EXHIBIT 10.20


                                  EXOGEN, INC.
                      1995 STOCK OPTION/STOCK ISSUANCE PLAN
                      -------------------------------------

                     (As Amended through November 14, 1997)
                     --------------------------------------

                                   ARTICLE ONE

                               GENERAL PROVISIONS
                               ------------------


        I.        PURPOSE OF THE PLAN

                  This 1995 Stock  Option/Stock  Issuance  Plan is  intended  to
promote the  interests  of Exogen,  Inc., a Delaware  corporation,  by providing
eligible  persons with the  opportunity  to acquire a proprietary  interest,  or
otherwise  increase  their  proprietary  interest,  in  the  Corporation  as  an
incentive for them to remain in the service of the Corporation.

                  Capitalized  terms  shall have the  meanings  assigned to such
terms in the attached Appendix.

       II.        STRUCTURE OF THE PLAN

                  A. The  Plan  shall  be  divided  into  four  separate  equity
programs:

                                  (i) the  Discretionary  Option  Grant  Program
         under  which  eligible  persons  may,  at the  discretion  of the  Plan
         Administrator, be granted options to purchase shares of Common Stock,

                                  (ii)  the  Salary   Investment   Option  Grant
         Program under which  eligible  employees may elect to have a portion of
         their base salary  invested each year in options to purchase  shares of
         Common Stock,

                                  (iii) the Stock  Issuance  Program under which
         eligible persons may, at the discretion of the Plan  Administrator,  be
         issued shares of Common Stock  directly,  either  through the immediate
         purchase  of  such  shares  or as a bonus  for  services  rendered  the
         Corporation (or any Parent or Subsidiary), and

                                  (iv) the Automatic  Option Grant Program under
         which Eligible Directors shall  automatically  receive option grants at
         periodic intervals to purchase shares of Common Stock.

                  B. The  provisions  of Articles One and Six shall apply to all
equity programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.

      III.        ADMINISTRATION OF THE PLAN

                  A.  The  Board  shall  have   authority  to   administer   the
Discretionary  Option Grant,  Salary  Investment Option Grant and Stock Issuance
Programs with respect to Section 16 Insiders. However the Board may, at its sole
discretion, delegate such authority to the Primary Committee.
<PAGE>
                  B.  Administration of the Discretionary  Option Grant,  Salary
Investment  Option Grant and Stock  Issuance  Programs with respect to all other
persons   eligible  to  participate  in  those  programs  may,  at  the  Board's
discretion,  be vested in the Primary Committee or a Secondary Committee, or the
Board may retain the power to  administer  those  programs  with respect to such
persons.

                  C. Members of the Primary Committee or any Secondary Committee
shall  serve  for such  period of time as the  Board  may  determine  and may be
removed by the Board at any time.  The Board may also at any time  terminate the
functions of any  committee  and reassume  all powers and  authority  previously
delegated to such committee.

                  D.  Each Plan  Administrator  shall,  within  the scope of its
administrative  functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper  administration of the  Discretionary  Option Grant,
Salary  Investment  Option  Grant and Stock  Issuance  Programs and to make such
determinations  under, and issue such interpretations of, the provisions of such
programs and any  outstanding  options or stock  issuances  thereunder as it may
deem  necessary or  advisable.  Decisions of the Plan  Administrator  within the
scope of its administrative  functions under the Plan shall be final and binding
on all parties who have an interest in the  Discretionary  Option Grant,  Salary
Investment  Option Grant or Stock Issuance Program under its jurisdiction or any
option or stock issuance thereunder.

                  E. Service on the Primary Committee or the Secondary Committee
shall constitute  service as a Board member,  and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee.  No member of the Primary Committee
or the Secondary  Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.

                  F.  Administration of the Automatic Option Grant Program shall
be  self-executing  in accordance  with the terms of that  program,  and no Plan
Administrator shall exercise any discretionary  functions with respect to option
grants made thereunder.

      IV.         ELIGIBILITY

                  A. The persons  eligible to participate  in the  Discretionary
Option Grant and Stock Issuance Programs are as follows:

                                 (i) Employees,

                                 (ii)  non-employee  members of the Board or the
         board of directors of any Parent or Subsidiary, and

                                 (iii)   consultants   and   other   independent
         advisors  who  provide  services to the  Corporation  (or any Parent or
         Subsidiary).

                  B. Only  Employees  shall be  eligible to  participate  in the
Salary Investment Option Grant Program.
<PAGE>
                  C.  Each Plan  Administrator  shall,  within  the scope of its
administrative  jurisdiction  under the Plan,  have full authority to determine,
(i) with respect to the option grants under the  Discretionary  Option Grant and
Salary Investment  Option Grant Programs,  which eligible persons are to receive
option  grants,  the time or times when such option  grants are to be made,  the
number of shares to be covered  by each such  grant,  the status of the  granted
option as either an  Incentive  Option or a  Non-Statutory  Option,  the time or
times at which each option is to become  exercisable,  the vesting  schedule (if
any)  applicable  to the option shares and the maximum term for which the option
is to remain  outstanding  and (ii) with  respect to stock  issuances  under the
Stock Issuance  Program,  which eligible persons are to receive stock issuances,
the time or times when such issuances are to be made, the number of shares to be
issued to each  Participant,  the vesting  schedule (if any)  applicable  to the
issued  shares  and the  consideration  to be paid by the  Participant  for such
shares.

                  D. The Plan Administrator  shall have the absolute  discretion
either to grant options in accordance with the Discretionary Option Grant and/or
Salary  Investment  Option  Grant  Program  or  to  effect  stock  issuances  in
accordance with the Stock Issuance Program.

                  E. The  individuals  eligible to  participate in the Automatic
Option Grant Program shall be those  individuals  who first become  non-employee
Board members after the Effective Date, whether through appointment by the Board
or  election  by the  Corporation's  stockholders,  and  those  individuals  who
continue to serve as  non-employee  Board members  after the  Effective  Date. A
non-employee  Board  member  who  has  previously  been  in  the  employ  of the
Corporation  (or any Parent or  Subsidiary)  shall not be eligible to receive an
option  grant under the  Automatic  Option  Grant  Program at the time he or she
first becomes a non-employee Board member, but such individual shall be eligible
to receive  periodic option grants under the Automatic Option Grant Program upon
his or her  continued  service  as a  non-employee  Board  member at one or more
Annual Stockholders Meetings.

        V.        STOCK SUBJECT TO THE PLAN

                  A. The  stock  issuable  under  the Plan  shall be  shares  of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the  Corporation  on the open market.  The maximum number of shares of Common
Stock which may be issued  over the term of the Plan shall not exceed  1,350,000
shares.  Such authorized  share reserve reflects the 1-for-2 reverse stock split
effected  prior to the  Effective  Date and is  comprised  of (i) the  number of
shares which remained  available for issuance,  as of the Effective Date,  under
the  Predecessor  Plan  as  last  approved  by the  Corporation's  stockholders,
including the shares subject to the outstanding  options  incorporated  into the
Plan and any other  shares  which would have been  available  for future  option
grants under the Predecessor Plan, (ii) an increase of 500,000 shares authorized
by the  Board  and  approved  by the  Corporation's  stockholders  prior  to the
Effective Date and (iii) an increase of 600,000  shares  authorized by the Board
in November 1997,  subject to approval by the Corporation's  stockholders at the
1998 Annual Meeting.

                  B.  No one  person  participating  in  the  Plan  may  receive
options,  separately  exercisable  stock  appreciation  rights and direct  stock
issuances for more than 300,000 shares of Common Stock per calendar year.
<PAGE>
                  C. Shares of Common Stock subject to outstanding options shall
be  available  for  subsequent  issuance  under the Plan to the  extent  (i) the
options (including any options incorporated from the Predecessor Plan) expire or
terminate  for any reason  prior to  exercise  in full or (ii) the  options  are
cancelled in accordance with the cancellation-regrant provisions of Article Two.
Unvested shares issued under the Plan and subsequently  cancelled or repurchased
by the  Corporation,  at the  original  exercise or direct  issue price paid per
share,  pursuant to the Corporation's  repurchase rights under the Plan shall be
added back to the number of shares of Common Stock  reserved for issuance  under
the Plan and shall  accordingly be available for reissuance  through one or more
subsequent  option  grants or direct stock  issuances  under the Plan.  However,
shares  subject  to  any  options  surrendered  in  connection  with  the  stock
appreciation right provisions of the Plan shall not be available for reissuance.
In addition,  should the exercise  price of an option under the Plan  (including
any option incorporated from the Predecessor Plan) be paid with shares of Common
Stock or should  shares of Common  Stock  otherwise  issuable  under the Plan be
withheld by the Corporation in satisfaction of the withholding taxes incurred in
connection  with the  exercise of an option or the  vesting of a stock  issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan  shall be  reduced  by the gross  number of shares  for which the
option is exercised or which vest under the stock  issuance,  and not by the net
number of shares of Common  Stock  issued to the holder of such  option or stock
issuance.

                  D. Should any change be made to the Common  Stock by reason of
any stock  split,  stock  dividend,  recapitalization,  combination  of  shares,
exchange of shares or other change  affecting the outstanding  Common Stock as a
class  without  the   Corporation's   receipt  of   consideration,   appropriate
adjustments  shall be made to (i) the maximum  number and/or class of securities
issuable  under the Plan,  (ii) the number and/or class of securities  for which
any one person may be granted options, separately exercisable stock appreciation
rights and direct stock  issuances  per calendar  year,  (iii) the number and/or
class of securities  for which  automatic  option grants are to be  subsequently
made per Eligible Director under the Automatic Option Grant Program and (iv) the
number  and/or class of  securities  and the exercise  price per share in effect
under  each  outstanding  option  (including  any option  incorporated  from the
Predecessor  Plan) in order to prevent the dilution or  enlargement  of benefits
thereunder. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
<PAGE>
                                   ARTICLE TWO

                       DISCRETIONARY OPTION GRANT PROGRAM


        I.        OPTION TERMS

                  Each option shall be evidenced by one or more documents in the
form  approved  by the Plan  Administrator;  provided,  however,  that each such
document shall comply with the terms specified below.  Each document  evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.

                  A. Exercise Price.

                           1. The exercise price per share shall be fixed by the
Plan Administrator but shall not be less than the Fair Market Value per share of
Common Stock on the option grant date.

                           2. The exercise  price shall become  immediately  due
upon exercise of the option and shall, subject to the provisions of Section I of
Article Six and the documents  evidencing the option,  be payable in one or more
of the forms specified below:

                                  (i)  cash  or  check   made   payable  to  the
         Corporation,

                                  (ii)  shares  of  Common  Stock  held  for the
         requisite  period  necessary  to  avoid a charge  to the  Corporation's
         earnings  for  financial  reporting  purposes and valued at Fair Market
         Value on the Exercise Date, or

                                  (iii) to the extent  the  option is  exercised
         for vested  shares,  through a special  sale and  remittance  procedure
         pursuant to which the Optionee shall concurrently  provide  irrevocable
         written instructions to (a) a Corporation-designated  brokerage firm to
         effect  the  immediate  sale of the  purchased  shares and remit to the
         Corporation, out of the sale proceeds available on the settlement date,
         sufficient funds to cover the aggregate  exercise price payable for the
         purchased  shares plus all applicable  Federal,  state and local income
         and  employment  taxes  required to be withheld by the  Corporation  by
         reason  of such  exercise  and  (b)  the  Corporation  to  deliver  the
         certificates  for the purchased  shares directly to such brokerage firm
         in order to complete the sale transaction.

                  Except to the extent  such sale and  remittance  procedure  is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.

                  B.  Exercise  and  Term  of  Options.  Each  option  shall  be
exercisable  at such time or times,  during  such  period and for such number of
shares as shall be  determined  by the Plan  Administrator  and set forth in the
documents evidencing the option.  However, no option shall have a term in excess
of ten (10) years measured from the option grant date.
<PAGE>
                  C. Effect of Termination of Service.

                           1. The following provisions shall govern the exercise
of any  options  held by the  Optionee  at the time of  cessation  of Service or
death:

                                (i) Any  option  outstanding  at the time of the
         Optionee's cessation of Service for any reason shall remain exercisable
         for such period of time  thereafter  as shall be determined by the Plan
         Administrator and set forth in the documents evidencing the option, but
         no such option shall be exercisable  after the expiration of the option
         term.

                                (ii) Any option  exercisable in whole or in part
         by the Optionee at the time of death may be  subsequently  exercised by
         the personal  representative  of the Optionee's estate or by the person
         or persons to whom the option is transferred pursuant to the Optionee's
         will or in accordance with the laws of descent and distribution.

                                (iii)   During   the   applicable   post-Service
         exercise  period,  the option may not be exercised in the aggregate for
         more  than the  number  of  vested  shares  for  which  the  option  is
         exercisable  on the date of the Optionee's  cessation of Service.  Upon
         the expiration of the applicable  exercise  period or (if earlier) upon
         the expiration of the option term, the option shall terminate and cease
         to be  outstanding  for any vested  shares for which the option has not
         been  exercised.  However,  the  option  shall,  immediately  upon  the
         Optionee's cessation of Service,  terminate and cease to be outstanding
         to the extent it is not otherwise at that time  exercisable  for vested
         shares.

                                (iv) Should the Optionee's Service be terminated
         for Misconduct, then all outstanding options held by the Optionee shall
         terminate immediately and cease to be outstanding.

                                (v) In the event of an  Involuntary  Termination
         following a Corporate Transaction,the provisions of Section III of this
         Article Two shall govern the period for which the  outstanding  options
         are to remain exercisable following the Optionee's cessation of Service
         and shall supersede any provisions to the contrary in this Section.

                           2. The Plan Administrator  shall have the discretion,
exercisable  either at the time an option is  granted  or at any time  while the
option remains outstanding, to:

                                (i)  extend  the  period  of time for  which the
         option is to remain exercisable  following the Optionee's  cessation of
         Service  from the period  otherwise  in effect for that  option to such
         greater   period  of  time  as  the  Plan   Administrator   shall  deem
         appropriate,  but in no event beyond the expiration of the option term,
         and/or
<PAGE>
                                (ii) permit the option to be  exercised,  during
         the applicable  post-Service  exercise period, not only with respect to
         the number of vested  shares of Common  Stock for which such  option is
         exercisable at the time of the Optionee's cessation of Service but also
         with  respect  to one or more  additional  installments  in  which  the
         Optionee would have vested under the option had the Optionee  continued
         in Service.

                  D. Stockholder  Rights.  The holder of an option shall have no
stockholder  rights with respect to the shares  subject to the option until such
person shall have  exercised  the option,  paid the exercise  price and become a
holder of record of the purchased shares.

                  E. Repurchase Rights.  The Plan  Administrator  shall have the
discretion to grant options which are  exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation  shall have the right to repurchase,  at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable  (including the period and procedure for exercise and
the appropriate  vesting schedule for the purchased shares) shall be established
by the  Plan  Administrator  and  set  forth  in the  document  evidencing  such
repurchase right.

                  F. Limited  Transferability of Options. During the lifetime of
the Optionee,  Incentive  Options shall be exercisable  only by the Optionee and
shall not be  assignable  or  transferable  other than by will or by the laws of
descent and distribution  following the Optionee's death. However,  Nonstatutory
Options may, in connection with the Optionee's estate plan, be assigned in whole
or in  part  during  the  Optionee's  lifetime  to one or  more  members  of the
Optionee's  immediate  family or to a trust  established  exclusively for one or
more such family  members.  The  assigned  portion may only be  exercised by the
person or persons who acquire a proprietary  interest in the option  pursuant to
the assignment.  The terms  applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan  Administrator
may deem appropriate.

      II.         INCENTIVE OPTIONS

                  The terms specified below shall be applicable to all Incentive
Options.  Except as  modified  by the  provisions  of this  Section  II, all the
provisions  of  Articles  One,  Two and Six  shall be  applicable  to  Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.

                  A.  Eligibility.  Incentive  Options  may only be  granted  to
Employees.

                  B.  Dollar   Limitation.   The  aggregate  Fair  Market  Value
(determined as of the respective date or dates of grant) of the shares of Common
Stock for which one or more options  granted to any Employee  under the Plan (or
any other option plan of the  Corporation or any Parent or  Subsidiary)  may for
the first  time  become  exercisable  as  Incentive  Options  during any one (1)
calendar  year  shall  not  exceed  the  sum of  One  Hundred  Thousand  Dollars
($100,000).  To the extent the Employee holds two (2) or more such options which
become  exercisable  for the first time in the same calendar year, the foregoing
limitation on the  exercisability  of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
<PAGE>
                  C.  10%  Stockholder.  If any  Employee  to whom an  Incentive
Option is granted is a 10% Stockholder,  then the exercise price per share shall
not be less than one  hundred ten  percent  (110%) of the Fair Market  Value per
share of Common  Stock on the option  grant date,  and the option term shall not
exceed five (5) years measured from the option grant date.

      III.        CORPORATE TRANSACTION/CHANGE IN CONTROL

                  A. In the event of any Corporate Transaction, each outstanding
option  shall   automatically   accelerate  so  that  each  such  option  shall,
immediately  prior to the effective  date of the Corporate  Transaction,  become
fully  exercisable  for all of the shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as  fully-vested
shares of Common Stock.  However,  an outstanding option shall not so accelerate
if and to the  extent:  (i) such  option is, in  connection  with the  Corporate
Transaction,  either to be  assumed  by the  successor  corporation  (or  parent
thereof) or to be replaced  with a comparable  option to purchase  shares of the
capital stock of the successor corporation (or parent thereof), (ii) such option
is to be replaced with a cash  incentive  program of the  successor  corporation
which preserves the spread existing on the unvested option shares at the time of
the Corporate  Transaction and provides for subsequent payout in accordance with
the same vesting schedule applicable to such option or (iii) the acceleration of
such option is subject to other limitations imposed by the Plan Administrator at
the time of the option grant. The  determination of option  comparability  under
clause (i) above shall be made by the Plan Administrator,  and its determination
shall be final, binding and conclusive.

                  B. All  outstanding  repurchase  rights  shall also  terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall  immediately  vest in full,  in the  event of any  Corporate  Transaction,
except to the  extent:  (i) those  repurchase  rights are to be  assigned to the
successor  corporation  (or parent  thereof) in connection  with such  Corporate
Transaction or (ii) such accelerated  vesting is precluded by other  limitations
imposed by the Plan Administrator at the time the repurchase right is issued.

                  C.  Immediately  following the  consummation  of the Corporate
Transaction,   all   outstanding   options  shall  terminate  and  cease  to  be
outstanding,  except to the extent  assumed  by the  successor  corporation  (or
parent thereof).

                  D. Each option which is assumed in connection with a Corporate
Transaction  shall be appropriately  adjusted,  immediately after such Corporate
Transaction,  to apply to the number and class of  securities  which  would have
been issuable to the Optionee in consummation of such Corporate  Transaction had
the option  been  exercised  immediately  prior to such  Corporate  Transaction.
Appropriate  adjustments  shall  also be made to (i) the  number  and  class  of
securities  available  for issuance  under the Plan on both an aggregate and per
individual  basis following the  consummation of such Corporate  Transaction and
(ii) the  exercise  price  payable  per share  under  each  outstanding  option,
provided the aggregate  exercise price payable for such securities  shall remain
the same.

                  E. Any options  which are assumed or replaced in the Corporate
Transaction  and do not otherwise  accelerate  at that time shall  automatically
accelerate (and any of the Corporation's  outstanding repurchase rights which do
not  otherwise  terminate  at  the  time  of  the  Corporate  Transaction  shall
automatically  terminate  and the  shares  of  Common  Stock  subject  to  those
<PAGE>
terminated  rights shall  immediately  vest in full) in the event the Optionee's
Service should  subsequently  terminate by reason of an Involuntary  Termination
within  eighteen  (18) months  following the  effective  date of such  Corporate
Transaction.   Any  options  so  accelerated   shall  remain   exercisable   for
fully-vested  shares until the earlier of (i) the  expiration of the option term
or (ii) the  expiration of the one (1)-year  period  measured from the effective
date of the Involuntary Termination.

                  F. Each outstanding option shall automatically accelerate (and
any outstanding  repurchase rights shall automatically  terminate and the shares
of Common Stock subject to those  terminated  rights shall  immediately  vest in
full) in the event  the  Optionee's  Service  should  terminate  by reason of an
Involuntary Termination within eighteen (18) months following the effective date
of a Change in Control.  Any options so accelerated shall remain exercisable for
fully-vested  shares until the earlier of (i) the  expiration of the option term
(ii) the expiration of the one (1)-year  period measured from the effective date
of the Involuntary Termination.

                  G.  The  portion  of  any  Incentive  Option   accelerated  in
connection  with a  Corporate  Transaction  or Change in  Control  shall  remain
exercisable as an Incentive Option only to the extent the applicable One Hundred
Thousand Dollar limitation is not exceeded. To the extent such dollar limitation
is exceeded,  the  accelerated  portion of such option shall be exercisable as a
Non-Statutory Option under the Federal tax laws.

                  H. The grant of options under the  Discretionary  Option Grant
Program  shall  in no way  affect  the  right  of  the  Corporation  to  adjust,
reclassify,  reorganize or otherwise change its capital or business structure or
to merge, consolidate,  dissolve,  liquidate or sell or transfer all or any part
of its business or assets.

       IV.        CANCELLATION AND REGRANT OF OPTIONS

                  The Plan Administrator  shall have the authority to effect, at
any time and from time to time, with the consent of the affected option holders,
the  cancellation  of any or all  outstanding  options  under the  Discretionary
Option  Grant  Program  (including  outstanding  options  incorporated  from the
Predecessor  Plan) and to grant in substitution new options covering the same or
different  number of shares of Common Stock but with an exercise price per share
based on the Fair Market Value per share of Common Stock on the new option grant
date.

        V.        STOCK APPRECIATION RIGHTS

                  A. The Plan Administrator  shall have full power and authority
to grant to selected Optionees tandem stock  appreciation  rights and/or limited
stock appreciation rights.

                  B. The following  terms shall govern the grant and exercise of
tandem stock appreciation rights:

                                  (i) One or more  Optionees  may be granted the
         right,  exercisable  upon  such  terms  as the Plan  Administrator  may
         establish,  to elect between the exercise of the underlying  option for
         shares of Common Stock and the surrender of that option in exchange for
         a distribution from the Corporation in an amount equal to the excess of
<PAGE>
         (a) the Fair Market Value (on the option  surrender date) of the number
         of  shares  in which  the  Optionee  is at the time  vested  under  the
         surrendered  option  (or  surrendered  portion  thereof)  over  (b) the
         aggregate exercise price payable for such shares.

                                  (ii)  No  such  option   surrender   shall  be
         effective  unless  it is  approved  by the Plan  Administrator.  If the
         surrender is so approved,  then the  distribution to which the Optionee
         shall be entitled  may be made in shares of Common Stock valued at Fair
         Market Value on the option surrender date, in cash, or partly in shares
         and  partly  in  cash,  as the  Plan  Administrator  shall  in its sole
         discretion deem appropriate.

                                  (iii)  If  the   surrender  of  an  option  is
         rejected by the Plan  Administrator,  then the  Optionee  shall  retain
         whatever  rights  the  Optionee  had under the  surrendered  option (or
         surrendered  portion  thereof)  on the  option  surrender  date and may
         exercise  such  rights  at any time  prior to the later of (a) five (5)
         business days after the receipt of the rejection notice or (b) the last
         day on which the option is otherwise exercisable in accordance with the
         terms of the documents evidencing such option, but in no event may such
         rights be  exercised  more than ten (10) years  after the option  grant
         date.

                  C. The following  terms shall govern the grant and exercise of
limited stock appreciation rights:

                                 (i)  One or more  Section  16  Insiders  may be
         granted  limited  stock  appreciation  rights  with  respect  to  their
         outstanding options.

                                 (ii)   Upon  the   occurrence   of  a   Hostile
         Take-Over, each such individual holding one or more options with such a
         limited stock  appreciation  right shall have the  unconditional  right
         (exercisable  for a  thirty  (30)-day  period  following  such  Hostile
         Take-Over)  to surrender  each such option to the  Corporation,  to the
         extent  the  option is at the time  exercisable  for  vested  shares of
         Common Stock. In return for the surrendered  option, the Optionee shall
         receive a cash  distribution from the Corporation in an amount equal to
         the excess of (a) the  Take-Over  Price of the  shares of Common  Stock
         which  are at  the  time  vested  under  each  surrendered  option  (or
         surrendered  portion  thereof)  over (b) the aggregate  exercise  price
         payable for such shares.  Such cash  distribution  shall be paid within
         five (5) days following the option surrender date.

                                 (iii) The Plan Administrator shall pre-approve,
         at the time the limited right is granted,  the  subsequent  exercise of
         that right in accordance with the terms of the grant and the provisions
         of this  Section V. No  additional  approval of the Plan  Administrator
         shall be required at the time of the actual  option  surrender and cash
         distribution.

                                 (iv) The  balance  of the option (if any) shall
         continue  in full force and  effect in  accordance  with the  documents
         evidencing such option.

<PAGE>
                                  ARTICLE THREE

                     SALARY INVESTMENT OPTION GRANT PROGRAM

        I.        OPTION GRANTS

                  The  Primary  Committee  shall  have the  sole  and  exclusive
authority to determine  the calendar year or years (if any) for which the Salary
Investment  Option  Program  is to be in  effect  and to  select  the  Employees
eligible to participate in the Salary  Investment  Option Grant Program for such
calendar year or years.  Each selected Employee who elects to participate in the
Salary Investment Option Grant Program must, prior to the start of each calendar
year of  participation,  file with the Plan  Administrator (or its designate) an
irrevocable  authorization  directing the  Corporation to reduce his or her base
salary for that  calendar  year by a  designated  multiple of one percent  (1%).
However, the amount of such salary reduction must be not less than Five Thousand
Dollars  ($5,000.00)  and must not be more than the lesser of (i) twenty percent
(20%) of his or her rate of base  salary for the  calendar  year or (ii)  Twenty
Thousand  Dollars  ($20,000.00).  Each  individual  who  files a  proper  salary
reduction  authorization  shall  automatically  be granted an option  under this
Salary  Investment  Option Grant  Program on the first trading day in January of
the calendar year for which that salary reduction is to be in effect.

       II.        OPTION TERMS

                  Each option shall be a Non-Statutory  Option  evidenced by one
or more  documents  in the form  approved by the Plan  Administrator;  provided,
however, that each such document shall comply with the terms specified below.

                  A.       Exercise Price.

                           1. The exercise price per share shall be thirty-three
and  one-third  percent  (33-1/3%)  of the Fair Market Value per share of Common
Stock on the option grant date.

                           2. The exercise  price shall become  immediately  due
upon  exercise  of the  option  and  shall  be  payable  in one or  more  of the
alternative  forms  authorized  under the  Discretionary  Option Grant  Program.
Except to the extent the sale and remittance  procedure specified  thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.

                  B.  Number of Option  Shares.  The  number of shares of Common
Stock  subject to the  option  shall be  determined  pursuant  to the  following
formula (rounded down to the nearest whole number):



                           X = A / (B x 66-2/3%), where

                           X is the number of option shares,

                           A is the dollar amount of the Optionee's  base salary
                           reduction for the calendar year, and

                           B is the Fair Market  Value per share of Common Stock
                           on the option grant date.
<PAGE>
                  C.  Exercise  and Term of  Options.  The option  shall  become
exercisable  in a series of twelve (12)  successive  equal monthly  installments
upon the Optionee's completion of each calendar month of Service in the calendar
year for which the salary  reduction  is in  effect.  Each  option  shall have a
maximum term of ten (10) years measured from the option grant date.

                  D. Effect of Termination of Service. Should the Optionee cease
Service for any reason  while  holding one or more  options  under this  Article
Three,  then each such option  shall remain  exercisable,  for any or all of the
shares  for which the option is  exercisable  at the time of such  cessation  of
Service,  until the earlier of (i) the  expiration of the ten  (10)-year  option
term or (ii) the expiration of the two (2)-year period measured from the date of
such  cessation of Service.  Should the  Optionee die while  holding one or more
options under this Article  Three,  then each such option may be exercised,  for
any or all of the shares for which the option is  exercisable at the time of the
Optionee's  cessation of Service (less any shares subsequently  purchased by the
Optionee  prior to death),  by the  personal  representative  of the  Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and  distribution.
Such right of exercise  shall lapse,  and the option shall  terminate,  upon the
earlier of (i) the  expiration of the ten (10)-year  option term or (ii) the two
(2)-year period  measured from the date of the Optionee's  cessation of Service.
However, the option shall,  immediately upon the Optionee's cessation of Service
for any reason,  terminate and cease to remain  outstanding  with respect to any
and all  shares of Common  Stock for which the option is not  otherwise  at that
time exercisable.

      III.        CORPORATE TRANSACTION/CHANGE IN CONTROL

                  A.  In  the  event  of any  Corporate  Transaction  while  the
Optionee remains in Service, each outstanding option held by such Optionee under
this Salary  Investment Option Grant Program shall  automatically  accelerate so
that each such option  shall,  immediately  prior to the  effective  date of the
Corporate Transaction,  become fully exercisable for all of the shares of Common
Stock at the time subject to such option and may be exercised  for any or all of
those  shares as  fully-vested  shares of Common  Stock.  Each such  outstanding
option shall be assumed by the successor  corporation (or parent thereof) in the
Corporate  Transaction and shall remain exercisable for the fully-vested  shares
until  the  earlier  of (i) the  expiration  of the  option  term  or  (ii)  the
expiration  of the two  (2)-year  period  measured  from the date of  Optionee's
cessation of Service.

                  B. In the event of a Change  in  Control  while  the  Optionee
remains in Service,  each  outstanding  option held by such Optionee  under this
Salary  Investment Option Grant Program shall  automatically  accelerate so that
each such option  shall  immediately  become  fully  exercisable  for all of the
shares of Common  Stock at the time  subject to such option and may be exercised
for any or all of such shares as fully-vested shares of Common Stock. The option
shall  remain so  exercisable  until the  earlier of (i) the  expiration  of the
option term or (ii) the expiration of the two (2)-year  period measured from the
date of Optionee's cessation of Service.

                  C. The grant of  options  under the Salary  Investment  Option
Grant  Program  shall in no way affect the right of the  Corporation  to adjust,
reclassify,  reorganize or otherwise change its capital or business structure or
to merge, consolidate,  dissolve,  liquidate or sell or transfer all or any part
of its business or assets.
<PAGE>
      III.        REMAINING TERMS

                  The  remaining  terms of each option  granted under the Salary
Investment  Option  Grant  Program  shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.
<PAGE>
                                  ARTICLE FOUR

                             STOCK ISSUANCE PROGRAM


        I.        STOCK ISSUANCE TERMS

                  Shares of Common Stock may be issued under the Stock  Issuance
Program through direct and immediate  issuances  without any intervening  option
grants.  Each  such  stock  issuance  shall  be  evidenced  by a Stock  Issuance
Agreement which complies with the terms specified below.

                  A.       Purchase Price.

                           1. The purchase price per share shall be fixed by the
Plan  Administrator,  but shall not be less than the Fair Market Value per share
of Common Stock on the stock issuance date.

                           2. Subject to the  provisions of Section I of Article
Six shares of Common  Stock may be issued under the Stock  Issuance  Program for
any of the following items of  consideration  which the Plan  Administrator  may
deem appropriate in each individual instance:

                                  (i)  cash  or  check   made   payable  to  the
         Corporation, or

                                  (ii) past services rendered to the Corporation
         (or any Parent or Subsidiary).

                  B.       Vesting Provisions.

                           1.  Shares of  Common  Stock  issued  under the Stock
Issuance Program may, in the discretion of the Plan Administrator,  be fully and
immediately  vested upon issuance or may vest in one or more  installments  over
the Participant's period of Service or upon attainment of specified  performance
objectives.  The  elements of the vesting  schedule  applicable  to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:

                                  (i) the Service  period to be completed by the
         Participant or the performance objectives to be attained,

                                  (ii) the number of  installments  in which the
         shares are to vest,

                                  (iii) the interval or intervals (if any) which
         are to lapse between installments, and

                                  (iv)  the  effect   which   death,   Permanent
         Disability or other event  designated by the Plan  Administrator  is to
         have upon the vesting schedule,

shall be determined by the Plan  Administrator  and incorporated  into the Stock
Issuance Agreement.
<PAGE>
                           2. Any new,  substituted or additional  securities or
other  property  (including  money paid other than as a regular  cash  dividend)
which  the  Participant  may  have the  right to  receive  with  respect  to the
Participant's  unvested  shares of Common Stock by reason of any stock dividend,
stock  split,  recapitalization,  combination  of shares,  exchange of shares or
other change  affecting  the  outstanding  Common  Stock as a class  without the
Corporation's  receipt of consideration  shall be issued subject to (i) the same
vesting requirements  applicable to the Participant's  unvested shares of Common
Stock and (ii) such escrow  arrangements  as the Plan  Administrator  shall deem
appropriate.

                           3. The Participant shall have full stockholder rights
with respect to any shares of Common Stock issued to the  Participant  under the
Stock  Issuance  Program,  whether or not the  Participant's  interest  in those
shares is vested. Accordingly, the Participant shall have the right to vote such
shares and to receive any regular cash dividends paid on such shares.

                           4. Should the Participant  cease to remain in Service
while holding one or more unvested shares of Common Stock issued under the Stock
Issuance  Program or should the  performance  objectives  not be  attained  with
respect to one or more such unvested  shares of Common Stock,  then those shares
shall be immediately  surrendered to the Corporation for  cancellation,  and the
Participant  shall  have no further  stockholder  rights  with  respect to those
shares.  To the extent the  surrendered  shares  were  previously  issued to the
Participant for  consideration  paid in cash or cash  equivalent  (including the
Participant's purchase-money  indebtedness),  the Corporation shall repay to the
Participant the cash  consideration  paid for the  surrendered  shares and shall
cancel the unpaid principal  balance of any outstanding  purchase-money  note of
the Participant attributable to such surrendered shares.

                           5. The Plan Administrator may in its discretion waive
the surrender and  cancellation  of one or more unvested  shares of Common Stock
(or other assets  attributable  thereto)  which would  otherwise  occur upon the
cessation  of the  Participant's  Service or the  non-completion  of the vesting
schedule  applicable  to such shares.  Such waiver shall result in the immediate
vesting of the Participant's  interest in the shares of Common Stock as to which
the waiver applies.  Such waiver may be effected at any time,  whether before or
after the Participant's cessation of Service or the attainment or non-attainment
of the applicable performance objectives.

       II.        CORPORATE TRANSACTION/CHANGE IN CONTROL

                  A. All of the  outstanding  repurchase  rights under the Stock
Issuance  Program shall  terminate  automatically,  and all the shares of Common
Stock subject to those terminated  rights shall immediately vest in full, in the
event of any Corporate  Transaction,  except to the extent (i) those  repurchase
rights  are  assigned  to the  successor  corporation  (or  parent  thereof)  in
connection with such Corporate  Transaction or (ii) such accelerated  vesting is
precluded by other limitations imposed in the Stock Issuance Agreement.

                  B. Any  repurchase  rights that are assigned in the  Corporate
Transaction shall  automatically  terminate,  and all the shares of Common Stock
subject to those terminated  rights shall immediately vest in full, in the event
the  Participant's  Service  should  subsequently  terminate  by  reason  of  an
Involuntary Termination within eighteen (18) months following the effective date
of such Corporate Transaction.
<PAGE>
                  C. All of the  outstanding  repurchase  rights under the Stock
Issuance  Program shall  terminate  automatically,  and all the shares of Common
Stock subject to those terminated  rights shall immediately vest in full, in the
event the  Optionee's  service  should  terminate  by  reason of an  Involuntary
Termination within eighteen (18) months following the effective date of a Change
in Control.

      III.        SHARE ESCROW/LEGENDS

                  Unvested shares may, in the Plan  Administrator's  discretion,
be held in escrow by the Corporation  until the  Participant's  interest in such
shares  vests or may be issued  directly  to the  Participant  with  restrictive
legends on the certificates evidencing those unvested shares.
<PAGE>
                                  ARTICLE FIVE

                         AUTOMATIC OPTION GRANT PROGRAM


        I.        OPTION TERMS

                  A.  Grant  Dates.  Option  grants  shall be made on the  dates
specified below:

                           1. Each  Eligible  Director  who is first  elected or
appointed  as a  non-employee  Board  member  after  the  Effective  Date  shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 7,500 shares of Common Stock.

                           2. On the date of each Annual  Stockholders  Meeting,
beginning with the 1996 Annual  Meeting,  each  individual who is to continue to
serve as an Eligible  Director shall  automatically  be granted a  Non-Statutory
Option to purchase an  additional  1,250 shares of Common  Stock,  provided such
individual  has  served  as a  non-employee  Board  member  for at least six (6)
months.  There shall be no limit on the number of such 1,250-share option grants
any one Eligible Director may receive over his or her period of Board service.

                  B. Exercise Price.

                           1. The exercise price per share shall be equal to one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the
option grant date.

                           2. The exercise price shall be payable in one or more
of the  alternative  forms  authorized  under  the  Discretionary  Option  Grant
Program.  Except  to the  extent  the sale and  remittance  procedure  specified
thereunder is utilized,  payment of the exercise price for the purchased  shares
must be made on the Exercise Date.

                  C.  Option  Term.  Each  option  shall have a term of ten (10)
years measured from the option grant date.

                  D.  Exercise  and  Vesting of Options.  Each  option  shall be
immediately exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the Corporation, at
the  exercise  price  paid per share,  upon the  Optionee's  cessation  of Board
service prior to vesting in those shares. Each initial grant shall vest, and the
Corporation's  repurchase  right shall lapse,  in a series of four (4) equal and
successive  annual  installments over the Optionee's period of continued service
as a Board member,  with the first such  installment to vest upon the Optionee's
completion of one (1) year of Board service measured from the option grant date.
Each annual  grant  shall vest,  and the  Corporation's  repurchase  right shall
lapse, upon the Optionee's  completion of one (1) year of Board service measured
from the option grant date.

                  E.  Effect of  Termination  of Board  Service.  The  following
provisions  shall govern the exercise of any options held by the Optionee at the
time the Optionee ceases to serve as a Board member:
<PAGE>
                                  (i)  Should the  Optionee  cease to serve as a
         Board member for any reason (other than death or Permanent Disability),
         then the Optionee shall have a six (6)-month  period following the date
         of such  cessation  of Board  service  in which to  exercise  each such
         option.

                                  (ii) Should the  Optionee die while the option
         is  outstanding,  then the personal  representative  of the  Optionee's
         estate  or the  person or  persons  to whom the  option is  transferred
         pursuant  to the  Optionee's  will or in  accordance  with  the laws of
         descent  and  distribution  shall  have a  twelve  (12)-  month  period
         following  the date of the  Optionee's  cessation  of Board  service in
         which to exercise each such option.

                                  (iii) During the limited post-service exercise
         period,  the option may not be exercised in the aggregate for more than
         the number of vested shares for which the option is  exercisable at the
         time of the Optionee's cessation of Board service.

                                  (iv) Should the  Optionee  cease to serve as a
         Board  member  by  reason of death or  Permanent  Disability,  then all
         shares at the time subject to the option shall immediately vest so that
         such option may, during the twelve (12)-month exercise period following
         the Optionee's death or Permanent  Disability,  be exercised for all or
         any portion of such shares as fully-vested shares of Common Stock.

                                  (v)  In  no  event  shall  the  option  remain
         exercisable   after  the  expiration  of  the  option  term.  Upon  the
         expiration of the limited post-service  exercise period or (if earlier)
         upon the expiration of the option term, the option shall  terminate and
         cease to be outstanding  for any vested shares for which the option has
         not been exercised.  However,  the option shall,  immediately  upon the
         Optionee's  cessation  of  Board  service,  terminate  and  cease to be
         outstanding to the extent it is not otherwise at that time  exercisable
         for vested shares.

       II.        CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-
                  OVER

                  A. In the event of any  Corporate  Transaction,  the shares of
Common Stock at the time subject to each  outstanding  option but not  otherwise
vested  shall  automatically  vest  in  full so that  each  such  option  shall,
immediately  prior to the effective  date of the Corporate  Transaction,  become
fully  exercisable  for all of the shares of Common Stock at the time subject to
such  option  and may be  exercised  for all or any  portion  of such  shares as
fully-vested shares of Common Stock.  Immediately  following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).

                  B. In  connection  with any Change in  Control,  the shares of
Common Stock at the time subject to each  outstanding  option but not  otherwise
vested  shall  automatically  vest  in  full so that  each  such  option  shall,
immediately  prior to the effective date of the Change in Control,  become fully
exercisable  for all of the shares of Common  Stock at the time  subject to such
<PAGE>
option  and  may  be  exercised  for  all or  any  portion  of  such  shares  as
fully-vested  shares of Common Stock. Each such option shall remain  exercisable
for such fully-vested  option shares until the expiration or sooner  termination
of the option term or the surrender of the option in  connection  with a Hostile
Take-Over.

                  C. Upon the  occurrence of a Hostile  Take-Over,  the Optionee
shall have a thirty  (30)-day  period in which to surrender  to the  Corporation
each  automatic  option  held by him or her.  The  Optionee  shall in  return be
entitled to a cash  distribution  from the Corporation in an amount equal to the
excess of (i) the  Take-Over  Price of the  shares  of Common  Stock at the time
subject to the  surrendered  option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate  exercise price payable
for such  shares.  Such cash  distribution  shall be paid  within  five (5) days
following the surrender of the option to the Corporation.  Stockholder  approval
of the  amendments  to the  Plan at the 1998  Annual  Meeting  shall  constitute
preapproval  of the  grant  of each  such  option  surrender  right  under  this
Automatic  Option  Grant  Program and the  subsequent  exercise of that right in
accordance  with the terms and  provisions  of this Section  II.C. No additional
approval or consent of the Plan  Administrator  shall be required at the time of
the actual option surrender and cash distribution.

                  D. Each option which is assumed in connection with a Corporate
Transaction  shall be appropriately  adjusted,  immediately after such Corporate
Transaction,  to apply to the number and class of  securities  which  would have
been issuable to the Optionee in consummation of such Corporate  Transaction had
the option  been  exercised  immediately  prior to such  Corporate  Transaction.
Appropriate  adjustments  shall also be made to the exercise  price  payable per
share under each  outstanding  option,  provided the  aggregate  exercise  price
payable for such securities shall remain the same.

                  E. The grant of  options  under  the  Automatic  Option  Grant
Program  shall  in no way  affect  the  right  of  the  Corporation  to  adjust,
reclassify,  reorganize or otherwise change its capital or business structure or
to merge, consolidate,  dissolve,  liquidate or sell or transfer all or any part
of its business or assets.

      III.        REMAINING TERMS

                  The remaining terms of each option granted under the Automatic
Option Grant  Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
<PAGE>
                                   ARTICLE SIX

                                  MISCELLANEOUS


        I.        FINANCING

                  A.  The  Plan   Administrator   may  permit  any  Optionee  or
Participant  to pay the option  exercise  price under the  Discretionary  Option
Grant Program or the purchase  price for shares issued under the Stock  Issuance
Program by delivering a promissory note payable in one or more installments. The
terms of any such  promissory note (including the interest rate and the terms of
repayment)  shall  be  established  by  the  Plan   Administrator  in  its  sole
discretion.  Promissory  notes may be  authorized  with or without  security  or
collateral.  In no event may the maximum  credit  available  to the  Optionee or
Participant  exceed  the sum of (i)  the  aggregate  option  exercise  price  or
purchase price payable for the purchased shares plus (ii) any Federal, state and
local  income and  employment  tax  liability  incurred  by the  Optionee or the
Participant in connection with the option exercise or share purchase.

                  B. The Plan  Administrator  may, in its discretion,  determine
that one or more such  promissory  notes shall be subject to  forgiveness by the
Corporation  in whole or in part upon such terms as the Plan  Administrator  may
deem appropriate.

       II.        TAX WITHHOLDING

                  A. The  Corporation's  obligation to deliver  shares of Common
Stock upon the  exercise  of options  or stock  appreciation  rights or upon the
issuance  or  vesting  of such  shares  under the Plan  shall be  subject to the
satisfaction  of all applicable  Federal,  state and local income and employment
tax withholding requirements.

                  B. The Plan Administrator may, in its discretion,  provide any
or all holders of Non-Statutory Options or unvested shares of Common Stock under
the Plan  (other  than the  options  granted  or the  shares  issued  under  the
Automatic  Option Grant Program) with the right to use shares of Common Stock in
satisfaction  of all or part of the Taxes incurred by such holders in connection
with the exercise of their  options or the vesting of their  shares.  Such right
may be provided to any such holder in either or both of the following formats:

                                  (i) Stock  Withholding:  The  election to have
         the  Corporation  withhold,  from the shares of Common Stock  otherwise
         issuable upon the exercise of such Non-Statutory  Option or the vesting
         of such shares, a portion of those shares with an aggregate Fair Market
         Value equal to the  percentage  of the Taxes (not to exceed one hundred
         percent (100%)) designated by the holder.

                                  (ii) Stock  Delivery:  The election to deliver
         to the Corporation,  at the time the Non-Statutory  Option is exercised
         or the  shares  vest,  one or more  shares of Common  Stock  previously
         acquired  by such  holder  (other  than in  connection  with the option
         exercise or share vesting  triggering the Taxes) with an aggregate Fair
         Market  Value equal to the  percentage  of the Taxes (not to exceed one
         hundred percent (100%)) designated by the holder.
<PAGE>
      III.        EFFECTIVE DATE AND TERM OF PLAN

                  A. The Plan was  adopted by the Board on May 25,  1995 and was
subsequently  approved  by  the  Corporation's  stockholders.  The  Plan  became
effective on the Effective Date.

                  B. On  November  14,  1997  the  Board  adopted  a  series  of
amendments  to the Plan which (i) increased the number of shares of Common Stock
reserved for issuance over the term of the Plan by an additional 600,000 shares,
(ii) rendered all  non-employee  Board members eligible to receive option grants
and  direct  stock  issuances  under the  Discretionary  Option  Grant and Stock
Issuance  Programs,  (iii)  allowed  unvested  shares  issued under the Plan and
subsequently  repurchased  by the  Corporation  at the option  exercise price or
direct  issue price paid per share to be reissued  under the Plan,  (iv) removed
certain  restrictions on the eligibility of non-employee  Board members to serve
as Plan  Administrator,  and (v) effected a series of additional  changes to the
provisions of the Plan  (including the  stockholder  approval  requirements)  in
order to take  advantage  of the 1996  amendments  to Rule 16b-3 of the 1934 Act
which exempts certain officer and director  transactions under the Plan from the
short-swing  liability provisions of the federal securities laws. The amendments
listed above are subject to stockholder  approval at the 1998 Annual Meeting. In
addition  to such  amendments,  the  Board,  without  the need  for  stockholder
approval,  amended the Plan to (i) allow the Board or the Primary  Committee  to
administer   the  Plan  with  respect  to  Section  16   Insiders,   (ii)  allow
Non-Statutory  Options  to be  transferred  in limited  circumstances  and (iii)
eliminate the six (6)-month holding  requirement for limited stock  appreciation
rights. Should the required stockholder approval of the November 1997 amendments
not be obtained, then the amendments to the Plan which required such stockholder
approval shall have no force and effect and any options  granted on the basis of
the  600,000-share  increase  shall  terminate  and cease to remain  outstanding
without ever becoming exercisable for those shares, and no further option grants
shall be made on the basis of such  increase.  The  provisions of the Plan as in
effect immediately prior to the November 1997 amendments  requiring  shareholder
approval  shall  automatically  be  reinstated,  and  option  grants  and  share
issuances  may  thereafter  continue  to be  made  pursuant  to  the  reinstated
provisions of the Plan.

                  C. The Plan shall serve as the  successor  to the  Predecessor
Plan,  and no further  option  grants shall be made under the  Predecessor  Plan
after the Effective Date. All options  outstanding under the Predecessor Plan on
such date shall,  immediately  upon  approval of the Plan by the  Corporations's
stockholders,  be incorporated into the Plan and treated as outstanding  options
under the Plan. However,  each outstanding option so incorporated shall continue
to be governed solely by the terms of the documents  evidencing such option, and
no  provision  of the Plan  shall be deemed to affect or  otherwise  modify  the
rights or obligations of the holders of such  incorporated  options with respect
to their acquisition of shares of Common Stock.

                  D. One or more  provisions  of the  Plan,  including  (without
limitation) the option/vesting acceleration provisions of Article Two applicable
to   Corporate   Transactions   and  Changes  in  Control,   may,  in  the  Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
<PAGE>
                  E. The Plan shall terminate upon the earliest of (i) April 30,
2005,  (ii) the date on which all shares  available for issuance  under the Plan
shall have been issued  pursuant to the  exercise of the options or the issuance
of shares  (whether  vested or unvested) under the Plan or (iii) the termination
of all outstanding  options in connection with a Corporate  Transaction.  Upon a
clause (i) termination,  all options and unvested stock issuances outstanding on
such date shall thereafter  continue to have force and effect in accordance with
the provisions of the documents evidencing such options or issuances.

       IV.        AMENDMENT OF THE PLAN

                  A. The Board  shall  have  complete  and  exclusive  power and
authority to amend or modify the Plan in any or all respects.  However,  no such
amendment or modification shall adversely affect the rights and obligations with
respect to options, stock appreciation rights or unvested stock issuances at the
time outstanding under the Plan unless the Optionee or the Participant  consents
to such amendment or modification.  In addition,  certain amendments may require
stockholder approval pursuant to applicable laws and regulations.

                  B.  Options to purchase  shares of Common Stock may be granted
under the Discretionary Option Grant and Salary Investment Option Grant Programs
and shares of Common Stock may be issued under the Stock  Issuance  Program that
are in each  instance  in excess of the  number of  shares  then  available  for
issuance under the Plan,  provided any excess shares actually issued under those
programs are held in escrow until there is obtained  stockholder  approval of an
amendment sufficiently increasing the number of shares of Common Stock available
for issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made, then
(i) any  unexercised  options  granted on the basis of such excess  shares shall
terminate and cease to be outstanding  and (ii) the  Corporation  shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess  shares  issued under the Plan and held in escrow,  together with
interest (at the  applicable  Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically  cancelled
and cease to be outstanding.

        V.        USE OF PROCEEDS

                  Any cash proceeds received by the Corporation from the sale of
shares  of  Common  Stock  under the Plan  shall be used for  general  corporate
purposes.

       VI.        REGULATORY APPROVALS

                  A. The  implementation of the Plan, the granting of any option
or stock  appreciation  right  under the Plan and the  issuance of any shares of
Common Stock (i) upon the exercise of any option or stock  appreciation right or
(ii) under the Stock  Issuance  Program  shall be  subject to the  Corporation's
procurement  of all  approvals and permits  required by  regulatory  authorities
having  jurisdiction  over the Plan, the options and stock  appreciation  rights
granted under it and the shares of Common Stock issued pursuant to it.

                  B. No shares of Common  Stock or other  assets shall be issued
or  delivered  under the Plan unless and until there shall have been  compliance
with all applicable requirements of Federal and state securities laws, including
the filing and  effectiveness  of the Form S-8  registration  statement  for the
shares of Common  Stock  issuable  under the Plan,  and all  applicable  listing
requirements  of  any  stock  exchange  (or  the  Nasdaq  National  Market,   if
applicable) on which Common Stock is then listed for trading.
<PAGE>
      VII.        NO EMPLOYMENT/SERVICE RIGHTS

                  Nothing  in the Plan shall  confer  upon the  Optionee  or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or  Subsidiary  employing  or  retaining  such  person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's  Service at any time for any reason,  with or without
cause.
<PAGE>
                                    APPENDIX


                  The following definitions shall be in effect under the Plan:

         A. Automatic Option Grant Program shall mean the automatic option grant
program in effect under the Plan.

         B. Board shall mean the Corporation's Board of Directors.

         C. Change in Control shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:

                         (i) the  acquisition,  directly or  indirectly,  by any
         person or related  group of persons  (other than the  Corporation  or a
         person that directly or indirectly  controls,  is controlled  by, or is
         under common control with, the  Corporation),  of beneficial  ownership
         (within  the  meaning  of Rule  13d-3  of the 1934  Act) of  securities
         possessing  more than fifty percent (50%) of the total combined  voting
         power of the Corporation's  outstanding securities pursuant to a tender
         or exchange offer made directly to the Corporation's stockholders which
         the Board does not recommend such stockholders to accept, or

                        (ii) a change in the  composition  of the  Board  over a
         period  of  thirty-six  (36)  consecutive  months  or less  such that a
         majority  of the  Board  members  ceases,  by  reason  of  one or  more
         contested   elections  for  Board   membership,   to  be  comprised  of
         individuals who either (A) have been Board members  continuously  since
         the  beginning of such period or (B) 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 (A) who were still in office at
         the time the Board approved such election or nomination.

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

         E. Common Stock shall mean the Corporation's common stock.

         F. Corporate  Transaction  shall  mean  either  of the  following
            stockholder-approved  transactions to which the Corporation is
            a party:

                         (i) a  merger  or  consolidation  in  which  securities
         possessing  more than fifty percent (50%) of the total combined  voting
         power of the Corporation's  outstanding securities are transferred to a
         person or persons  different from the persons holding those immediately
         prior to such transaction; or

                        (ii) the sale,  transfer or other  disposition of all or
         substantially all of the Corporation's  assets in complete  liquidation
         or dissolution of the Corporation.

         G.  Corporation shall mean Exogen, Inc., a Delaware corporation.

         H.  Discretionary  Option Grant  Program  shall mean the  discretionary
option grant program in effect under the Plan.

         I.  Effective  Date  shall  mean  the date on  which  the  Underwriting
Agreement is executed and the initial public  offering price of the Common Stock
is established.
<PAGE>
         J. Eligible Director shall mean a non-employee Board member eligible to
participate  in the  Automatic  Option  Grant  Program  in  accordance  with the
eligibility provisions of Article One.

         K.  Employee  shall  mean an  individual  who is in the  employ  of the
Corporation (or any Parent or Subsidiary),  subject to the control and direction
of the employer  entity as to both the work to be  performed  and the manner and
method of performance.

         L.  Exercise  Date shall mean the date on which the  Corporation  shall
have received written notice of the option exercise.

         M. Fair Market  Value per share of Common  Stock on any  relevant  date
shall be determined in accordance with the following provisions:

                         (i) If the  Common  Stock is at the time  traded on the
         Nasdaq National Market, then the Fair Market Value shall be the closing
         selling  price per share of Common  Stock on the date in  question,  as
         such  price is  reported  by the  National  Association  of  Securities
         Dealers on the Nasdaq National Market or any successor system. If there
         is no  closing  selling  price  for the  Common  Stock  on the  date in
         question, then the Fair Market Value shall be the closing selling price
         on the last preceding date for which such quotation exists.

                        (ii) If the  Common  Stock is at the time  listed on any
         Stock Exchange, then the Fair Market Value shall be the closing selling
         price per share of Common  Stock on the date in  question  on the Stock
         Exchange  determined by the Plan Administrator to be the primary market
         for the  Common  Stock,  as such  price  is  officially  quoted  in the
         composite tape of transactions on such exchange. If there is no closing
         selling  price for the Common Stock on the date in  question,  then the
         Fair  Market  Value  shall  be the  closing  selling  price on the last
         preceding date for which such quotation exists.

                       (iii) For purposes of option grants made on the Effective
         Date,  the Fair Market Value shall be deemed to be equal to the initial
         public offering price per share at which the Common Stock is to be sold
         pursuant to the Underwriting Agreement.

         N.  Hostile   Take-Over  shall  mean  the   acquisition,   directly  or
indirectly,  by  any  person  or  related  group  of  persons  (other  than  the
Corporation or a person that directly or indirectly controls,  is controlled by,
or is under common  control  with,  the  Corporation)  of  beneficial  ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding  securities  pursuant to a tender or exchange offer made directly to
the  Corporation's   stockholders  which  the  Board  does  not  recommend  such
stockholders to accept.

         O.  Incentive   Option  shall  mean  an  option  which   satisfies  the
requirements of Code Section 422.

         P. Involuntary Termination shall mean the termination of the Service of
any individual which occurs by reason of:
<PAGE>
                         (i)  such   individual's   involuntary   dismissal   or
         discharge by the Corporation for reasons other than Misconduct, or

                         (ii) such individual's  voluntary resignation following
         (A) a  change  in  his or  her  position  with  the  Corporation  which
         materially reduces his or her level of responsibility,  (B) a reduction
         in his or her level of  compensation  (including  base  salary,  fringe
         benefits  and  participation  in  corporate-performance  based bonus or
         incentive  programs)  by  more  than  fifteen  percent  (15%)  or (C) a
         relocation of such individual's  place of employment by more than fifty
         (50) miles,  provided and only if such change,  reduction or relocation
         is effected by the Corporation without the individual's consent.

         Q.  Misconduct   shall  mean  the  commission  of  any  act  of  fraud,
embezzlement or dishonesty by the Optionee or Participant,  any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary),  or any other intentional  misconduct
by such person  adversely  affecting the business or affairs of the  Corporation
(or any Parent or Subsidiary)  in a material  manner.  The foregoing  definition
shall not be  deemed  to be  inclusive  of all the acts or  omissions  which the
Corporation  (or any Parent or  Subsidiary)  may  consider  as  grounds  for the
dismissal  or  discharge  of any  Optionee,  Participant  or other person in the
Service of the Corporation (or any Parent or Subsidiary).

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

         S.  Non-Statutory  Option  shall mean an option not intended to satisfy
the requirements of Code Section 422.

         T.  Optionee  shall mean any person to whom an option is granted  under
the  Discretionary  Option Grant,  Automatic  Option Grant or Salary  Investment
Option Grant Program.

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

         V.  Participant  shall mean any  person who is issued  shares of Common
Stock under the Stock Issuance Program.

         W.  Permanent   Disability  or  Permanently  Disabled  shall  mean  the
inability  of the  Optionee  or the  Participant  to engage  in any  substantial
gainful  activity  by reason of any  medically  determinable  physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more.  However,  solely for the purposes of the Automatic  Option
Grant  Program,  Permanent  Disability or  Permanently  Disabled  shall mean the
inability of the non-employee Board member to perform his or her usual duties as
a Board  member by  reason  of any  medically  determinable  physical  or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more.

         X. Plan shall mean the Corporation's 1995 Stock  Option/Stock  Issuance
Plan, as set forth in this document.
<PAGE>
         Y. Plan  Administrator  shall mean the particular  entity,  whether the
Primary Committee, the Board or the Secondary Committee,  which is authorized to
administer the  Discretionary  Option Grant,  Salary Investment Option Grant and
Stock Issuance Programs with respect to one or more classes of eligible persons,
to the extent such entity is carrying  out its  administrative  functions  under
those programs with respect to the persons under its jurisdiction.

         Z.  Predecessor Plan shall mean the  Corporation's  existing 1993 Stock
Option Plan.

         AA.  Primary  Committee  shall  mean the  committee  of two (2) or more
non-employee   Board  members   appointed  by  the  Board  to   administer   the
Discretionary  Option Grant,  Salary  Investment Option Grant and Stock Issuance
Programs with respect to Section 16 Insiders.

         AB.  Salary  Investment  Option  Grant  Program  shall  mean the salary
investment option grant program in effect under the Plan.

         AC. Secondary Committee shall mean a committee of two (2) or more Board
members  appointed by the Board to administer  the  Discretionary  Option Grant,
Salary  Investment  Option  Grant and Stock  Issuance  Programs  with respect to
eligible persons other than Section 16 Insiders.

         AD.  Section 16  Insider  shall  mean an  officer  or  director  of the
Corporation  subject to the short-swing  profit liabilities of Section 16 of the
1934 Act.

         AE. Section 12(g)  Registration Date shall mean the first date on which
the Common Stock is registered under Section 12(g) of the 1934 Act.

         AF. Service shall mean the provision of services to the Corporation (or
any  Parent  or  Subsidiary)  by a person  in the  capacity  of an  Employee,  a
non-employee  member of the board of directors or a  consultant  or  independent
advisor,  except to the extent otherwise  specifically provided in the documents
evidencing the option grant or stock issuance.

         AG. Stock Exchange shall mean either the American Stock Exchange or the
New York Stock Exchange.

         AH. Stock Issuance  Agreement shall mean the agreement  entered into by
the  Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.

         AI. Stock  Issuance  Program shall mean the stock  issuance  program in
effect under the Plan.

         AJ. Subsidiary shall mean any corporation  (other than the Corporation)
in an unbroken chain of corporations  beginning with the  Corporation,  provided
each corporation  (other than the last  corporation) in the unbroken chain owns,
at the time of the  determination,  stock possessing fifty percent (50%) or more
of the total  combined  voting power of all classes of stock in one of the other
corporations in such chain.

         AK. Take-Over Price shall mean the greater of (i) the Fair Market Value
per  share  of  Common  Stock  on the  date the  option  is  surrendered  to the
Corporation in connection with a Hostile  Take-Over or (ii) the highest reported
price per share of Common  Stock paid by the tender  offeror in  effecting  such
Hostile  Take-Over.  However,  if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
<PAGE>
         AL. Taxes shall mean the Federal, state and local income and employment
tax  liabilities  incurred  by the holder of  Non-Statutory  Options or unvested
shares of Common Stock in connection with the exercise of such holder's  options
or the vesting of his or her shares.

         AM. 10% Stockholder  shall mean the owner of stock (as determined under
Code  Section  424(d))  possessing  more  than ten  percent  (10%) of the  total
combined  voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).

         AN.  Underwriting  Agreement  shall  mean  the  agreement  between  the
Corporation  and the  underwriter  or  underwriters  managing the initial public
offering of the Common Stock.