PACIFIC FINANCIAL CORPORATION
                     2000 STOCK INCENTIVE COMPENSATION PLAN

1.  PURPOSES

         1.1  The  purpose  of the  Pacific  Financial  Corporation  2000  Stock
Incentive Compensation Plan (the "Plan") is to enhance the long-term shareholder
value  of  Pacific  Financial   Corporation,   a  Washington   corporation  (the
"Company"),  by offering  opportunities to employees,  persons to whom offers of
employment  have  been  extended,  directors,  officers,  consultants,   agents,
advisors and  independent  contractors of the Company and its  Subsidiaries  (as
defined in Section 2) to participate in the Company's growth and success, and to
encourage them to remain in the service of the Company and its  Subsidiaries and
to acquire and maintain stock ownership in the Company.

2.  DEFINITIONS

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

         2.1  Acquired Entities.
              -----------------

         "Acquired Entities" has the meaning given in Section 6.2.

         2.2  Acquisition Transaction.
              -----------------------

         "Acquisition Transaction" has the meaning given in Section 6.2.

         2.3  Award.
              -----

         "Award"  means a grant  made to a  Participant  pursuant  to the  Plan,
including,  without limitation,  grants of Options,  Stock Appreciation  Rights,
Stock Awards, Other Stock-Based Awards or any combination of the foregoing.

         2.4  Board.
              -----

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

         2.5  Cause.
              -----

         "Cause" means dishonesty, fraud, misconduct, disclosure of confidential
information, conviction of, or a plea of guilty or no contest to, a felony under
the laws of the United States or any state thereof,  habitual  absence from work
for reasons other than  illness,  intentional  conduct which causes  significant
injury to the Company,  habitual abuse of alcohol or a controlled substance,  in
each case as determined by the Plan  Administrator,  and its determination shall
be conclusive and binding.
<PAGE>

         2.6  Change in Control.
              -----------------

         "Change  in  Control"  means  (i)  the  consummation  of  a  merger  or
consolidation  of the Company with or into another entity or any other corporate
reorganization,  if more than 50% of the combined voting power of the continuing
or surviving  entity's  securities  outstanding  immediately  after such merger,
consolidation  or  other  reorganization  is  owned  by  persons  who  were  not
shareholders of the Company  immediately prior to such merger,  consolidation or
other  reorganization or (ii) the sale,  transfer or other disposition of all or
substantially  all of the Company's assets. A transaction shall not constitute a
Change in  Control if its sole  purpose is to change the state of the  Company's
incorporation or to create a holding company that will be owned in substantially
the  same  proportions  by  the  persons  who  held  the  Company's   securities
immediately before such transaction.

         2.7  Code.
              ----

         "Code" means the Internal Revenue Code of 1986, as amended from time to
time.

         2.8  Common Stock.
              ------------

         "Common  Stock" means the common stock,  par value $1.00 per share,  of
the Company.

         2.9  Disability.
              ----------

         "Disability"  means  a  medically   determinable   mental  or  physical
impairment  or  condition  of the Holder which is expected to result in death or
which has lasted or is expected to last for a  continuous  period of twelve (12)
months or more and which  causes the Holder to be unable,  in the opinion of the
Plan Administrator on the basis of evidence  acceptable to it, to perform his or
her duties for the Company and, in the case of a determination of Disability for
purposes of determining the exercise period for an Incentive Stock Option, to be
engaged in any substantial  gainful  activity.  Upon making a  determination  of
Disability,  the Plan Administrator  shall, for purposes of the Plan,  determine
the date of the  Holder's  termination  of  employment,  service or  contractual
relationship.

         2.10 Exchange Act.
              ------------

         "Exchange Act" means the Securities Exchange Act of 1934, as amended.

         2.11 Fair Market Value.
              -----------------

         "Fair Market Value" shall be as  established  in good faith by the Plan
Administrator  or (a) if the  Common  Stock is  listed  on the  Nasdaq  National
Market,  the closing  sales price for the Common Stock as reported by the Nasdaq
National Market for a single trading day or (b) if the Common Stock is listed on
the New York Stock  Exchange or the American Stock  Exchange,  the closing sales
price for the Common Stock as such price is  officially  quoted in the composite
tape of  transactions  on such exchange for a single trading day. If there is no
such  reported  price for the Common Stock for the date in  question,  then such
price  on the  last  preceding  date  for  which  such  price  exists  shall  be
determinative of Fair Market Value.

                                       2
<PAGE>


         2.12 Grant Date.
              ----------

         "Grant Date" means the date the Plan Administrator adopted the granting
resolution or a later date designated in a resolution of the Plan  Administrator
as the date an Award is to be granted.

         2.13 Holder.
              ------

         "Holder"  means  the  Participant  to whom an Award is  granted  or the
personal representative of a Holder who has died.

         2.14 Incentive Stock Option.
              ----------------------

         "Incentive  Stock  Option"  means an Option to  purchase  Common  Stock
granted  under  Section 7 with the  intention  that it qualify as an  "incentive
stock option" as that term is defined in Section 422 of the Code.

         2.15 Involuntary Termination.
              -----------------------

         "Involuntary  Termination" means termination of the Holder's service to
the Company (or the parent or subsidiary  company  employing such Holder) or the
other party to the transaction constituting a Change in Control by reason of (i)
the  involuntary  discharge  of such  Holder by the  Company  (or the  parent or
subsidiary  company employing such Holder) or the other party to the transaction
constituting  a Change in  Control  for  reasons  other  than  Cause or (ii) the
voluntary  resignation  of the Holder  following  (A) a change in such  Holder's
position with the Company (or its successor or the parent or subsidiary  company
that employs such Holder) or the other party to the  transaction  constituting a
Change in Control that  materially  reduces such Holder's  level of authority or
responsibility or (B) a reduction in such Holder's compensation  (including base
salary,  fringe benefits and participation in bonus or incentive  programs based
on corporate performance) by more than 20%.

         2.16 Nonqualified Stock Option.
              -------------------------

         "Nonqualified  Stock Option"  means an Option to purchase  Common Stock
granted under Section 7 other than an Incentive Stock Option.

         2.17 Option.
              ------

         "Option" means the right to purchase Common Stock granted under Section
7.

         2.18 Option Shares.
              -------------

         "Option  Shares"  means  the  shares of Common  Stock  issuable  upon a
Holder's exercise of an Option granted under the Plan.

         2.19 Other Stock-Based Award.
              -----------------------

         "Other Stock-Based Award" means an Award granted under Section 11.

                                       3
<PAGE>

         2.20 Participant.
              -----------

         "Participant"  means an  individual  who is a Holder of an Award or, as
the context may require, any employee, director (including directors who are not
employees), officer, consultant, agent, advisor or independent contractor of the
Company or a Subsidiary  who has been  designated by the Plan  Administrator  as
eligible to participate in the Plan.

         2.21 Plan Administrator.
              ------------------

         "Plan  Administrator"  means the Board or any  committee  designated to
administer the Plan under Section 3.1.

         2.22 Qualifying Retirement.
              ---------------------

         "Qualifying Retirement" means retirement from service to the Company or
a Subsidiary by a  Participant  who is both (i) at least sixty (60) years of age
and (ii) an employee or officer of the Company or a Subsidiary.

         2.23 Restricted Stock.
              ----------------

         "Restricted  Stock" means shares of Common Stock granted  pursuant to a
Stock Award under  Section 10, the rights of  ownership  of which are subject to
restrictions prescribed by the Plan Administrator.

         2.24 Securities Act.
              --------------

         "Securities Act" means the Securities Act of 1933, as amended.

         2.25 Stock Appreciation Right.
              ------------------------

         "Stock Appreciation Right" means an Award granted under Section 9.

         2.26 Stock Award.
              -----------

         "Stock Award" means an Award granted under Section 10.

         2.27 Subsidiary.
              ----------

         "Subsidiary," except as expressly provided otherwise,  means any entity
that is directly or indirectly controlled by the Company or in which the Company
has a significant  ownership interest,  as determined by the Plan Administrator,
and any entity that may become a direct or indirect parent of the Company.

                                       4
<PAGE>

3.  ADMINISTRATION

         3.1  Plan Administrator.
              ------------------

         The  Plan  shall  be  administered  by  the  Board  or a  committee  or
committees (which term includes  subcommittees)  appointed by, and consisting of
two or more members of, the Board.  Any such committee shall have the powers and
authority  vested in the Board  hereunder  (including the power and authority to
interpret  any  provision  of the  Plan  or of any  Award).  The  Board,  or any
committee thereof appointed to administer the Plan, is referred to herein as the
"Plan  Administrator."  If and so long as the Common Stock is  registered  under
Section  12(b) or  12(g) of the  Exchange  Act,  the  Board  shall  consider  in
selecting the Plan  Administrator  and the membership of any committee acting as
Plan  Administrator  for any  persons  subject  or likely to become  subject  to
Section  16  under  the  Exchange  Act the  provisions  regarding  (a)  "outside
directors" as contemplated  by Section 162(m) of the Code and (b)  "Non-Employee
Directors"  as  contemplated  by Rule 16b-3 under the Exchange Act. The Board or
Plan  Administrator may delegate the  responsibility  for administering the Plan
with  respect to  designated  classes of  eligible  Participants  to one or more
senior executive officers or committees  thereof,  the members of which need not
be  members  of the  Board,  subject  to such  limitations  as the  Board  deems
appropriate.  Committee  members  shall  serve  for such  term as the  Board may
determine, subject to removal by the Board at any time.

         3.2  Administration and Interpretation by the Plan Administrator.
              -----------------------------------------------------------

         Except for the terms,  conditions and limitations  explicitly set forth
in the Plan,  the Plan  Administrator  shall have  exclusive  authority,  in its
absolute discretion, to determine all matters relating to Awards under the Plan,
including the selection of individuals to be granted Awards, the type of Awards,
the number of shares of Common Stock subject to an Award, all terms, conditions,
restrictions  and  limitations,  if  any,  of an  Award  and  the  terms  of any
instrument  that  evidences the Award.  The Plan  Administrator  shall also have
exclusive  authority  to  interpret  the Plan and may from  time to time  adopt,
change and rescind rules and  regulations of general  application for the Plan's
administration.  This authority  shall include the sole authority to correct any
defect, supply any omission or reconcile any inconsistency in this Plan and make
all other  determinations  necessary or advisable for the  administration of the
Plan and do everything necessary or appropriate to administer the Plan. The Plan
Administrator's  interpretation  of the Plan and its rules and regulations,  and
all actions taken and determinations made by the Plan Administrator  pursuant to
the Plan,  shall be conclusive and binding on all parties  involved or affected.
The  Plan  Administrator  may  delegate  administrative  duties  to  such of the
Company's officers as it so determines.

                                       5
<PAGE>

4.  STOCK SUBJECT TO THE PLAN

         4.1  Authorized Number of Shares.
              ---------------------------

         Subject to adjustment  from time to time as provided in Section 13.1, a
maximum of 100,000  shares of Common Stock shall be available for issuance under
the Plan.  Shares  issued  under the Plan  shall be drawn  from  authorized  and
unissued shares.

         4.2  Limitations.
              -----------

              (a) Subject to adjustment from time to time as provided in Section
13.1,  not more than 15,000 shares of Common Stock may be made subject to Awards
under the Plan to any  individual  Participant  in the  aggregate in any one (1)
calendar year,  except that the Company may make  additional  one-time grants to
newly  hired  Participants  of up to 5,000  shares  per such  Participant;  such
limitation shall be applied in a manner consistent with the requirements of, and
only to the  extent  required  for  compliance  with,  the  exclusion  from  the
limitation on deductibility of compensation under Section 162(m) of the Code.

              (b) Subject to adjustment from time to time as provided in Section
13.1,  not more than 1,000  shares of Common Stock may be made subject to Awards
to any non-employee director in the aggregate in any one calendar year.

         4.3  Reuse of Shares.
              ---------------

         Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is exercised for or settled in shares) shall again be
available  for  issuance in  connection  with future  grants of Awards under the
Plan;  provided,  however,  that any such shares shall be counted in  accordance
with  the  requirements  of  Section  162(m)  of the  Code if and to the  extent
applicable. Shares that are subject to tandem Awards shall be counted only once.
Also,  upon a  stock-for-stock  exercise  only the net number of shares  will be
deemed to have been used under this Plan.

5.  ELIGIBILITY

         Awards may be granted under the Plan to those  officers,  directors and
key employees of the Company and its Subsidiaries as the Plan Administrator from
time to time selects.  Awards may also be made to consultants,  agents, advisors
and  independent  contractors  who  provide  services  to the  Company  and  its
Subsidiaries.

                                       6
<PAGE>

6.  AWARDS

         6.1  Form and Grant of Awards.
              ------------------------

         The  Plan  Administrator   shall  have  the  authority,   in  its  sole
discretion,  to determine the type or types of Awards to be made under the Plan.
Such  Awards may  include,  but are not  limited to,  Incentive  Stock  Options,
Nonqualified Stock Options,  Stock Appreciation  Rights,  Stock Awards and Other
Stock-Based Awards. Awards may be granted singly, in combination or in tandem so
that the  settlement  or payment  of one  automatically  reduces or cancels  the
other.  Awards may also be made in combination or in tandem with, in replacement
of, as  alternatives  to, or as the payment form for, grants or rights under any
other employee or compensation plan of the Company.

         6.2  Acquired Company Awards.
              -----------------------

         Notwithstanding  anything  in  the  Plan  to  the  contrary,  the  Plan
Administrator  may grant Awards under the Plan in substitution for awards issued
under other plans,  or assume under the Plan awards issued under other plans, if
the  other  plans  are or were  plans  of  other  acquired  entities  ("Acquired
Entities")  (or  the  parent  of the  Acquired  Entity)  and the  new  Award  is
substituted, or the old Award is assumed, by reason of a merger,  consolidation,
acquisition  of  property  or  of  stock,   reorganization  or  liquidation  (an
"Acquisition  Transaction").  If  a  written  agreement  pursuant  to  which  an
Acquisition Transaction is completed is approved by the Board and said agreement
sets forth the terms and  conditions  of the  substitution  for or assumption of
outstanding  awards of the Acquired  Entity,  said terms and conditions shall be
deemed to be the action of the Plan Administrator  without any further action by
the Plan Administrator, except as may be required for compliance with Rule 16b-3
under the Exchange  Act, and the persons  holding such Awards shall be deemed to
be Participants and Holders.

7.  AWARDS OF OPTIONS

         7.1  Grant of Options.
              ----------------

         The Plan  Administrator  is  authorized  under  the  Plan,  in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.

         7.2  Option Exercise Price.
              ---------------------

         The  exercise  price for shares  purchased  under an Option shall be as
determined  by the Plan  Administrator,  but  shall not be less than 100% of the
Fair  Market  Value of the  Common  Stock on the  Grant  Date  with  respect  to
Incentive Stock Options.

         7.3  Term of Options.
              ---------------

         The  term  of  each  Option  shall  be  as   established  by  the  Plan
Administrator or, if not so established,  shall be ten (10) years from the Grant
Date.

                                       7
<PAGE>

         7.4  Exercise of Options.
              -------------------

         The Plan Administrator shall establish and set forth in each instrument
that  evidences  an Option  the time at which or the  installments  in which the
Option shall become  exercisable,  which provisions may be waived or modified by
the Plan  Administrator  at any time. If not so  established  in the  instrument
evidencing the Option or otherwise set at the time of grant,  the Option will be
subject  to the  following:  (a) (i) 20% of the  Option  shall  vest and  become
exercisable  one year  after the Grant  Date and (ii) an  additional  20% of the
Option shall vest and become  exercisable  each successive year  thereafter,  so
that 100% of the Option shall be fully vested and  exercisable  on and after the
date which is five (5) years  after the Grant  Date;  (b) in no event  shall any
additional  Option Shares vest after  termination  of Holder's  employment by or
service to the Company;  and (c) the Plan  Administrator may waive or modify the
foregoing schedule at any time.

         To the extent that the right to purchase shares has accrued thereunder,
an Option may be exercised  from time to time by written  notice to the Company,
in accordance with  procedures  established by the Plan  Administrator,  setting
forth the number of shares with  respect to which the Option is being  exercised
and  accompanied by payment in full as described in Section 7.5. This Option may
only be exercised  to purchase  that number of Shares  having an aggregate  Fair
Market  Value on the date of  exercise  greater  than or equal to $2,500 (or the
lesser number of remaining shares covered by this Option).

         7.5  Payment of Exercise Price.
              -------------------------

         The exercise price for shares  purchased  under an Option shall be paid
in full to the Company by delivery of consideration  equal to the product of the
Option  exercise price and the number of shares  purchased.  Such  consideration
must be paid  in cash or  check  (unless,  at the  time of  exercise,  the  Plan
Administrator  determines not to accept a personal check),  except that the Plan
Administrator,  in its sole  discretion,  may,  either at the time the Option is
granted or at any time before it is exercised and subject to such limitations as
the Plan  Administrator  may determine,  authorize payment in cash and/or one or
more of the following  alternative  forms: (a) tendering (either actually or, if
and so long as the Common Stock is  registered  under  Section 12(b) or 12(g) of
the Exchange Act, by  attestation)  Common Stock already owned by the Holder for
at least six months (or any shorter  period  necessary  to avoid a charge to the
Company's earnings for financial  reporting purposes) having a Fair Market Value
on the day prior to the exercise  date equal to the  aggregate  Option  exercise
price;  (b) if and so long as the Common Stock is registered under Section 12(b)
or 12(g) of the Exchange Act,  delivery of a properly  executed exercise notice,
together with irrevocable  instructions,  to (i) a third party designated by the
Company to deliver promptly to the Company the aggregate amount of sale proceeds
to pay the Option exercise price and any  withholding  tax obligations  that may
arise in  connection  with the  exercise  and (ii) the  Company to  deliver  the
certificates  for such  purchased  shares  directly to such third party,  all in
accordance  with the regulations of the Federal Reserve Board; or (c) such other
consideration as the Plan Administrator may permit.

                                       8
<PAGE>

         7.6  Post-Termination Exercises.
              --------------------------

         The Plan  Administrator  may establish and set forth in each instrument
that evidences an Option whether the Option will continue to be exercisable, and
the terms and conditions of such exercise, if a Holder ceases to be employed by,
or to provide services to, the Company or its Subsidiaries, which provisions may
be waived or modified by the Plan Administrator at any time.

         If not so  established in the  instrument  evidencing  the Option,  the
Option will be  exercisable  according to the  following  terms and  conditions,
which may be waived or modified by the Plan Administrator at any time.

         In case of  termination  of the Holder's  employment or services  other
than by reason of death or Cause, the Option shall be exercisable, to the extent
of  the  number  of  shares  purchasable  by the  Holder  at the  date  of  such
termination,  only (a) within one (1) year if the  termination  of the  Holder's
employment  or  services  are  coincident  with  Disability  or,  in the case of
Nonqualified  Stock Options,  a Qualifying  Retirement,  or (b) within three (3)
months after the date the Holder  ceases to be an employee,  director,  officer,
consultant,  agent,  advisor  or  independent  contractor  of the  Company  or a
Subsidiary  if  termination  of the Holder's  employment  or services is for any
reason other than death or Disability,  but in no event later than the remaining
term of the Option. Any Option exercisable at the time of the Holder's death may
be exercised, to the extent of the number of shares purchasable by the Holder at
the date of the Holder's death, by the personal  representative  of the Holder's
estate  entitled  thereto  at any time or from time to time  within one (1) year
after the date of death,  but in no event later than the  remaining  term of the
Option. In case of termination of the Holder's employment or services for Cause,
the Option shall automatically  terminate upon first discovery by the Company of
any reason for such  termination  and the Holder shall have no right to purchase
any Shares  pursuant to such Option,  unless the Plan  Administrator  determines
otherwise.  If a Holder's  employment or services with the Company are suspended
pending an  investigation  of whether the Holder shall be terminated  for Cause,
all the Holder's rights under any Option likewise shall be suspended  during the
period of investigation.

         A transfer of employment  or services  between or among the Company and
its  Subsidiaries  shall  not be  considered  a  termination  of  employment  or
services.  The effect of a Company-approved leave of absence or short-term break
in service on the terms and  conditions  of an Option shall be determined by the
Plan Administrator, in its sole discretion.

                                       9
<PAGE>

8.  INCENTIVE STOCK OPTION LIMITATIONS

         To the extent  required  by Section  422 of the Code,  Incentive  Stock
Options shall be subject to the following additional terms and conditions:

         8.1  Dollar Limitation.
              -----------------

         To the extent the  aggregate  Fair Market Value  (determined  as of the
Grant Date) of Common Stock with respect to which  Incentive  Stock  Options are
exercisable  for the first time during any calendar year (under the Plan and all
other stock  option  plans of the  Company)  exceeds  $100,000,  such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the event
the Participant  holds two (2) or more such Options that become  exercisable for
the first time in the same calendar year,  such  limitation  shall be applied on
the basis of the order in which such Options were granted.

         8.2  10% Shareholders.
              ----------------

         If a  Participant  owns more than 10% of the total  voting power of all
classes  of the  Company's  stock,  then  the  exercise  price  per  share of an
Incentive  Stock  Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Grant Date and the Option term shall not exceed five (5)
years.  The  determination  of 10% ownership  shall be made in  accordance  with
Section 422 of the Code.

         8.3  Eligible Employees.
              ------------------

         Individuals  who  are  not  employees  of  the  Company  or  one of its
subsidiary corporations may not be granted Incentive Stock Options. For purposes
of this Section 8.3, "subsidiary corporation" shall have the meanings attributed
to those terms for purposes of Section 422 of the Code.

         8.4  Term.
              ----

         The term of an Incentive Stock Option shall not exceed ten (10) years.

         8.5  Exercisability.
              --------------

         To  qualify  for  Incentive  Stock  Option  tax  treatment,  an  Option
designated  as an  Incentive  Stock  Option must be  exercised  within three (3)
months after  termination  of employment  for reasons  other than death,  except
that, in the case of  termination of employment  due to total  Disability,  such
Option must be exercised within one (1) year after such termination.  Employment
shall not be deemed to  continue  beyond the first 90 days of a leave of absence
unless  the  Participant's  reemployment  rights  are  guaranteed  by statute or
contract.

                                       10
<PAGE>

         8.6  Taxation of Incentive Stock Options.
              -----------------------------------

         In order to obtain  certain tax benefits  afforded to  Incentive  Stock
Options  under  Section 422 of the Code,  the  Participant  must hold the shares
issued upon the  exercise of an  Incentive  Stock Option for two (2) years after
the Grant Date of the Incentive  Stock Option and one (1) year from the date the
shares are transferred to the  Participant.  A Participant may be subject to the
alternative  minimum tax at the time of exercise of an Incentive  Stock  Option.
The  Participant  shall give the Company  prompt  notice of any  disposition  of
shares  acquired  by the  exercise of an  Incentive  Stock  Option  prior to the
expiration of such holding periods.

         8.7  Incorporation of Other Provisions.
              ---------------------------------

         With respect to Incentive Stock Options,  if this Plan does not contain
any provision required to be included herein under Section 422 of the Code, such
provision  shall be deemed to be  incorporated  herein  with the same  force and
effect as if such provision had been set out in full herein; provided,  however,
that to the extent any Option that is intended to qualify as an Incentive  Stock
Option cannot so qualify,  the Option,  to that extent,  shall be deemed to be a
Nonqualified Stock Option for all purposes of this Plan.

9.  STOCK APPRECIATION RIGHTS

         9.1  Grant of Stock Appreciation Rights.
              ----------------------------------

         The Plan  Administrator may grant a Stock Appreciation Right separately
or in tandem with a related Option.

         9.2  Tandem Stock Appreciation Rights.
              --------------------------------

         A Stock Appreciation Right granted in tandem with a related Option will
give the Holder the right to  surrender  to the  Company all or a portion of the
related Option and to receive an appreciation  distribution (in shares of Common
Stock or cash or any combination of shares and cash, as the Plan  Administrator,
in its sole  discretion,  shall determine at any time) in an amount equal to the
excess of the Fair  Market  Value for the date the Stock  Appreciation  Right is
exercised  over the  exercise  price per share of the right,  which shall be the
same as the exercise price of the related  Option.  A tandem Stock  Appreciation
Right will have the same other terms and provisions as the related Option.  Upon
and to the extent a tandem Stock  Appreciation  Right is exercised,  the related
Option will terminate.

          9.3 Stand-Alone Stock Appreciation Rights.
              -------------------------------------

         A Stock Appreciation Right granted separately and not in tandem with an
Option will give the Holder the right to receive an appreciation distribution in
an amount  equal to the excess of the Fair  Market  Value for the date the Stock
Appreciation  Right is exercised over the exercise price per share of the right.
A  stand-alone  Stock  Appreciation  Right  will  have  such  terms  as the Plan
Administrator may determine, except that the term of the right, if not otherwise
established  by the Plan  Administrator,  shall be ten (10) years from the Grant
Date.

                                       11
<PAGE>

         9.4  Exercise of Stock Appreciation Rights.
              -------------------------------------

         Unless otherwise  provided by the Plan  Administrator in the instrument
that  evidences  the Stock  Appreciation  Right,  the  provisions of Section 7.6
relating to the  termination  of a Holder's  employment or services  shall apply
equally, to the extent applicable, to the Holder of a Stock Appreciation Right.

10. STOCK AWARDS

         10.1 Grant of Stock Awards.
              ---------------------

         The Plan  Administrator is authorized to make Awards of Common Stock or
of rights to receive  shares of Common Stock to  Participants  on such terms and
conditions  and  subject  to such  restrictions,  if any  (which may be based on
continuous  service with the Company or the  achievement  of  performance  goals
related to (i) sales, gross margin, operating profits or profits, (ii) growth in
sales, gross margin,  operating profits or profits,  (iii) return ratios related
to sales, gross margin,  operating profits or profits, (iv) cash flow, (v) asset
management (including inventory  management),  or (vi) total shareholder return,
where such  goals may be stated in  absolute  terms or  relative  to  comparison
companies),  as the Plan Administrator shall determine,  in its sole discretion,
which terms,  conditions and  restrictions  shall be set forth in the instrument
evidencing  the Award.  The terms,  conditions  and  restrictions  that the Plan
Administrator  shall  have  the  power  to  determine  shall  include,   without
limitation,  the manner in which shares  subject to Stock Awards are held during
the periods they are subject to restrictions and the  circumstances  under which
forfeiture  of  Restricted  Stock  shall occur by reason of  termination  of the
Holder's services or upon the occurrence of other events.

         10.2 Issuance of Shares.
              ------------------

         Upon  the  satisfaction  of  any  terms,  conditions  and  restrictions
prescribed with respect to a Stock Award, or upon the Holder's  release from any
terms,  conditions and  restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall transfer, as soon as practicable, to the Holder
or, in the case of the Holder's  death,  to the personal  representative  of the
Holder's estate or as the appropriate court directs,  the appropriate  number of
shares of Common Stock covered by the Award.

         10.3 Waiver of Restrictions.
              ----------------------

         Notwithstanding   any  other   provisions   of  the   Plan,   the  Plan
Administrator  may, in its sole discretion,  waive the forfeiture period and any
other terms,  conditions  or  restrictions  on any  Restricted  Stock under such
circumstances and subject to such terms and conditions as the Plan Administrator
shall deem appropriate.

                                       12
<PAGE>

11. OTHER STOCK-BASED AWARDS

         The Plan  Administrator  may grant other Awards under the Plan pursuant
to which  shares  of  Common  Stock  (which  may,  but need  not,  be  shares of
Restricted  Stock  pursuant to Section 10) are or may in the future be acquired,
or Awards denominated in stock units, including ones valued using measures other
than market  value.  Such Other  Stock-Based  Awards may be granted  alone or in
addition to or in tandem with any Award of any type  granted  under the Plan and
must be consistent with the Plan's purpose.

12. ASSIGNABILITY

         Except as otherwise  specified or approved by the Plan Administrator at
the  time of grant of an  Award  or any  time  prior to its  exercise,  no Award
granted  under the Plan may be assigned,  pledged or  transferred  by the Holder
other than by will or by the laws of descent  and  distribution,  and during the
Holder's   lifetime,   such  Awards  may  be  exercised   only  by  the  Holder.
Notwithstanding the foregoing, and to the extent permitted by Section 422 of the
Code,  the  Plan  Administrator,   in  its  sole  discretion,  may  permit  such
assignment,  transfer and  exercisability and may permit a Holder of such Awards
to designate a  beneficiary  who may exercise the Award or receive  compensation
under the Award after the Holder's death; provided,  however, that (i) any Award
so assigned or transferred shall be subject to all the same terms and conditions
contained in the instrument evidencing the Award, (ii) the original Holder shall
remain subject to withholding taxes upon exercise, (iii) any subsequent transfer
of an Award shall be prohibited and (iv) the events of termination of employment
or contractual  relationship set forth in subsection 7.6 shall continue to apply
with respect to the original transferor-Holder.

13. ADJUSTMENTS

         13.1 Adjustment of Shares.
              --------------------

         In the event that, at any time or from time to time, a stock  dividend,
stock  split,  spin-off,  combination  or exchange of shares,  recapitalization,
merger,  consolidation,  distribution to  shareholders  other than a normal cash
dividend,  or other  change in the  Company's  corporate  or  capital  structure
results in (a) the outstanding  shares, or any securities  exchanged therefor or
received in their  place,  being  exchanged  for a different  number or class of
securities of the Company or of any other  corporation or (b) new,  different or
additional  securities of the Company or of any other corporation being received
by the  holders  of  shares  of  Common  Stock  of the  Company,  then  the Plan
Administrator,  in its sole discretion, shall make such equitable adjustments as
it shall deem  appropriate  in the  circumstances  in (i) the maximum number and
class of  securities  subject to the Plan as set forth in Section 4.1,  (ii) the
maximum number and class of securities that may be made subject to Awards to any
individual  Participant  as set forth in Section  4.2,  and (iii) the number and
class of securities that are subject to any outstanding  Award and the per share
price of such  securities,  without any change in the aggregate price to be paid
therefor.  The determination by the Plan Administrator as to the terms of any of
the foregoing adjustments shall be conclusive and binding.

                                       13
<PAGE>

         13.2 Dissolution, Liquidation or Change in Control Transactions.
              ----------------------------------------------------------

              (a)  In the event of the proposed  dissolution  or  liquidation of
the Company,  the Company  shall  notify each Holder at least  fifteen (15) days
prior to such  proposed  action.  To the extent not  previously  exercised,  all
Awards will terminate  immediately  prior to the  consummation  of such proposed
action.

              (b)  If, in  connection  with a Change in Control,  an Option does
not remain  outstanding  and either such Option is not assumed by the  surviving
entity or its parent,  or the surviving entity or its parent does not substitute
options with  substantially  the same terms for such Option,  such Option shall,
unless the applicable  agreement  representing an Option provides otherwise,  or
unless the Plan  Administrator  determines  otherwise  in its sole and  absolute
discretion,  become exercisable in full, whether or not the vesting requirements
set forth in the Option Agreement have been satisfied, for a period prior to the
effective  date of such  Change in Control of a duration  specified  by the Plan
Administrator, and thereafter the Option shall terminate.

              (c)  Unless  the  applicable   agreement   representing  an  Award
provides otherwise, or unless the Plan Administrator determines otherwise in its
sole and  absolute  discretion  in  connection  with any Change in Control,  the
vesting of Shares shall be  accelerated  in connection  with a Change in Control
which becomes  effective before such Holder's service to the Company  terminates
as follows:

                   (i) If Options were  outstanding at the effective time of the
Change in Control and they are  accelerated  in full pursuant to Subsection  (b)
above or  otherwise,  the  vesting of all Shares  shall be  accelerated  in full
whether  or not the  vesting  requirements  set  forth in the  applicable  Award
agreement have been satisfied.

              (d)  Notwithstanding Subsections (b) and (c) above, if the Company
and the other party to the  transaction  constituting  a Change in Control agree
that such transaction is to be treated as a "pooling of interests" for financial
reporting purposes, and if the Company's independent public accountants and such
other party's independent public accountants  separately determine in good faith
that the  transaction  constituting  a  Change  in  Control  would  qualify  for
treatment  as a  "pooling  of  interests"  but for the  acceleration  of vesting
provided  for in  Subsections  (b) and  (c)  above,  then  the  acceleration  of
exercisability  shall not occur to the  extent  that the  Company's  independent
public  accountants  and  such  other  party's  independent  public  accountants
separately determine in good faith that such acceleration would preclude the use
of "pooling of interests" accounting for such transaction.

                                       14
<PAGE>

         13.3 Further Adjustment of Awards.
              ----------------------------

         Subject to the preceding  Section 13.2,  the Plan  Administrator  shall
have  the   discretion,   exercisable  at  any  time  before  a  sale,   merger,
consolidation,  reorganization, dissolution, liquidation or Change in Control of
the Company, as defined by the Plan  Administrator,  to take such further action
as it  determines  to be  necessary  or  advisable,  and fair and  equitable  to
Participants,  with respect to Awards.  Such authorized  action may include (but
shall not be limited to)  establishing,  amending  or waiving  the type,  terms,
conditions  or  duration  of, or  restrictions  on,  Awards so as to provide for
earlier, later, extended or additional time for exercise,  payment or settlement
or  lifting   restrictions,   differing  methods  for  calculating  payments  or
settlements,  alternate  forms and amounts of payments and settlements and other
modifications,  and the Plan Administrator may take such actions with respect to
all  Participants,  to certain  categories of Participants or only to individual
Participants.  The Plan  Administrator  may take  such  actions  before or after
granting  Awards to which the  action  relates  and  before or after any  public
announcement with respect to such sale, merger,  consolidation,  reorganization,
dissolution,  liquidation  or  Change in  Control  that is the  reason  for such
action.  Without  limiting the generality of the foregoing,  if the Company is a
party to a merger or consolidation,  outstanding  Awards shall be subject to the
agreement  of merger or  consolidation.  Such  agreement,  without the  Holder's
consent, may provide for:

              (a)  the continuation of such outstanding Award by the Company (if
the Company is the surviving corporation);

              (b)  the assumption of the Plan and some or all outstanding Awards
by the surviving corporation or its parent;

              (c)  the  substitution by the surviving  corporation or its parent
of Awards with substantially the same terms for such outstanding Awards; or

              (d)  the cancellation of such  outstanding  Awards with or without
payment of any consideration.

         13.4 Limitations.
              -----------

         The  grant of  Awards  will in no way  affect  the  Company's  right 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.

         13.5 Fractional Shares.
              -----------------

         In the event of any  adjustment in the number of shares  covered by any
Option,   any  fractional   shares  resulting  from  such  adjustment  shall  be
disregarded  and each such  Option  shall  cover only the number of full  shares
resulting from such adjustment.

                                       15
<PAGE>

14. WITHHOLDING

         The  Company  may  require the Holder to pay to the Company in cash the
amount of any  withholding  taxes that the Company is required to withhold  with
respect to the grant, exercise,  payment or settlement of any Award. The Company
shall have the right to  withhold  from any Award or any shares of Common  Stock
issuable  pursuant  to an Award or from any  cash  amounts  otherwise  due or to
become due from the Company to the  Participant  an amount  equal to such taxes.
The  Company  may also  deduct  from any Award any  other  amounts  due from the
Participant to the Company or a Subsidiary.

15.  AMENDMENT AND TERMINATION OF PLAN

         15.1 Amendment of Plan.
              -----------------

         The Plan may be amended by the Board in such  respects as it shall deem
advisable including, without limitation, such modifications or amendments as are
necessary to maintain compliance with applicable statutes, rules or regulations;
however,  to the extent  required for compliance with Section 422 of the Code or
any applicable law or regulation,  shareholder approval will be required for any
amendment  that  will  increase  the  aggregate  number  of  shares  as to which
Incentive  Stock Options may be granted or change the class of persons  eligible
to   participate.   Amendments   made  to  the  Plan  which   would   constitute
"modifications"  to  Incentive  Stock  Options  outstanding  on the date of such
Amendments shall not be applicable to such  outstanding  Incentive Stock Options
but  shall  have   prospective   effect  only.   The  Board  may  condition  the
effectiveness  of any amendment on the receipt of  shareholder  approval at such
time and in such manner as the Board may consider  necessary  for the Company to
comply with or to avail the Company,  the Holders or both of the benefits of any
securities,   tax,  market  listing  or  other   administrative   or  regulatory
requirement  which the Board  determines to be desirable.  Whenever  shareholder
approval is sought,  and unless required otherwise by applicable law or exchange
requirements,  the proposed action shall require the affirmative vote of holders
of a majority of the shares  present,  entitled to vote and voting on the matter
without including abstentions or broker non-votes in the denominator.

         15.2 Termination Of Plan.
              -------------------

         The  Company's  shareholders  or the Board may suspend or terminate the
Plan at any  time.  The Plan  will  have no  fixed  expiration  date;  provided,
however, that no Incentive Stock Options may be granted more than ten (10) years
after  the  earlier  of the  Plan's  adoption  by the Board or  approval  by the
shareholders.

                                       16
<PAGE>

16. GENERAL

         16.1 Award Agreements.
              ----------------

         Awards granted under the Plan shall be evidenced by a written agreement
which shall contain such terms, conditions,  limitations and restrictions as the
Plan Administrator  shall deem advisable and which are not inconsistent with the
Plan.

         16.2 Continued Employment or Services; Rights In Awards.
              --------------------------------------------------

         None of the Plan,  participation  in the Plan as a  Participant  or any
action of the Plan  Administrator  taken  under the Plan shall be  construed  as
giving any  Participant  or  employee of the Company any right to be retained in
the  employ  of the  Company  or limit  the  Company's  right to  terminate  the
employment or services of the Participant.

         16.3 Registration; Certificates For Shares.
              -------------------------------------

         The Company shall be under no obligation to any Participant to register
for offering or resale or to qualify for exemption  under the Securities Act, or
to register or qualify under state  securities laws, any shares of Common Stock,
security  or  interest in a security  paid or issued  under,  or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue  certificates  for shares with such legends and subject to
such restrictions on transfer and stop-transfer  instructions as counsel for the
Company deems  necessary or desirable for compliance by the Company with federal
and state securities laws.

         Inability  of the Company to obtain,  from any  regulatory  body having
jurisdiction,  the authority deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any shares hereunder or the unavailability of an
exemption from  registration  for the issuance and sale of any shares  hereunder
shall relieve the Company of any liability in respect of the nonissuance or sale
of such  shares  as to which  such  requisite  authority  shall  not  have  been
obtained.

         16.4 No Rights As A Shareholder.
              --------------------------

         No Option,  Stock  Appreciation  Right or Other Stock-Based Award shall
entitle the Holder to any cash dividend,  voting or other right of a shareholder
unless and until the date of issuance  under the Plan of the shares that are the
subject of such Award, free of all applicable restrictions.

         16.5 Compliance With Laws And Regulations.
              ------------------------------------

                                       17
<PAGE>

         In  interpreting  and applying the  provisions of the Plan,  any Option
granted as an Incentive  Stock Option  pursuant to the Plan shall, to the extent
permitted by law, be construed as an "incentive stock option" within the meaning
of Section 422 of the Code.

         16.6 No Trust Or Fund.
              ----------------

         The  Plan  is  intended  to  constitute  an  "unfunded"  plan.  Nothing
contained  herein  shall  require the Company to  segregate  any monies or other
property,  or shares of Common  Stock,  or to create any trusts,  or to make any
special   deposits  for  any  immediate  or  deferred  amounts  payable  to  any
Participant,  and no  Participant  shall have any rights that are  greater  than
those of a general unsecured creditor of the Company.

         16.7 Section 83(b) Election.
              ----------------------

         Any  Holder  may,  in his or her  sole  discretion,  choose  to make an
election under Section 83(b) of the Code in connection with an Option granted to
such Holder pursuant to Section 7 of the Plan.

         16.8 Severability.
              ------------

         If any  provision of the Plan or any Award is determined to be invalid,
illegal or  unenforceable  in any  jurisdiction,  or as to any person,  or would
disqualify  the Plan or any Award  under any law deemed  applicable  by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without,  in
the Plan  Administrator's  determination,  materially altering the intent of the
Plan or the Award,  such  provision  shall be stricken as to such  jurisdiction,
person or Award,  and the  remainder of the Plan and any such Award shall remain
in full force and effect.

17. EFFECTIVE DATE

         The  Plan's  effective  date is the date on which it is  adopted by the
Board,  so long as it is  approved  by the  Company's  shareholders  at any time
within twelve (12) months of such adoption.

         Original Plan adopted by the Board on February 22, 2000 and approved by
the Company's shareholders on April 17, 2000.

                                       18
<PAGE>

                    PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS

           Date of                                                   Date of
          Adoption/                                                Shareholder
          Amendment/                                                Approval
          Adjustment           Section     Effect of Amendment   (if applicable)
          ----------           -------     -------------------   --------------

     Adoption by Board on         --             --              April 17, 2000
      February 22, 2000