest prior to
the time when this Plan is approved by the stockholders, and provided further
that if such approval has not been obtained at the end of said twelve-month
period, all Options, Performance Awards, Stock Appreciation Rights, Dividend
Equivalents or Stock Payments previously granted and all Restricted Stock or
Deferred Stock previously awarded under this Plan shall thereupon be canceled
and become null and void.

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

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

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

        10.8. Limitations Applicable to Section 16 Persons and Performance-Based
Compensation. Notwithstanding any other provision of this Plan, this Plan, and
any Option, Performance Award, Stock Appreciation Right, Dividend Equivalent or
Stock Payment granted, or Restricted Stock or Deferred Stock awarded, to any
individual who is then subject to Section 16 of the Exchange Act, shall be
subject to any additional limitations set forth in any applicable



                                       24
<PAGE>   25


exemptive rule under Section 16 of the Exchange Act (including any amendment to
Rule 16b-3 of the Exchange Act) that are requirements for the application of
such exemptive rule. To the extent permitted by applicable law, the Plan,
Options, Performance Awards, Stock Appreciation Rights, Dividend Equivalents,
Stock Payments, Restricted Stock and Deferred Stock granted or awarded hereunder
shall be deemed amended to the extent necessary to conform to such applicable
exemptive rule. Furthermore, notwithstanding any other provision of this Plan,
any Option or Stock 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 qualification as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, and this Plan
shall be deemed amended to the extent necessary to conform to such requirements.

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

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

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




                                       25
<PAGE>   26

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







                                       26
<PAGE>   27

                         FORM OF STOCK OPTION AGREEMENT

               THIS STOCK OPTION AGREEMENT (the "Agreement"), dated as of
__________________, is made by and between Sunterra Corporation (formerly known
as Signature Resorts, Inc.), a Maryland corporation, hereinafter referred to as
"Company," and ________________, an [employee and consultant] of the Company,
hereinafter referred to as "Optionee":

               WHEREAS, the Company wishes to afford the Optionee the
opportunity to purchase shares of its $.01 par value Common Stock; and

               WHEREAS, the Company wishes to carry out the Plan (the terms of
which are hereby incorporated by reference and made a part of this Agreement);
and

               WHEREAS, the Committee, appointed to administer the Plan, has
determined that it would be to the advantage and best interest of the Company
and its shareholders to grant the Option provided for herein to the Optionee as
an inducement to enter into or remain in the service of the Company or its
Subsidiaries and as an incentive for increased efforts during such service, and
has advised the Company thereof and instructed the undersigned officers to issue
said Option;

               NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

               Whenever the following terms are used in this Agreement, they
shall have the meaning specified below unless the context clearly indicates to
the contrary. The masculine pronoun shall include the feminine and neuter, and
the singular the plural, where the context so indicates.

Section 1.1 - Board

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

Section 1.2 - Code

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

Section 1.3 - Committee

               "Committee" shall mean the Compensation Committee of the Board,
or a subcommittee of the Board, appointed as provided in Section 9.1 of the
Plan.



                                       1
<PAGE>   28

Section 1.4 - Common Stock

               "Common Stock" shall mean the common stock of the Company, par
value $.01 per share, and any equity security of the Company issued or
authorized to be issued in the future, but excluding any warrants, options or
other rights to purchase Common Stock. Debt securities of the Company
convertible into Common Stock shall be deemed equity securities of the Company.

Section 1.5 - Company

               "Company" shall mean Sunterra Corporation, a Maryland
corporation.

Section 1.6 - Director

               "Director" shall mean a member of the Board.

Section 1.7 - Employee

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

Section 1.8 - Exchange Act

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

Section 1.9 - Fair Market Value

               "Fair Market Value" of a share of Common Stock as of a given date
shall be (i) the mean between the highest and lowest selling price of a share of
Common Stock on the principal exchange on which shares of Common Stock are then
trading, if any, on such date, or if shares were not traded on such date, then
on the closest preceding date on which a trade occurred, or (ii) if Common Stock
is not traded on an exchange, the mean between the closing representative bid
and asked prices for the Common Stock on such date as reported by NASDAQ or, if
NASDAQ is not then in existence, by its successor quotation system; or (iii) if
Common Stock is not publicly traded, the Fair Market Value of a share of Common
Stock as established by the Committee acting in good faith.

Section 1.10 - Option

               "Option" shall mean a non-qualified stock option granted under
this Agreement and Article III of the Plan.

Section 1.11 - Optionee

               "Optionee" shall mean an Employee or consultant granted an Option
under this Agreement and the Plan.



                                       2
<PAGE>   29
Section 1.12 - Plan

               "Plan" shall mean The 1996 Equity Participation Plan of Sunterra
Corporation, formerly known as Signature Resorts, Inc., as amended.

Section 1.13 - 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.

Section 1.14 - Secretary

               "Secretary" shall mean the Secretary of the Company.

Section 1.15 - Securities Act

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

Section 1.16 - Subsidiary

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

Section 1.17 - Termination of Consultancy

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

Section 1.18 - Termination of Employment

               "Termination of Employment" shall mean the time when the
employee-employer relationship between the Optionee and the Company or any
Subsidiary is terminated for any reason, including, but not by way of
limitation, a termination by resignation, discharge, death, disability or
retirement; but excluding (i) terminations where there is a simultaneous



                                       3
<PAGE>   30
reemployment, continuing employment of an Optionee by the Company or any
Subsidiary, (ii) at the discretion of the Committee, terminations which result
in a temporary severance of the employee-employer relationship, and (iii) at the
discretion of the Committee, terminations which are followed by the simultaneous
establishment of a consulting relationship by the Company or a Subsidiary with
the former employee. The Committee, in its absolute discretion, shall determine
the effect of all matters and questions relating to Termination of Employment,
including, but not by way of limitation, the question of whether a Termination
of Employment resulted from a discharge for good cause, and all questions of
whether particular leaves of absence constitute Terminations of Employment.
Notwithstanding any other provision of this Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate an Employee's employment at
any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.

                                   ARTICLE II

                                 GRANT OF OPTION

Section 2.1 - Grant of Option

               In consideration of the Optionee's agreement to remain in the
employ of (or consult for) the Company or its Subsidiaries for a period of at
least ___ years after the commencement of Executive's employment with the
Company and for other good and valuable consideration, on the date hereof the
Company irrevocably grants to the Optionee the option to purchase any part or
all of an aggregate of ___________________________________________ shares of its
$.01 par value Common Stock upon the terms and conditions set forth in this
Agreement.

Section 2.2 - Purchase Price

               The per share purchase price of the shares of stock covered by
the Option shall be $_____, which is the per share Fair Market Value of such
shares as of the date hereof.

Section 2.3 - Consideration to Company

               In consideration of the granting of this Option by the Company,
the Optionee agrees to render faithful and efficient services to the Company or
a Subsidiary, with such duties and responsibilities as the Company shall from
time to time prescribe, for a period of at least _______ years after the
commencement of Executive's employment with the Company. Nothing in the Plan or
this Agreement shall confer upon any Optionee any right to continue in the
employ of, or as a consultant for, the Company or any Subsidiary, or as a
director of the Company, or shall interfere with or restrict in any way the
rights of the Company and any Subsidiary, which are hereby expressly reserved,
to discharge the Optionee at any time for any reason whatsoever, with or without
good cause[, subject to the terms of the Executive's Employment Agreement with
the Company.]

Section 2.4 - Adjustments in Option



                                       4
<PAGE>   31
               (a) In the event that the outstanding shares of the stock subject
to the Option are changed into or exchanged for a different number or kind of
shares of the Company or other securities of the Company, or of another
corporation, by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split up, stock dividend or
combination of shares, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares as to which the Option, or portions
thereof then unexercised, shall be exercisable, to the end that after such event
the Optionee's proportionate interest shall be maintained as before the
occurrence of such event. Such adjustment in the Option may include any
necessary corresponding adjustment in the Option price per share, but shall be
made without change in the total price applicable to the unexercised portion of
the Option (except for any change in the aggregate price resulting from
rounding-off of share quantities or prices). Any such adjustment made by the
Committee shall be final and binding upon the Optionee, the Company and all
other interested persons.

               (b) Notwithstanding the foregoing, in the event of such a
reorganization, merger, consolidation, recapitalization, reclassification, stock
split up, stock dividend or combination, or other adjustment or event which
results in shares of Common Stock being exchanged for or converted into cash,
securities or other property, the Company will have the right to terminate the
Plan as of the date of the exchange or conversion, in which case all options,
rights and other awards under this Plan shall become the right to receive such
cash, securities or other property, net of any applicable exercise price.

               (c) In the event of a "spin-off" or other substantial
distribution of assets of the Company which has a material diminutive effect
upon the Fair Market Value of the Company's Common Stock, the Board may in its
discretion make an appropriate and equitable adjustment to the Option to reflect
such diminution.

                                   ARTICLE III

                            PERIOD OF EXERCISABILITY

Section 3.1 - Commencement of Exercisability

               (a) Subject to Section 5.7, the Option shall become exercisable
in __________ cumulative installments as follows:




                                       5
<PAGE>   32

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

Section 3.2 - Duration of Exercisability

               The installments provided for in Section 3.1 are cumulative. Each
such installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.

Section 3.3 - Expiration of Option

               The Option may not be exercised to any extent by anyone after the
first to occur of the following events:

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

               (b) The time of the Optionee's Termination of Employment or
Termination of Consultancy unless such Termination of Employment or Termination
of Consultancy, as applicable, results from his death, his retirement, his
disability or his being discharged not for "Cause" (as defined in Section 5(c)
of the Employment Agreement dated the date hereof between Optionee and the
Company); or

               (c) The expiration of three (3) months from the date of the
Optionee's Termination of Employment or Termination of Consultancy by reason of
his retirement or his being discharged not for "Cause," unless the Optionee dies
within said three-month period; or

               (d) The expiration of one (1) year from the date of the
Optionee's Termination of Employment or Termination of Consultancy by reason of
his disability; or

               (e) The expiration of one (1) year from the date of the
Optionee's death; or

               (f) The effective date of either the merger or consolidation of
the Company with or into another corporation, the exchange of all or
substantially all of the assets of the Company for the securities of another
corporation, the acquisition by another corporation or



                                       6
<PAGE>   33
person of all or substantially all of the Company's assets or eighty percent
(80%) or more of the Company's then outstanding voting stock, or the liquidation
or dissolution of the Company. At least ten (10) days prior to the effective
date of such merger, consolidation, exchange, acquisition, liquidation or
dissolution, the Committee shall give the Optionee notice of such event if the
Option has then neither been fully exercised nor become unexercisable under this
Section 3.3.

                                   ARTICLE IV

                               EXERCISE OF OPTION

Section 4.1 - Person Eligible to Exercise

               During the lifetime of the Optionee, only he may exercise the
Option or any portion thereof. After the death of the Optionee, any exercisable
portion of the Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by his personal representative or
by any person empowered to do so under the Optionee's will or under the then
applicable laws of descent and distribution.

Section 4.2 - Partial Exercise

               Any exercisable portion of the Option or the entire Option, if
then wholly exercisable, may be exercised in whole or in part at any time prior
to the time when the Option or portion thereof becomes unexercisable under
Section 3.3; provided, however, that each partial exercise shall be for not less
than one thousand (1,000) shares and shall be for whole shares only.

Section 4.3 - Manner of Exercise

               The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or his office of all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
3.3:

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

               (b) (i) Full payment (in cash) for the shares with respect to
        which such Option or portion is exercised;

                      (ii) With the consent of the Committee, payment delayed
        for up to thirty (30) days from the date the Option, or portion thereof,
        is exercised; or

                      (iii) With the consent of the Committee, (A) shares of the
        Company's Common Stock owned by the Optionee duly endorsed for transfer
        to the Company or (B) subject to the timing requirements of Section 4.4,
        shares of the Company's Common Stock issuable to the Optionee upon
        exercise of the Option, with a Fair Market Value on



                                       7
<PAGE>   34
        the date of Option exercise equal to the aggregate purchase price of the
        shares with respect to which such Option or portion is exercised; or

                      (iv) With the consent of the Committee, property of any
        kind which constitutes good and valuable consideration; or

                      (v) With the consent of the Committee, a full recourse
        promissory note bearing interest (at no less than such rate as shall
        then preclude the imputation of interest under the Code or successor
        provision) and payable upon such terms as may be prescribed by the
        Committee or the Board. 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 Company when or where such loan or other extension of credit is
        prohibited by law; or

                      (vi) With the consent of the Committee, any combination of
        the consideration provided in the foregoing subparagraphs (iii), (iv)
        and (v); and

               (c) A bona fide written representation and agreement, in a form
satisfactory to the Committee or the Board, signed by the Optionee or other
person then entitled to exercise such Option or portion, stating that the shares
of stock are being acquired for his own account, for investment and without any
present intention of distributing or reselling said shares or any of them except
as may be permitted under the Securities Act and then applicable rules and
regulations thereunder, and that the Optionee or other person then entitled to
exercise such Option or portion will indemnify the Company against and hold it
free and harmless from any loss, damage, expense or liability resulting to the
Company if any sale or distribution of the shares by such person is contrary to
the representation and agreement referred to above. The Committee may, in its
absolute discretion, take whatever additional actions it deems appropriate to
insure the observance and performance of such representation and agreement and
to effect compliance with the Securities Act and any other federal or state
securities laws or regulations. Without limiting the generality of the
foregoing, the Committee may require an opinion of counsel acceptable to it to
the effect that any subsequent transfer of shares acquired on an Option exercise
does not violate the Securities Act, and may issue stop-transfer orders covering
such shares. Share certificates evidencing stock issued on exercise of this
Option shall bear an appropriate legend referring to the provisions of this
subsection (c) and the agreements herein. The written representation and
agreement referred to in the first sentence of this subsection (c) shall,
however, not be required if the shares to be issued pursuant to such exercise
have been registered under the Securities Act, and such registration is then
effective in respect of such shares; and

               (d) Full payment to the Company (or other employer corporation)
of all amounts which, under federal, state or local tax law, it is required to
withhold upon exercise of the Option; with the consent of the Committee, (i)
shares of the Company's Common Stock owned by the Optionee duly endorsed for
transfer, or (ii) subject to the timing requirements of Section 4.4, shares of
the Company's Common Stock issuable to the Optionee upon exercise of the Option,
having a Fair Market Value at the date of Option exercise equal to the sums
required to be withheld, may be used to make all or part of such payment; and



                                       8
<PAGE>   35

               (e) In the event the Option or portion shall be exercised
pursuant to Section 4.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the Option.

Section 4.4 - Certain Timing Requirements

               Shares of the Company's Common Stock issuable to the Optionee
upon exercise of the Option may be used to satisfy the Option price or the tax
withholding consequences of such exercise only (i) during the period beginning
on the third (3rd) business day following the date of release of the quarterly
or annual summary statement of sales and earnings of the Company and ending on
the twelfth (12th) business day following such date or (ii) pursuant to an
irrevocable written election by the Optionee to use shares of the Company's
Common Stock issuable to the Optionee upon exercise of the Option to pay all or
part of the Option price or the withholding taxes (subject to the approval of
the Committee) made at least six (6) months prior to the payment of such Option
price or withholding taxes.

Section 4.5 - Conditions to Issuance of Stock Certificates

                The shares of stock deliverable upon the exercise of the Option,
or any portion thereof, may be either previously authorized but unissued shares
or issued shares which have then been reacquired by the Company. Such shares
shall be fully paid and nonassessable. The Company shall not be required to
issue or deliver any certificate or certificates for shares of stock purchased
upon the exercise of the Option or portion thereof prior to fulfillment of all
of the following conditions:

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

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

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

               (d) The receipt by the Company of full payment for such shares,
including payment of all amounts which, under federal, state or local tax law,
it is required to withhold upon exercise of the Option; and

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

Section 4.6 - Rights as Shareholder



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<PAGE>   36

               The holder of the Option shall not be, nor have any of the rights
or privileges of, a shareholder of the Company in respect of any shares
purchasable upon the exercise of any part of the Option unless and until
certificates representing such shares shall have been issued by the Company to
such holder.

                                    ARTICLE V

                                OTHER PROVISIONS

Section 5.1 - Administration

               The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Committee in good faith shall be final and binding upon the
Optionee, the Company and all other interested persons. No member of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Option. 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.

Section 5.2 - Option Not Transferable

               Neither the Option nor any interest or right therein or part
thereof shall be liable for the debts, contracts or engagements of the Optionee
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; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.

Section 5.3 - Shares to Be Reserved

               The Company shall at all times during the term of the Option
reserve and keep available such number of shares of stock as will be sufficient
to satisfy the requirements of this Agreement.

Section 5.4 - Notices

               Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to



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<PAGE>   37

be given to him. Any notice which is required to be given to the Optionee shall,
if the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall be
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.

Section 5.5 - Titles

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

Section 5.6 - Construction

               This Agreement shall be administered, interpreted and enforced
under the laws of the State of Maryland.

Section 5.7 - Conformity to Securities Laws

               The Optionee acknowledges that the Plan is intended to conform to
the extent necessary with all provisions of the Securities Act and the Exchange
Act and any and all regulations and rules promulgated by the Securities and
Exchange Commission thereunder, including without limitation Rule 16b-3.
Notwithstanding anything herein to the contrary, the Plan shall be administered,
and the Option is granted and may be exercised, only in such a manner as to
conform to such laws, rules and regulations. To the extent permitted by
applicable law, the Plan and this Agreement shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.



                           [Signature Page to Follow]

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<PAGE>   38

               IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto.


                                    Sunterra Corporation


                                    --------------------------------------------
                                    By:  
                                    Its: 


                                    --------------------------------------------
                                    By:  
                                    Its: 



----------------------------
        Optionee

----------------------------

----------------------------
        Address

Optionee's Taxpayer
Identification Number:


----------------------------



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