As amended November 15, 1996
                                                                and May 23, 1997


                              MACROCHEM CORPORATION
                           1994 EQUITY INCENTIVE PLAN


1.   PURPOSE

     The purpose of this 1994 Equity Incentive Plan (the "Plan") is to advance
the interests of MacroChem Corporation (the "Company") by enhancing its ability
to attract and retain employees and other persons or entities who are in a
position to make significant contributions to the success of the Company and its
subsidiaries through ownership of shares of the Company's common stock
("Stock").

     The Plan is intended to accomplish these goals by enabling the Company to
grant Awards in the form of Options, Stock Appreciation Rights, Restricted Stock
or Unrestricted Stock Awards, Deferred Stock Awards, Performance Awards, Loans
or Supplement Grants, or combinations thereof, all as more fully described
below.


2.   ADMINISTRATION

     Unless otherwise determined by the Board of Directors of the Company (the
"Board"), the Plan will be administered by a Committee of the Board designated
for such purpose (the "Committee"). The Committee shall consist of at least two
directors. A majority of the members of the Committee shall constitute a quorum,
and all determinations of the Committee shall be made by a majority of its
members. Any determination of the Committee under the Plan may be made without
notice or meeting of the Committee by a writing signed by a majority of the
Committee members. So long as the Stock is registered under the Securities
Exchange Act of 1934 (the "1934 Act"), all members of the Committee shall be
non-employee directors within the meaning of Rule 16b-3 under the 1934 Act. The
Committee will have authority, not inconsistent with the express provisions of
the Plan and in addition to other authority granted under the Plan, to (a) grant
Awards at such time or times as it may choose; (b) determine the size of each
Award, including the number of shares of Stock subject to the Award; (c)
determine the type or types of each Award; (d) determine the terms and
conditions of each Award; (e) waive compliance by a Participant (as defined
below) with any obligations to be performed by the Participant under an Award
and waive any term or condition of an Award; (f) amend or cancel an existing
Award in whole or in part (and if an award is canceled, grant another Award in
its place on such terms as the Committee shall specify), except that the
Committee may not, without the consent of the holder of an Award, take any
action under this clause with respect to such Award if such action would
adversely affect the rights of such holder; (g) prescribe the form or forms of
instruments that are required or deemed appropriate under the Plan, including
any written notices and elections required of Participants, and change such
forms from time to time; (h) adopt, amend and rescind rules and regulations for
the administration of the Plan; and (i) interpret the Plan and decide any
questions and settle all controversies and disputes that may arise in connection
with the Plan. Such determinations and actions of the Committee, and all other
determinations and actions of the Committee made or taken under authority
granted by any provision of the Plan, will be conclusive and will bind all
parties. Nothing in this paragraph shall be construed as limiting the power of
the Committee to make adjustments under Section 7.3 or Section 8.6.

     With respect to persons subject to Section 16 of the 1934 Act, transactions
under this plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the 1934 Act. To the extent any action by the
Committee or Board fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee.


3.   EFFECTIVE DATE AND TERM OF PLAN

     The Plan will become effective on the date on which it is approved by the
stockholders of the Company. Grants of Awards under the Plan may be made prior
to that date, subject to such approval of the Plan. No Award may be granted
under the Plan after February 11, 2004, but Awards previously granted may extend
beyond that date.


4.   SHARES SUBJECT TO THE PLAN

     Subject to the adjustment as provided in Section 8.6 below, the aggregate
number of shares of Stock that may be delivered under the Plan will be
4,000,000. If any Award requiring exercise for delivery of Stock terminates
without having been exercised in full, or if any Award payable in Stock or cash
is satisfied in cash rather than Stock, the number of shares of Stock as to
which such Award was not exercised or for which cash was substituted will be
available for future grants. The maximum number of shares (subject to adjustment
as provided in Section 8.6 below) with respect to which Awards may be made to
any one Participant during the term of the Plan shall be 750,000 shares. The
preceding sentence shall be construed consistent with the regulations under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").

     Stock delivered under the Plan may be either authorized but unissued Stock
or previously issued Stock acquired by the Company and held in treasury. No
fractional shares of Stock will be delivered under the Plan.


5.   ELIGIBILITY AND PARTICIPATION

     Those eligible to receive Awards under the Plan ("Participants") will be
persons in the employ of the Company or any of its subsidiaries ("Employees")
and other persons or entities (including without limitation non-Employee
directors of the Company or a subsidiary of the Company) who, in the opinion of
the Committee, are in a position to make a significant contribution to the
success of the Company or its subsidiaries. A "subsidiary" for purposes of the
Plan will be a corporation in which the Company owns, directly or indirectly,
stock possessing 50% or more of the total combined voting power of all classes
of stock.


6.   TYPES OF AWARDS

          6.1.     OPTIONS

         (a) NATURE OF OPTIONS. An Option is an Award entitling the holder on
exercise thereof to purchase Stock at a specified exercise price.

         Both "incentive stock options," as defined in Section 422 of the Code
(any Option intended to qualify as an incentive stock option being hereinafter
referred to as an "ISO"), and Options that are not incentive stock options, may
be granted under the Plan. ISOs shall be awarded only to Employees.

         (b) EXERCISE PRICE.  The exercise price of an Option will be determined
by the Board subject to the following:

              (1) The exercise price of an ISO shall not be less than 100% (110%
         in the case of an ISO granted to a ten-percent stockholder) of the fair
         market value of the Stock subject to the Option, determined as of the
         time the Option is granted. A "ten-percent stockholder" is any person
         who at the time of grant owns, directly or indirectly, or is deemed to
         own by reason of the attribution rules of section 424(d) of the Code,
         stock possessing more than 10% of the total combined voting power of
         all classes of stock of the Company or of any of its subsidiaries.
<PAGE>
              (2) In no case may the exercise price paid for Stock which is part
         of an original issue of authorized Stock be less than the par value per
         share of the Stock.

              (3) The Committee may reduce the exercise price of an Option at
         any time after the time of grant, but in the case of an Option
         originally awarded as an ISO, only with the consent of the Participant.

         (c) DURATION OF OPTIONS. The latest date on which an Option may be
exercised will be the tenth anniversary (fifth anniversary, in the case of an
ISO granted to a ten-percent stockholder) of the day immediately preceding the
date the Option was granted, or such earlier date as may have been specified by
the Committee at the time the Option was granted.

         (d) EXERCISE OF OPTIONS. Options granted under any single Award will
become exercisable at such time or times, and on such conditions, as the
Committee may specify. The Committee may at any time and from time to time
accelerate the time at which all or any part of the Option may be exercised.

         Any exercise of an Option must be in writing, signed by the proper
person and delivered or mailed to the Company, accompanied by (1) any documents
required by the Committee and (2) payment in full in accordance with paragraph
(e) below for the number of shares for which the Option is exercised.

         (e) PAYMENT FOR STOCK. Stock purchased on exercise of an Option must be
paid for as follows: (1) in cash or by check (acceptable to the Company in
accordance with guidelines established for this purpose), bank draft or money
order payable to the order of the Company or (2) if so permitted by the
instrument evidencing the Option (or in the case of an Option which is not an
ISO, by the Committee at or after grant of the Option), (i) through the delivery
of shares of Stock which have been outstanding for at least six months (unless
the Committee expressly approves a shorter period) and which have a fair market
value on the last business day preceding the date of exercise equal to the
exercise price, or (ii) by delivery of a promissory note of the Option holder to
the Company, payable on such terms as are specified by the Committee, or (iii)
by delivery of an unconditional and irrevocable undertaking by a broker to
deliver promptly to the Company sufficient funds to pay the exercise price, or
(iv) by any combination of the permissible forms of payment; PROVIDED, that if
the Stock delivered upon exercise of the Option is an original issue of
authorized Stock, at least so much of the exercise price as represents the par
value of such Stock must be paid other than by the Option holder's promissory
note.

         (f) DISCRETIONARY PAYMENTS. If the market price of shares of Stock
subject to an Option (other than an Option which is in tandem with a Stock
Appreciation Right as described in Section 6.2 below) exceeds the exercise price
of the Option at the time of its exercise, the Committee may cancel the Option
and cause the Company to pay in cash or in shares of Common Stock (at a price
per share equal to the fair market value per share) to the person exercising the
Option an amount equal to the difference between the fair market value of the
Stock which would have been purchased pursuant to the exercise (determined on
the date the Option is canceled) and the aggregate exercise price which would
have been paid. The Committee may exercise its discretion to take such action
only if it has received a written request from the person exercising the Option,
but such a request will not be binding on the Committee.

         6.2.     STOCK APPRECIATION RIGHTS.

         (a) NATURE OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right is
an Award entitling the recipient on exercise of the Right to receive an amount,
in cash or Stock or a combination thereof (such form to be determined by the
Committee), determined in whole or in part by reference to appreciation in Stock
value.

         In general, a Stock Appreciation Right entitles the Participant to
receive, with respect to each share of Stock as to which the Right is exercised,
the excess of the share's fair market value on the date of exercise over its
fair market value on the date the Right was granted. However, the Committee may
provide at the time of grant that the amount the recipient is entitled to
receive will be adjusted upward or downward under rules established by the
Committee to take into account the performance of the Stock in comparison with
the performance of other stocks or an index or indices of other stocks. The
Committee may also grant Stock Appreciation Rights providing that following a
change in control of the Company, as determined by the Committee, the holder of
such Right will be entitled to receive, with respect to each share of Stock
subject to the Right, an amount equal to the excess of a specified value (which
may include an average of values) for a share of Stock during a period preceding
such change in control over the fair market value of a share of Stock on the
date the Right was granted.

         (b) GRANT OF STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may
be granted in tandem with, or independently of, Options granted under the Plan.
A Stock Appreciation Right granted in tandem with an Option which is not an ISO
may be granted either at or after the time the Option is granted. A Stock
Appreciation Right granted in tandem with an ISO may be granted only at the time
the Option is granted.

         (c)  RULES APPLICABLE TO TANDEM AWARDS.  When Stock Appreciation Rights
are granted in tandem with Options, the following will apply:

              (1) The Stock Appreciation Right will be exercisable only at such
         time or times, and to the extent, that the related Option is
         exercisable and will be exercisable in accordance with the procedure
         required for exercise of the related Option.

              (2) The Stock Appreciation Right will terminate and no longer be
         exercisable upon the termination or exercise of the related Option,
         except that a Stock Appreciation Right granted with respect to less
         than the full number of shares covered by an Option will not be reduced
         until the number of shares as to which the related Option has been
         exercised or has terminated exceeds the number of shares not covered by
         the Stock Appreciation Right.

              (3) The Option will terminate and no longer be exercisable upon
         the exercise of the related Stock Appreciation Right.

              (4) The Stock Appreciation Right will be transferable only with
         the related Option.

              (5) A Stock Appreciation Right granted in tandem with an ISO may
         be exercised only when the market price of the Stock subject to the
         Option exceeds the exercise price of such option.

         (d) EXERCISE OF INDEPENDENT STOCK APPRECIATION RIGHTS. A Stock
Appreciation Right not granted in tandem with an Option will become exercisable
at such time or times, and on such conditions, as the Committee may specify. The
Committee may at any time accelerate the time at which all or any part of the
Right may be exercised.

         Any exercise of an independent Stock Appreciation Right must be in
writing, signed by the proper person and delivered or mailed to the Company,
accompanied by any other documents required by the Committee.

         6.3.     RESTRICTED AND UNRESTRICTED STOCK.

         (a) NATURE OF RESTRICTED STOCK AWARD. A Restricted Stock Award entitles
the recipient to acquire, for a purchase price equal to par value, shares of
Stock subject to the restrictions described in paragraph (d) below ("Restricted
Stock").

         (b) ACCEPTANCE OF AWARD. A Participant who is granted a Restricted
Stock Award will have no rights with respect to such Award unless the
Participant accepts the Award by written instrument delivered or mailed to the
Company accompanied by payment in full of the specified purchase price, if any,
of the shares covered by the Award. Payment may be by certified or bank check or
other instrument acceptable to the Committee.

          (c) RIGHTS AS A STOCKHOLDER. A Participant who receives Restricted
Stock will have all the rights of a stockholder with respect to the Stock,
including voting and dividend rights, subject to the restrictions described in
paragraph (d) below and any other conditions imposed by the Committee at the
time of grant. Unless the Committee otherwise determines, certificates
evidencing shares of Restricted Stock will remain in the possession of the
Company until such shares are free of all restrictions under the Plan.

         (d) RESTRICTIONS. Except as otherwise specifically provided by the
Plan, Restricted Stock may not be sold, assigned, transferred, pledged or
otherwise encumbered or disposed of, and if the Participant ceases to be an
Employee or otherwise suffers a Status Change (as defined at Section 7.2(a)
below) for any reason, must be offered to the Company for purchase for the
amount of cash paid for the Stock, or forfeited to the Company if no cash was
paid. These restrictions will lapse at such time or times, and on such
conditions, as the Committee may specify. The Committee may at any time
accelerate the time at which the restrictions on all or any part of the shares
will lapse.

         (e) NOTICE OF ELECTION. Any Participant making an election under
Section 83(b) of the Code with respect to Restricted Stock must provide a copy
thereof to the Company within 10 days of the filing of such election with the
Internal Revenue Service.

         (f) OTHER AWARDS SETTLED WITH RESTRICTED STOCK. The Committee may, at
the time any Award described in this Section 6 is granted, provide that any or
all the Stock delivered pursuant to the Award will be Restricted Stock.

         (g) UNRESTRICTED STOCK. The Committee may, in its sole discretion,
approve the sale to any Participant of shares of Stock free of restrictions
under the Plan for a price which is not less than the par value of the Stock.

         6.4.  DEFERRED STOCK.

         A Deferred Stock Award entitles the recipient to receive shares of
Stock to be delivered in the future. Delivery of the Stock will take place at
such time or times, and on such conditions, as the Committee may specify. The
Committee may at any time accelerate the time at which delivery of all or any
part of the Stock will take place. At the time any Award described in this
Section 6 is granted, the Committee may provide that, at the time Stock would
otherwise be delivered pursuant to the Award, the Participant will instead
receive an instrument evidencing the Participant's right to future delivery of
Deferred Stock.

         6.5.  PERFORMANCE AWARDS; PERFORMANCE GOALS.

         (a) NATURE OF PERFORMANCE AWARDS. A Performance Award entitles the
recipient to receive, without payment, an amount in cash or Stock or a
combination thereof (such form to be determined by the Committee) following the
attainment of Performance Goals. Performance Goals may be related to personal
performance, corporate performance, departmental performance or any other
category of performance deemed by the Committee to be important to the success
of the Company. The Committee will determine the Performance Goals, the period
or periods during which performance is to be measured and all other terms and
conditions applicable to the Award.

         (b) OTHER AWARDS SUBJECT TO PERFORMANCE CONDITION. The Committee may,
at the time any Award described in this Section 6 is granted, impose the
condition (in addition to any conditions specified or authorized in this Section
6 or any other provision of the Plan) that Performance Goals be met prior to the
Participant's realization of any payment or benefit under the Award.

         6.6.  LOANS AND SUPPLEMENTAL GRANTS.

         (a) LOANS. The Company may make a loan to a Participant ("Loan"),
either on the date of or after the grant of any Award to the Participant. A Loan
may be made either in connection with the purchase of Stock under the Award or
with the payment of any Federal, state and local income tax with respect to
income recognized as a result of the Award. The Committee will have full
authority to decide whether to make a Loan and to determine the amount, terms
and conditions of the Loan, including the interest rate (which may be zero),
whether the Loan is to be secured or unsecured or with or without recourse
against the borrower, the terms on which the Loan is to be repaid and the
conditions, if any, under which it may be forgiven. However, no Loan may have a
term (including extensions) exceeding ten years in duration.

         (b) SUPPLEMENTAL GRANTS. In connection with any Award, the Committee
may at the time such Award is made or at a later date, provide for and grant a
cash award to the Participant ("Supplemental Grant") not to exceed an amount
equal to (1) the amount of any federal, state and local income tax on ordinary
income for which the Participant may be liable with respect to the Award,
determined by assuming taxation at the highest marginal rate, plus (2) an
additional amount on a grossed-up basis intended to make the Participant whole
on an after-tax basis after discharging all the Participant's income tax
liabilities arising from all payments under this Section 6. Any payments under
this subsection (b) will be made at the time the Participant incurs Federal
income tax liability with respect to the Award.

7.   EVENTS AFFECTING OUTSTANDING AWARDS

         7.1.  DEATH.

         If a Participant dies, the following will apply:

         (a) All Options and Stock Appreciation Rights held by the Participant
immediately prior to death, to the extent then exercisable, may be exercised by
the Participant's executor or administrator or the person or persons to whom the
Option or Right is transferred by will or the applicable laws of descent and
distribution, and all Options originally issued to the Participant and
transferred pursuant to Section 8.5 hereof may be exercised by the person or
persons to whom the Option has been so transferred, at any time within the one
year period ending with the first anniversary of the Participant's death (or
such shorter or longer period as the Committee may determine), and shall
thereupon terminate. In no event, however, shall an Option or Stock Appreciation
Right remain exercisable beyond the latest date on which it could have been
exercised without regard to this Section 7. Except as otherwise determined by
the Committee, all Options originally issued to a Participant and all Stock
Appreciation Rights held by a Participant immediately prior to death that are
not then exercisable shall terminate at death.

         (b) Except as otherwise determined by the Committee, all Restricted
Stock held by the Participant must be transferred to the Company (and, in the
event the certificates representing such Restricted Stock are held by the
Company, such Restricted Stock will be so transferred without any further action
by the Participant) in accordance with Section 6.3 above.

         (c) Any payment or benefit under a Deferred Stock Award, Performance
Award, or Supplemental Grant to which the Participant was not irrevocably
entitled prior to death will be forfeited and the Award canceled, as of the time
of death, unless otherwise determined by the Committee.

         7.2.  TERMINATION OF SERVICE (OTHER THAN BY DEATH).

         If a Participant who is an Employee ceases to be an Employee for any
reason other than death, or if there is a termination (other than by reason of
death) of the consulting, service or similar relationship in respect of which a
non-Employee Participant was granted an Award hereunder (such termination of the
employment or other relationship being hereinafter referred to as a "Status
Change"), the following will apply:

         (a) Except as otherwise determined by the Committee, all Options and
Stock Appreciation Rights originally issued to the Participant that were not
exercisable immediately prior to the Status Change shall terminate at the time
of the Status Change. Any Options or Rights that were exercisable immediately
prior to the Status Change will continue to be exercisable for a period of six
months (or such longer period as the Committee may determine), and shall
thereupon terminate, unless (i) the Award provides by its terms for immediate
termination in the event of a Status Change, (ii) the Status Change results from
(w) retirement of the Participant on or after age 65, (x) retirement on or after
age 55 after 10 years of continuous employment by the Company, (y) disability
(as determined by the Company), or (z) termination of the Participant's service
as a director if the Participant is a non-Employee director, in which cases that
portion of the Options originally issued to the Participant that was exercisable
immediately prior to the Status Change will continue to be exercisable for the
original term of the Option or (iii) unless the Status Change results from a
discharge for cause which in the opinion of the Committee casts such discredit
on the Participant as to justify immediate termination of the Award. In no
event, however, shall an Option or Stock Appreciation Right remain exercisable
beyond the latest date on which it could have been exercised without regard to
this Section 7. For purposes of this paragraph, in the case of a Participant who
is an Employee, a Status Change shall not be deemed to have resulted by reason
of (i) a sick leave or other bona fide leave of absence approved for purposes of
the Plan by the Committee, so long as the Employee's right to reemployment is
guaranteed either by statute or by contract, or (ii) a transfer of employment
between the Company and a subsidiary or between subsidiaries, or to the
employment of a corporation (or a parent or subsidiary corporation of such
corporation) issuing or assuming an option in a transaction to which section
424(a) of the Code applies.

         (b) Except as otherwise determined by the Committee, all Restricted
Stock held by the Participant at the time of the Status Change must be
transferred to the Company (and, in the event the certificates representing such
Restricted Stock are held by the Company, such Restricted Stock will be so
transferred without any further action by the Participant) in accordance with
Section 6.3 above.

         (c) Any payment or benefit under a Deferred Stock Award, Performance
Award, or Supplemental Grant to which the Participant was not irrevocably
entitled prior to the Status Change will be forfeited and the Award canceled as
of the date of such Status Change unless otherwise determined by the Committee.

         7.3.  CERTAIN CORPORATE TRANSACTIONS.

                  7.3.1.  MERGERS, SALES ETC.

         In the event of a consolidation or merger in which the Company is not
the surviving corporation or which results in the acquisition of substantially
all the Company's outstanding Stock by a single person or entity or by a group
of persons and/or entities acting in concert, or in the event of the sale or
transfer of substantially all the Company's assets or a dissolution or
liquidation of the Company (a "covered transaction"), all outstanding Awards
will terminate as of the effective date of the covered transaction, and the
following rules shall apply:

         (a) Subject to paragraphs (b) and (c) below, the Committee shall, at
least twenty (20) days prior to the effective date of the covered transaction,
(1) make each outstanding Option and Stock Appreciation Right exercisable in
full, (2) remove the restrictions from each outstanding share of Restricted
Stock, (3) cause the Company to make any payment and provide any benefit under
each outstanding Deferred Stock Award, Performance Award, and Supplemental Grant
which would have been made or provided with the passage of time had the
transaction not occurred and the Participant not suffered a Status Change (or
died), and (4) forgive all or any portion of the principal of or interest on a
Loan.

         (b) If an outstanding Award is subject to performance or other
conditions (other than conditions relating only to the passage of time and
continued employment) which will not have been satisfied at the time of the
covered transaction, the Committee may in its sole discretion remove such
conditions. If it does not do so, however, such Award will terminate as of the
date of the covered transaction notwithstanding paragraph (a) above.

         (c) With respect to an outstanding Award held by a participant who,
following the covered transaction, will be employed by or otherwise providing
services to a corporation which is a surviving or acquiring corporation in such
transaction or an affiliate of such a corporation, the Committee may, in lieu of
the action described in paragraph (a) above, arrange to have such surviving or
acquiring corporation or affiliate grant to the Participant a replacement award
which, in the judgment of the Committee, is substantially equivalent to the
Award.
                  7.3.2.  LIQUIDATION AND DISSOLUTION.

         In the event of a dissolution or liquidation of the Company, all
outstanding Awards will terminate as of the effective date of such dissolution
or liquidation, and the following rules shall apply:

         (a) Subject to paragraphs (b) and (c) below, the Committee may, prior
to the effective date of such liquidation or dissolution, (1) make each
outstanding Option and Stock Appreciation Right exercisable in full, (2) remove
the restrictions from each outstanding share of Restricted Stock, (3) cause the
Company to make any payment and provide any benefit under each outstanding
Deferred Stock Award, Performance Award, and Supplemental Grant which would have
been made or provided with the passage of time had the transaction not occurred
and the Participant not suffered a Status Change (or died), and (4) forgive all
or any portion of the principal of or interest on a Loan.

         (b) If an outstanding Award is subject to performance or other
conditions (other than conditions relating only to the passage of time and
continued employment) which will not have been satisfied at the time of such
liquidation or dissolution, the Committee may in its sole discretion remove such
conditions. If it does not do so, however, such Award will terminate as of the
date of such liquidation or dissolution notwithstanding paragraph (a) above.

         (c) With respect to an outstanding Award held by a participant who,
following such liquidation or dissolution, will be employed by or otherwise
providing services to a corporation which is a surviving or acquiring
corporation in such transaction or an affiliate of such a corporation, the
Committee may, in lieu of the action described in paragraph (a) above, arrange
to have such surviving or acquiring corporation or affiliate grant to the
Participant a replacement award which, in the judgment of the Committee, is
substantially equivalent to the Award.

8.   GENERAL PROVISIONS

         8.1.  DOCUMENTATION OF AWARDS.

         Awards will be evidenced by such written instruments, if any, as may be
prescribed by the Committee from time to time. Such instruments may be in the
form of agreements to be executed by both the Participant and the Company, or
certificates, letters or similar instruments, which need not be executed by the
Participant but acceptance of which will evidence agreement to the terms
thereof.

         8.2.  RIGHTS AS A STOCKHOLDER, DIVIDEND EQUIVALENTS.

         Except as specifically provided by the Plan, the receipt of an Award
will not give a holder rights as a stockholder; the holder will obtain such
rights, subject to any limitations imposed by the Plan or the instrument
evidencing the Award, upon actual receipt of Stock. However, the Committee may,
on such conditions as it deems appropriate, provide that a holder will receive a
benefit in lieu of cash dividends that would have been payable on any or all
Stock subject to the holder's Award had such Stock been outstanding. Without
limitation, the Committee may provide for payment to the holder of amounts
representing such dividends, either currently or in the future, or for the
investment of such amounts on behalf of the holder.

         8.3.  CONDITIONS ON DELIVERY OF STOCK.

         The Company will not be obligated to deliver any shares of Stock
pursuant to the Plan or to remove restrictions from shares previously delivered
under the Plan (a) until all conditions of the Award have been satisfied or
removed, (b) until, in the opinion of the Company's counsel, all applicable
federal and state laws and regulations have been complied with, (c) if the
outstanding Stock is at the time listed on any stock exchange, until the shares
to be delivered have been listed or authorized to be listed on such exchange
upon official notice of notice of issuance, and (d) until all other legal
matters in connection with the issuance and delivery of such shares have been
approved by the Company's counsel. If the sale of Stock has not been registered
under the Securities Act of 1933, as amended, the Company may require, as a
condition to exercise of the Award, such representations or agreements as
counsel for the Company may consider appropriate to avoid violation of such Act
and may require that the certificates evidencing such Stock bear an appropriate
legend restricting transfer.

         If an Award is exercised by the Participant's legal representative, the
Company will be under no obligation to deliver Stock pursuant to such exercise
until the Company is satisfied as to the authority of such representative.

         8.4.  TAX WITHHOLDING.

         The Company will withhold from any cash payment made pursuant to an
Award an amount sufficient to satisfy all federal, state and local withholding
tax requirements (the "withholding requirements").

         In the case of an Award pursuant to which Stock may be delivered, the
Committee will have the right to require that the Participant or other
appropriate person remit to the Company an amount sufficient to satisfy the
withholding requirements, or make other arrangements satisfactory to the
Committee with regard to such requirements, prior to the delivery of any Stock.
If and to the extent that such withholding is required, the Committee may permit
the Participant or such other person to elect at such time and in such manner as
the Committee provides to have the Company hold back from the shares to be
delivered, or to deliver to the Company, Stock having a value calculated to
satisfy the withholding requirement. The Committee may make such share
withholding mandatory with respect to any Award at the time such Award is made
to a Participant.

         If at the time an ISO is exercised the Committee determines that the
Company could be liable for withholding requirements with respect to a
disposition of the Stock received upon exercise, the Committee may require as a
condition of exercise that the person exercising the ISO agree (a) to inform the
Company promptly of any disposition (within the meaning of section 424(c) of the
Code) of Stock received upon exercise, and (b) to give such security as the
Committee deems adequate to meet the potential liability of the Company for the
withholding requirements and to augment such security from time to time in any
amount reasonably deemed necessary by the Committee to preserve the adequacy of
such security.

         8.5.  TRANSFERABILITY OF AWARDS.

         No Award (other than an Award in the form of an outright transfer of
cash or Unrestricted Stock) may be transferred other than by will or by the laws
of descent and distribution, and during an employee's lifetime an Award
requiring exercise may be exercised only by the Participant (or in the event of
the Participant's incapacity, the person or persons legally appointed to act on
the Participant's behalf), except that Options awarded to Employees or members
of the Board which are not ISOs may be transferred by a Participant to (i) the
spouse, children or grandchildren of the Participant ("Immediate Family
Members"), (ii) a trust or trusts for the exclusive benefit of such Immediate
Family Members, or (iii) a partnership in which such Immediate Family Members
are the only partners, provided that (x) there may be no consideration for any
such transfer, and (y) subsequent transfers of Options shall be prohibited
except those in accordance with Section 8.5 hereof. Following any such transfer,
the transferred Option shall continue to be subject to all the terms and
conditions of this Plan, including without limitation the provisions of Section
7 with respect to exercise of the Option following the death or termination of
employment of the Participant to whom the Option was originally granted, and
Section 8.4 with respect to tax withholding.

         8.6.  ADJUSTMENTS IN THE EVENT OF CERTAIN TRANSACTIONS.

         (a) In the event of a stock dividend, stock split or combination of
shares, recapitalization or other change in the Company's capitalization, or
other distribution to common stockholders other than normal cash dividends,
after the effective date of the Plan, the Committee will make any appropriate
adjustments to the maximum number of shares that may be delivered under the
Plan, or with respect to which Awards may be made to any one Participant, under
Section 4 above.

         (b) In any event referred to in paragraph (a), the Committee will also
make any appropriate adjustments to the number and kind of shares of stock or
securities subject to Awards then outstanding or subsequently granted, any
exercise prices relating to Awards and any other provision of Awards affected by
such change. The Committee may also make such adjustments to take into account
material changes in law or in accounting practices or principles, mergers,
consolidations, acquisitions, dispositions or similar corporate transactions, or
any other event, if it is determined by the Committee that adjustments are
appropriate to avoid distortion in the operation of the Plan.

         8.7.  EMPLOYMENT RIGHTS, ETC.

         Neither the adoption of the Plan nor the grant of Awards will confer
upon any person any right to continued retention by the Company or any
subsidiary as an Employee or otherwise, or affect in any way the right of the
Company or subsidiary to terminate an employment, service or similar
relationship at any time. Except as specifically provided by the Committee in
any particular case, the loss of existing or potential profit in Awards granted
under the Plan will not constitute an element of damages in the event of
termination of an employment, service or similar relationship even if the
termination is in violation of an obligation of the Company to the Participant.

         8.8.  DEFERRAL OF PAYMENTS.

         The Committee may agree at any time, upon request of the Participant,
to defer the date on which any payment under an Award will be made.

         8.9. PAST SERVICES AS CONSIDERATION.

         Where a Participant purchases Stock under an Award for a price equal to
the par value of the Stock the Committee may determine that such price has been
satisfied by past services rendered by the Participant.

9.   EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION

     Neither adoption of the Plan nor the grant of Awards to a Participant will
affect the Company's right to grant to such Participant awards that are not
subject to the Plan, to issue to such Participant Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock may be issued to
Employees.

     The  Committee  may at any time or times amend the Plan or any  outstanding
Award for any purpose  which may at the time be  permitted by law, or may at any
time  terminate  the Plan as to any  further  grants of  Awards,  provided  that
(except to the  extent  expressly  required  or  permitted  by the Plan) no such
amendment  will,  without  the  approval  of the  stockholders  of the  Company,
effectuate a change for which stockholder  approval is required in order for the
Plan to continue to qualify for the award of ISOs under section 422 of the Code.