<PAGE>   1

                                                                   EXHIBIT 10.42





                       THE 1996 STOCK INCENTIVE PLAN FOR
                            OFFICERS, DIRECTORS AND
                                KEY EMPLOYEES OF
                          AMBASSADOR APARTMENTS, INC.,
                          AMBASSADOR APARTMENTS, L.P.
                               AND SUBSIDIARIES*





*As amended March 20, 1997





<PAGE>   2

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                                                   Page
<S>                                                                                                                <C>
ARTICLE I
    DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1
    1.1    General  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1
    1.2    "Award Limit"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1
    1.3    "Beneficiary"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1
    1.4    "Board"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2
    1.5    "Capital Stock"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2
    1.6    "Cause"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2
    1.7    "Change in Control"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2
    1.8    "Code"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3
    1.9    "Committee"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3
    1.10   "Common Stock"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3
    1.11   "Common Units"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3
    1.12   "Company"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3
    1.13   "Company Charter"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3
    1.14   "Company Employee"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4
    1.15   "Company Subsidiary"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4
    1.16   "Director"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4
    1.17   "Disability"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4
    1.18   "Employee"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4
    1.19   "Employer"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4
    1.20   "Exchange Act"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4
    1.21   "Expiration Date"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4
    1.22   "Exchange Factor"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4
    1.23   "Fair Market Value"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4
    1.24   "Good Reason"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  5
    1.25   "Incentive Stock Option"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  5
    1.26   "Independent Director"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  5
    1.27   "Non-Qualified Stock Option"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6
    1.28   "Operating Partnership"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6
    1.29   "Operating Partnership Employee"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6
    1.30   "Operating Partnership Purchase Price"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6
    1.31   "Operating Partnership Subsidiary"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6
    1.32   "Option"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6
    1.33   "Option Agreement"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6
    1.34   "Optionee"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6
    1.35   "Plan"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6
    1.36   "Property Partnership"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6
    1.37   "Property Partnership Employee"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6
    1.38   "Property Partnership Purchase Price"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7
    1.39   "Property Partnership Subsidiary"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7
    1.40   "Retirement"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7
    1.41   "Rule 16b-3"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7
    1.42   "Securities Act"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7
    1.43   "Stock Ownership Limit"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7
    1.44   "Subsidiary"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7
    1.45   "Subsidiary Corporation"   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7
    1.46   "Ten Percent Shareholder"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7
    1.47   "Termination of Directorship"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7
    1.48   "Termination of Employment"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8
</TABLE>





                                      i
<PAGE>   3

<TABLE>
<S>                                                                                                              <C>
    1.49   Gender and Number  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8

ARTICLE II
    SHARES SUBJECT TO PLAN  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8
    2.1    Shares Subject to Plan   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8
    2.2    Unexercised Options and Other Rights   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9
    2.3    Effect of Certain Exercises  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9

ARTICLE III
    GRANTING OF OPTIONS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9
    3.1    Eligibility  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9
    3.2    Qualification of Incentive Stock Options   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9
    3.3    Granting of Options  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

ARTICLE IV
    TERMS OF OPTIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
    4.1    Option Agreement   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
    4.2    Option Price   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
    4.3    Option Term  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
    4.4    Option Vesting   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
    4.5    Exercise of Option after Termination of Employment or Directorship   . . . . . . . . . . . . . . . . . . 13
    4.6    Limitation in Terms of Option  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

ARTICLE V
    EXERCISE OF OPTIONS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
    5.1    Partial Exercise   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
    5.2    Manner of Exercise   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
    5.3    Transfer of Shares to a Company Employee or Independent Director   . . . . . . . . . . . . . . . . . . . 17
    5.4    Transfer of Shares to an Operating Partnership Employee  . . . . . . . . . . . . . . . . . . . . . . . . 17
    5.5    Transfer of Shares to a Property Partnership Employee  . . . . . . . . . . . . . . . . . . . . . . . . . 17
    5.6    Transfer of Payment to the Partnership   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
    5.7    Conditions to Issuance of Stock Certificates   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
    5.8    Rights as Stockholders   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
    5.9    Ownership and Transfer Restrictions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
    5.10   Restrictions on Exercise of Option   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

ARTICLE VI
    ADMINISTRATION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
    6.1    Committee  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
    6.2    Duties and Powers of Committee; Board Ratification of Grants   . . . . . . . . . . . . . . . . . . . . . 20
    6.3    Majority Rule  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
    6.4    Compensation; Professional Assistance; Good Faith Actions  . . . . . . . . . . . . . . . . . . . . . . . 20
    6.5    Delegation of Authority  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
    6.6    No Liability   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
    6.7    Indemnification  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

ARTICLE VIIMISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
    7.1    Not Transferable   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>





                                       ii
<PAGE>   4

<TABLE>
    <S>    <C>                                                                                                      <C>
    7.2    Amendment, Suspension or Termination of this Plan  . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
    7.3    Changes in Common Stock or Assets of the Company   . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
    7.4    Merger of the Company  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
    7.5    Effective Date; Approval of Plan by Stockholders   . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
    7.6    Tax Withholding  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
    7.7    Loans  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
    7.8    Limitations Applicable to Section 16 Persons   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
    7.9    Effect of Plan Upon Options and Other Compensation Plans   . . . . . . . . . . . . . . . . . . . . . . . 25
    7.10   Compliance with Laws   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
    7.11   Titles   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
    7.12   Governing Law  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>





                                      iii
<PAGE>   5

                       THE 1996 STOCK INCENTIVE PLAN FOR
                            OFFICERS, DIRECTORS AND
                                KEY EMPLOYEES OF
                          AMBASSADOR APARTMENTS, INC.,
                          AMBASSADOR APARTMENTS, L.P.
                                AND SUBSIDIARIES

             The 1996 Stock Incentive Plan for Officers, Directors and Key
Employees of Ambassador Apartments, Inc., Ambassador Apartments, L.P. and
Subsidiaries (the "Plan") was adopted, effective December 19, 1996, for the
benefit of those officers, key employees and directors.  The purposes of the
plan are as follows:

             (1)   To provide an additional incentive for officers, directors
and key employees of Ambassador Apartments, Inc., a Maryland corporation (the
"Company"), Ambassador Apartments, L.P., a Delaware limited partnership (the
"Operating Partnership"), and their Subsidiaries (as such terms are defined in
the Plan) to further the growth, development and financial success of the
Company by personally benefiting through the ownership of Company stock which
will reflect such growth, development and financial success.

             (2)   To enable the Company, the Operating Partnership and the
Subsidiaries to obtain and retain the services of such officers, directors and
key employees considered essential to their long term success by offering them
an opportunity to own stock in the Company which will reflect their growth,
development and financial success.


                                   ARTICLE I
                                  DEFINITIONS

      1.1    GENERAL

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

      1.2    "AWARD LIMIT" shall mean 100,000 shares of Common Stock.

      1.3    "BENEFICIARY" shall mean the person or persons properly designated
by the Optionee, including his spouse or heirs at law, to exercise such
Optionee's rights under this Plan in the event of the Optionee's death, or if
the Optionee has not designated such person or persons, or such person or
persons shall all have predeceased the Optionee, the executor or administrator
of the Optionee's estate.  Designation, revocation and redesignation of
Beneficiaries must be made in writing in accordance with rules established by
the Committee and shall be effective, upon delivery of such writing to the
Committee.





<PAGE>   6

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

      1.5    "CAPITAL STOCK" shall mean all classes or series of stock of the
Company.

      1.6    "CAUSE" shall mean any one or more of the following have occurred:

             (a)   a finding by the Board that an Optionee has materially
      harmed the Company or the Operating Partnership through an act of
      dishonesty or material conflict of interest which relates to the
      performance of the Optionee's duties as an Employee, under his employment
      agreement or otherwise, or as a Director;

             (b)   an Optionee's conviction of a felony;

             (c)   an Optionee's failure to perform in any material respect his
      duties as an Employee, under his employment agreement or otherwise, or as
      a Director (other than a failure due to disability) after written notice
      specifying the failure and a reasonable opportunity to cure (it being
      understood that if an Optionee's failure to perform is not of a type
      requiring a single action to fully cure, then the Optionee may commence
      the cure promptly after such written notice and thereafter diligently
      prosecute such cure to completion); or

             (d)   the material breach by an Optionee of any of his obligations
      under his employment agreement, if any, or any written policies or
      directives of the Board as determined by the Board in good faith in its
      sole discretion, and the failure of the Optionee to cure such breach
      within 30 days after receipt by the Optionee of a written notice
      specifying in reasonable detail the nature of the breach.

      1.7    "CHANGE IN CONTROL" shall be deemed to have occurred if:

             (a)    any "person" (as such term is used in Sections 13(d) and
      14(d) of the Exchange Act), other than (i) a trustee or other fiduciary
      holding securities under an employee benefit plan of the Company or any
      other Employer, (ii) a corporation owned directly or indirectly by the
      stockholders of the Company in substantially the same proportions as
      their ownership of the Common Stock, or controlled directly or indirectly
      by the stockholders of the Company, or (iii) David M. Glickman or any of
      his affiliates becomes the "beneficial owner" (as defined in Rule 13d-3
      under the Exchange Act), directly or indirectly, of securities of the
      Company representing 50% or more of the total voting power represented by
      the Company's then outstanding securities which vote generally in the
      election of Directors (referred to herein as "Voting Securities"); or





                                       2
<PAGE>   7

             (b)   during any period of two consecutive years, individuals who
      at the beginning of such period constitute the Board and any new
      Directors whose election by the Board or nomination for election by the
      Company's stockholders was approved by a vote of at least two- thirds of
      the Directors then still in office who either were Directors at the
      beginning of the period or whose election or nomination for election was
      previously so approved, cease for any reason to constitute a majority of
      the Board; or

             (c)   the stockholders of the Company approve a merger or
      consolidation of the Company with any other corporation other than a
      merger or consolidation which would result in the Voting Securities of
      the Company outstanding immediately prior thereto continuing to represent
      (either by remaining outstanding or by being converted into Voting
      Securities of the surviving entity) at least 50% of the total voting
      power represented by the Voting Securities of the Company or such
      surviving entity outstanding immediately after such merger or
      consolidation, and such transaction is consummated; or

             (d)   the stockholders of the Company approve a plan of complete
      liquidation of the Company or an agreement for the sale, assignment,
      conveyance, transfer, lease or other disposition by the Company of (in
      one transaction or a series of transactions) all or substantially all of
      the Company's assets, and such transaction is consummated.

      1.8    "CODE" shall mean the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder.

      1.9    "COMMITTEE" shall mean a committee of the Board, appointed as
provided in Section 6.1, or the Board until such Committee is appointed or if
required so that the Plan and this Agreement comply with the provisions of the
exemptive rule under Section 16 of the Exchange Act.

      1.10   "COMMON STOCK" shall mean the common stock of the Company, par
value $.01 per share.

      1.11   "COMMON UNITS" shall mean partnership units designated as "Common
Units" under the Amended and Restated Agreement of Limited Partnership of the
Operating Partnership, as amended from time to time.

      1.12   "COMPANY" shall have the meaning set forth in the first
introductory paragraph.

      1.13   "COMPANY CHARTER" shall mean the Articles of Amendment and
Restatement of the Articles of Incorporation of the Company, as amended and
supplemented from time to time.





                                       3
<PAGE>   8

      1.14   "COMPANY EMPLOYEE" shall mean any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Company or of
any entity which is then a Company Subsidiary.

      1.15   "COMPANY SUBSIDIARY" shall mean any corporation, partnership or
other entity (other than the Company) in an unbroken chain beginning with the
Company if all of them in the aggregate, other than the last one in the
unbroken chain, then own stock or other interests possessing 50 percent or more
of the total combined economic interests or the total combined voting power of
all classes of stock or other interests in each of the others in such chain;
provided, however, that "Company Subsidiary" shall not include the Operating
Partnership or any Operating Partnership Subsidiary.

      1.16   "DIRECTOR" shall mean a member of the Board.

      1.17   "DISABILITY" shall mean a physical or mental condition resulting
from any medically determinable physical or mental impairment that renders an
Optionee incapable of engaging in any substantial gainful employment and that
can be expected to result in death or that has lasted and can be expected to
last for a continuous period in the aggregate of no less than four consecutive
months, as determined by the Committee in good faith in its sole discretion.

      1.18   "EMPLOYEE" shall mean any Company Employee, Operating Partnership
Employee or Property Partnership Employee.

      1.19   "EMPLOYER" shall mean the Company, a Company Subsidiary, the
Operating Partnership or an Operating Partnership Subsidiary.

      1.20   "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.

      1.21   "EXPIRATION DATE" shall mean the last day of the term of the
Option as established in Section 4.3.

      1.22   "EXCHANGE FACTOR" shall have the meaning set forth in the Exchange
Rights Agreement, dated as of August 31, 1994, among the Company and certain
limited partners of the Operating Partnership, as such agreement may be amended
from time to time, including but not limited to any amendment to make a future
limited partner of the Operating Partnership a party to such agreement.

      1.23   "FAIR MARKET VALUE" of a share of Common Stock shall mean the per
share value of the Common Stock as of a given date, determined as follows:





                                       4
<PAGE>   9


             (a)   If the Common Stock is listed or admitted for trading on the
      New York Stock Exchange (or if not, on another national securities
      exchange upon which the Common Stock is listed), the Fair Market Value of
      the Common Stock is the last reported sales price of the Common Stock for
      composite transactions on the New York Stock Exchange (or if not listed
      on the New York Stock Exchange, such other national securities exchange)
      on such date or, if there were no sales on such date, the last date on
      which there were sales.

             (b)   If the Common Stock is not traded on any national securities
      exchange, but is quoted on the National Association of Securities
      Dealers, Inc. Automated Quotation System (the "NASDAQ System") or any
      similar system of automated dissemination of quotations of prices in
      common use, the Fair Market Value of the Common Stock is (i) if the
      Common Stock is then listed as a national market issue under the NASDAQ
      System, the last reported sales price of the Common Stock on the NASDAQ
      System on such date or, if there were no sales on such date, the last
      date on which there were sales or (ii) if the Common Stock is then not
      listed as a national market issue under the NASDAQ System, the mean
      between the closing representative bid and asked prices for the Common
      Stock on the NASDAQ System (or such similar quotation system) on such
      date.

             (c)   If neither clause (a) nor clause (b) of this definition is
      applicable, or the Board determines in good faith that the value
      determined in accordance with clause (a) or (b), as otherwise applicable,
      does not represent the fair market value of the shares within the meaning
      of Section 422 or Section 162(m) of the Code, the Fair Market Value of
      the Common Stock is the fair market value per share as of such valuation
      date, as determined by the Board in good faith and in accordance with
      uniform principles consistently applied.

      1.24   "GOOD REASON" shall mean:

             (a)   the material breach by an Employer of its obligations under
      any written employment agreement which may exist between an Employer and
      the Employee and the failure of the Employer to cure such breach within
      30 days after receipt by the Employer of a written notice from the
      Employee specifying in reasonable detail the nature of the breach; or

             (b)   any material diminution in the scope of an Employee's
      responsibilities and duties.

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





                                       5
<PAGE>   10

      1.26   "INDEPENDENT DIRECTOR" shall mean a member of the Board who is not
also an Employee.

      1.27   "NON-QUALIFIED STOCK OPTION" shall mean an Option which is not
designated as an Incentive Stock Option.

      1.28   "OPERATING PARTNERSHIP" shall have the meaning set forth in the
first introductory paragraph.

      1.29   "OPERATING PARTNERSHIP EMPLOYEE" shall mean any officer or other
employee (as defined in accordance with Section 3401(c) of the Code) of the
Operating Partnership or any entity which is then an Operating Partnership
Subsidiary (other than a Property Partnership Employee).

      1.30   "OPERATING PARTNERSHIP PURCHASE PRICE" shall have the meaning set
forth in Section 5.4.

      1.31   "OPERATING PARTNERSHIP SUBSIDIARY" shall mean each of the Property
Partnerships or any other corporation, partnership or other entity (other than
the Operating Partnership) in an unbroken chain beginning with the Operating
Partnership if all of them in the aggregate, other than the last one in the
unbroken chain, then own more than 50 percent of the total combined economic
interests or the total combined voting power of all classes of stock or other
interests in each of the others.

      1.32   "OPTION" shall mean a stock option granted pursuant to this Plan.
An Option granted pursuant to this Plan shall, as determined by the Committee,
be either a Non-Qualified Stock Option or an Incentive Stock Option; provided,
however, that Options granted to Independent Directors and to Employees who are
not Employees of the Company or of a Subsidiary Corporation shall be
Non-Qualified Stock Options.

      1.33   "OPTION AGREEMENT" shall have the meaning set forth in Section
4.1.

      1.34   "OPTIONEE" shall mean an Employee or an Independent Director to
whom an Option is granted under the Plan.

      1.35   "PLAN" shall mean The 1996 Stock Incentive Plan for Officers,
Directors and Key Employees of Ambassador Apartments, Inc., Ambassador
Apartments, L.P. and Subsidiaries, as amended from time to time.

      1.36   "PROPERTY PARTNERSHIP" shall mean Ambassador Texas Partners, L.P.,
Ambassador I, L.P., Ambassador II, L.P., Ambassador III, L.P., Ambassador IV,
L.P., Ambassador V, L.P., Ambassador VI, L.P., Ambassador VII, L.P., Ambassador
VIII, L.P., Ambassador IX, L.P., Ambassador X, L.P., Ambassador XI, L.P., each
of which is a





                                       6
<PAGE>   11

limited partnership, and any other Operating Partnership Subsidiary designated
as such by the Board.

      1.37   "PROPERTY PARTNERSHIP EMPLOYEE" shall mean any officer or other
employee (as defined in accordance with Section 3401(c) of the Code) of a
Property Partnership or any entity which is then a Property Partnership
Subsidiary.

      1.38   "PROPERTY PARTNERSHIP PURCHASE PRICE" shall have the meaning set
forth in Section 5.5(a).

      1.39   "PROPERTY PARTNERSHIP SUBSIDIARY" shall mean any corporation,
partnership, or other entity (other than a Property Partnership) in an unbroken
chain beginning with a Property Partnership if all of them in the aggregate,
other than the last one in the unbroken chain, then own more than 50 percent of
the total combined economic interests or total combined voting power of all
classes of stock or other interests in each of the others.

      1.40   "RETIREMENT" shall mean (a) an Employee's Termination of
Employment upon or after attainment of age 65 and completion of five years of
service with the Company and/or any other Employer or at such earlier time with
the permission of the Committee, or (b) an Independent Director's Termination
of Directorship upon or after attainment of age 65.

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

      1.42   "SECURITIES ACT" shall mean the Securities Act of 1933, as amended
from time to time.

      1.43   "STOCK OWNERSHIP LIMIT" shall mean (a) the "Common Stock Ownership
Limit" restrictions on ownership and transfer provided in the Company Charter;
(b) the "Aggregate Stock Ownership Limit" restrictions on ownership and
transfer provided in the Company Charter; and (c) any other restrictions on
ownership or transfer set forth in the Company Charter.

      1.44   "SUBSIDIARY" shall mean a Company Subsidiary or an Operating
Company Subsidiary (including, without limitation, any Property Partnership and
Property Partnership Subsidiary).

      1.45   "SUBSIDIARY CORPORATION" shall mean a Company Subsidiary that
qualifies as a subsidiary corporation within the meaning of Section 424(f) of
the Code.

      1.46   "TEN PERCENT SHAREHOLDER" shall mean an Employee who owns (or is
deemed to own by reason of the attribution rules of Section 424(d) of the Code)
stock possessing more than ten percent of the total combined voting power of
all classes of stock of the Company or any Company Subsidiary that is a
Subsidiary Corporation.





                                       7
<PAGE>   12

      1.47   "TERMINATION OF DIRECTORSHIP" shall mean the time when an Optionee
who was an Independent Director ceases to be a Director of the Company for any
reason.

      1.48   "TERMINATION OF EMPLOYMENT" shall mean the time when the
employee-employer relationship between the Optionee and an Employer is
terminated for any reason, other than (a) termination where there is a
simultaneous reemployment or continuing employment of an Optionee by another
Employer, and (b) at the sole and absolute discretion of the Committee, a
termination which results in a temporary severance of the employee-employer
relationship that does not exceed one year; provided, however, that, if an
Employer ceases to qualify as same under the Plan as a result of a sale of
stock or other interests or any similar event, a Termination of Employment of
the Optionees who were employed by such Employer immediately prior to such
cessation shall be deemed to have occurred.  The Committee, in its sole and
absolute discretion, shall determine the effect of all other matters and
questions relating to Termination of Employment, including, but not limited to,
the question of whether a Termination of Employment resulted from a discharge
for Cause or a resignation by the employee for Good Reason, and all questions
of whether particular leaves of absence shall constitute Terminations of
Employment; provided, however, that, with respect to Incentive Stock Options, a
leave of absence shall constitute a Termination of Employment if, and to the
extent that, such leave of absence interrupts employment for the purposes of
Section 422(a)(2) of the Code and the then applicable regulations and revenue
rulings under said Section.  Notwithstanding any other provision of this Plan,
an Employer has an absolute and unrestricted right to terminate an Employee's
employment at any time for any reason whatsoever, with or without Cause, except
to the extent expressly provided otherwise in writing.

      1.49   GENDER AND NUMBER

             Wherever the masculine gender is used it shall include the
feminine and neuter and wherever a singular pronoun is used it shall include
the plural, unless the context clearly indicates otherwise.

                                   ARTICLE II
                             SHARES SUBJECT TO PLAN

      2.1    SHARES SUBJECT TO PLAN

             The shares of stock subject to Options shall be shares of Common
Stock, and the aggregate number of such shares which may be issued upon
exercise of such Options shall not exceed 250,000.  Notwithstanding anything
herein to the contrary, no single Optionee may be granted Options in any year
to purchase shares of Common Stock which, in the aggregate, exceed the Award
Limit.  The shares





                                       8
<PAGE>   13

of Common Stock issuable upon exercise of an Option may be either previously
authorized but unissued shares or issued shares which have been repurchased by
the Company.

      2.2    UNEXERCISED OPTIONS AND OTHER RIGHTS

             If any Option expires or is canceled without having been fully
exercised, the number of shares subject to such Option but as to which such
Option was not exercised prior to its expiration or cancellation may again be
the subject of an Option granted hereunder so long as the Optionee to whom such
Options had previously been granted received no benefits of ownership of the
underlying shares of Common Stock to which such Options related.

      2.3    EFFECT OF CERTAIN EXERCISES

             If any shares of Common Stock issuable pursuant to any Option are
surrendered as a payment for the price due on the exercise of said Option, the
number of shares of Common Stock issuable but so surrendered shall be charged
against the maximum number of shares of Common Stock that may be issued under
this Plan and shall not be considered Options that the Optionee with respect
thereto received no benefits of ownership.  In the event shares of Common Stock
are withheld pursuant to Section 7.6 hereof, the number of shares that would
have been issuable but that are withheld pursuant to the provisions of Section
7.6 shall be charged against the maximum number of shares of Common Stock that
may be issued under this Plan and shall not be considered Options that the
Optionee with respect thereto received no benefits of ownership.


                                  ARTICLE III
                              GRANTING OF OPTIONS

      3.1    ELIGIBILITY

             Employees eligible to participate in the Plan are those full or
part-time officers and other Employees who are responsible for or contribute to
the management, growth or profitability of the Company and the other Employers
and who are selected from time to time by the Committee, in its sole and
absolute discretion.  Independent Directors shall be eligible to be granted
Non-Qualified Stock Options.

      3.2    QUALIFICATION OF INCENTIVE STOCK OPTIONS

             No Incentive Stock Option shall be granted unless such Option when
granted qualifies as an "incentive stock option" under Section 422 of the Code,
including, in the case of an Incentive Stock Option granted to a Ten Percent
Shareholder, the provisions of Section 422(c)(5) of the Code which provides
that an Incentive Stock Option granted to a Ten Percent Shareholder must have
an





                                       9
<PAGE>   14

Option price of at least 110% of the Fair Market Value of the stock subject
thereto on the date of grant and cannot have a term longer than five years.
Options granted under the Plan to Employees who are not Employees of the
Company or of a Subsidiary Corporation do not qualify as "incentive stock
options" under Sections 422 of the Code.  Unless the Committee in its sole
discretion provides otherwise in the Option Agreement, if all or any portion of
an Option that is intended to qualify as an "incentive stock option" under
Section 422 of the Code (a) does not qualify as such when granted, such Option
(or such portion) shall be treated as a Non-Qualified Option, and (b) qualified
as an "incentive stock option" when granted but later no longer qualifies as
such, such Option (or such portion) shall thereafter be treated as a
Non-Qualified Stock Option.  To the extent that the aggregate Fair Market Value
of shares of Common Stock with respect to which "incentive stock options"
(within the meaning of Section 422 of the Code, but without regard to Section
422(d) of the Code) are exercisable for the first time by an Optionee during
any calendar year (under the Plan and all other incentive stock option plans of
the Company and any Subsidiary Corporation) exceed $100,000, such Options shall
be treated as Non-Qualified Options to the extent required by Section 422 of
the Code.  The rule set forth in the preceding sentence shall be applied by
taking Options into account in the order in which they were granted.  For these
purposes, the Fair Market Value shall be determined as of the date of grant of
the Option.

      3.3    GRANTING OF OPTIONS

             (a)   Subject to availability of shares as provided under Section
      2.1 and 7.2, the Committee shall from time to time, in its absolute
      discretion:

                   (i)   Determine which Employees are key Employees and select
             from among the Independent Directors and the key Employees
             (including Independent Directors and Employees to whom Options
             have previously been granted under the Plan) such of them as in
             its opinion should be granted Options;

                  (ii)   Determine the number of shares to be subject to such
             Options granted to the selected Independent Directors and key
             Employees;

                 (iii)   Subject to Sections 3.1 and 3.2, determine whether
             such Options are to be Incentive Stock Options or Non-Qualified
             Stock Options; and

                  (iv)   Determine the terms and conditions of such Options,
             consistent with this Plan, including, but not limited to, such
             terms and conditions as may be required by Section 162(m) of the
             Code.





                                       10
<PAGE>   15

             (b)   Upon the selection of an Independent Director or a key
      Employee to be granted an Option, the Committee shall instruct the
      Secretary (or other authorized officer of the Company) to issue the
      Option and may impose such conditions on the grant of the Option as it
      deems appropriate.  Without limiting the generality of the preceding
      sentence, the Committee may, in its sole and absolute discretion and on
      such terms as it deems appropriate, require as a condition to the grant
      of an Option to an Independent Director or an Employee that the
      Independent Director or Employee surrender for cancellation some or all
      of the unexercised Options which have been previously granted to such
      Independent Director or Employee under this Plan.  An Option, the grant
      of which is conditioned upon such surrender, may have an Option price
      lower (or higher) than the Option price of such surrendered Option, may
      cover the same (or a lesser or greater) number of shares as such
      surrendered Option, may contain such other terms as the Committee deems
      appropriate, and shall be exercisable in accordance with its terms,
      without regard to the number of shares, price, exercise period or any
      other term or condition of such surrendered Option.

             (c)   Any Incentive Stock Option granted under this Plan may be
      modified by the Committee to disqualify such Option from treatment as an
      "incentive stock option" under Section 422 of the Code; provided,
      however, that prior to such modification the Committee must obtain a
      written consent of the Optionee relating to such modification.


                                   ARTICLE IV
                                TERMS OF OPTIONS

      4.1    OPTION AGREEMENT

             Each Option shall be evidenced by a written Option Agreement (the
"Option Agreement"), which shall be executed by the Optionee and an authorized
officer of the Company (and in the case of an Option granted to an Employee,
his Employer, if different), and which shall contain such terms and conditions
as the Committee shall determine, consistent with this Plan.  Option Agreements
evidencing Incentive Stock Options shall contain such terms and conditions as
may be necessary to meet the applicable provisions of Section 422 of the Code.

      4.2    OPTION PRICE

             Subject to Section 3.2, the price per share of the shares subject
to each Option shall be set by the Committee in its sole and absolute
discretion; provided, however, that such price shall not be less than 100% of
the Fair Market Value of a share of Common Stock on the date the Option is
granted.





                                       11
<PAGE>   16

      4.3    OPTION TERM

             Subject to Section 3.2, the term of an Option shall be set by the
Committee in its sole and absolute discretion; provided, however, that such
term shall not be more than ten years from the date the Option is granted.  The
last day of the terms of the Option shall be the Option's Expiration Date.

      4.4    OPTION VESTING

             (a)   No Option may be exercised in whole or in part until it has
      vested or otherwise becomes exercisable in accordance with the terms of
      this Plan and the Option Agreement pursuant to which such Option was
      granted.

             (b)   The period during which the right to exercise an Option in
      whole or in part vests in the Optionee shall be determined by the
      Committee in its sole and absolute discretion and set forth in the Option
      Agreement, and the Committee may determine that an Option may not be
      exercised in whole or in part for a specified period after it is granted
      and that such Option may vest in one or more installments.  At any time
      after grant of an Option to an Optionee, the Committee may, in its sole
      and absolute discretion and subject to whatever terms and conditions it
      selects, accelerate the period during which all or any portion of an
      Option granted to an Optionee vests or becomes exercisable.

             (c)   Upon an Employee's Termination of Employment for Cause, any
      and all Options held by such Employee (whether or not vested or
      exercisable) shall be forfeited and shall immediately terminate effective
      with such Termination of Employment; provide, however, that the Committee
      may in its sole discretion provide that all or a part of any Option, to
      the extent exercisable as of such date, can be exercised for a period of
      up to one month from the date of Termination of Employment.

             (d)   The portion of any Option granted to an Employee that has
      not vested and become exercisable upon the Employee's Termination of
      Employment shall be forfeited and shall immediately terminate effective
      with such Termination of Employment; provided, however, that in the sole
      discretion of the Committee, the Option Agreement with respect to an
      Employee may provide that the unvested portion of any Option shall
      immediately become vested and exercisable (in whole or in part) in the
      event of a Change in Control, the Employee's Termination of Employment by
      reason of his Disability, by the Employer not for Cause, by the Employee
      for Good Reason, as a result of the Employee's Retirement, or if the
      Employee dies while an Employee.





                                       12
<PAGE>   17

             (e)   Upon an Independent Director's Termination of Directorship
      for Cause, any and all Options held by such Independent Director (whether
      or not vested or exercisable) shall be forfeited and shall immediately
      terminate effective with such Termination of Directorship; provided,
      however, that the Committee may in its sole discretion provide that all
      or a part of any Option, to the extent exercisable as of such date, can
      be exercised for a period of up to one month from the date of Termination
      of Directorship.

             (f)   The portion of any Option granted to an Independent Director
      that has not vested and become exercisable upon the Director's
      Termination of Directorship shall be forfeited and shall immediately
      terminate effective with such Termination of Directorship; provided,
      however, that in the sole discretion of the Committee, the Option
      Agreement with respect to an Independent Director may provide that the
      unvested portion of any Option shall immediately become vested and
      exercisable (in whole or in part) in the event of a Termination of
      Directorship for any reason other than Cause.

      4.5    EXERCISE OF OPTION AFTER TERMINATION OF EMPLOYMENT OR DIRECTORSHIP

             (a)   An Option granted to an Employee may be exercised only while
      the Optionee is an Employee; provided, however, that the Committee may
      determine in its sole discretion and an Option Agreement may provide that
      an Option granted to an Employee may be exercised, to the extent that the
      Optionee could have done so immediately preceding the Optionee's
      Termination of Employment (and to the extent, if any, such Option became
      exercisable under the Option Agreement as a result of such termination),
      subsequent to such Optionee's Termination of Employment, subject to the
      following limitations:

                    (i)  If the Optionee dies while an Employee, the Optionee's
             Beneficiary may exercise the Option not later than 12 months after
             the Optionee's death; or

                   (ii)  If the Optionee's Termination of Employment is due to
             the Optionee's Disability or Retirement, the Optionee (or the
             Optionee's personal representative) may exercise the Option no
             later than 12 months after such termination; or

                  (iii)  If the Optionee's Termination of Employment is for any
             reason other than those set forth in (i) or (ii) above and is not
             for Cause, the Optionee may exercise the Option within three
             months after such termination; or

                   (iv)  If the Optionee dies during a period described in
             clause (ii) or (iii) above for the exercise of an





                                       13
<PAGE>   18

             Option after the Optionee's Termination of Employment, the
             Optionee's Beneficiary may exercise such Option no later than the
             expiration of such extended period; or

                   (v)   If the Optionee's Termination of Employment is for
             Cause, the Optionee may not exercise any portion of the Option
             thereafter except to the extent and at the times permitted by the
             Committee in accordance with Section 4.4(c); and

                  (vi)   Notwithstanding (i) through (v) above or anything in
             an Option Agreement or the Plan to the contrary, (A) at any time
             after the grant of an Option to an Employee, the Committee, in its
             sole and absolute discretion and subject to whatever terms and
             conditions it selects, may provide that the Option may be
             exercised after the relevant extended period set forth above, and
             (B) no Option may be exercised later than its Expiration Date in
             any circumstances.

             (b)   An Option granted to an Independent Director may be
      exercised only while the Optionee is an Independent Director; provided,
      however, that the Committee may determine in its sole discretion and an
      Option Agreement may provide that an Option granted to an Independent
      Director may be exercised, to the extent that the Optionee could have
      done so immediately preceding the Optionee's Termination of Directorship
      (and to the extent, if any, such Option became exercisable under the
      Option Agreement as a result of such termination), subsequent to such
      Optionee's Termination of Directorship, subject to the following
      limitations:

                   (i)   If the Optionee dies while a Director, the Optionee's
             Beneficiary may exercise the Option within 12 months after the
             Optionee's death; or

                  (ii)   If the Optionee's Termination of Directorship is due
             to Disability or Retirement, the Optionee (or the Optionee's
             personal representative) may exercise the Option no later than 12
             months after such termination; or

                 (iii)   If the Optionee's Termination of Directorship is for
             any reason other than those set forth in (i) or (ii) above and is
             not for Cause, the Optionee may exercise the Option within three
             months after such termination; or

                  (iv)   If the Optionee dies during a period described in
             clause (ii) or (iii) above for the exercise of an Option after the
             Optionee's Termination of Directorship, the Optionee's Beneficiary
             may exercise such Option no later than the expiration of such
             extended period; or





                                       14
<PAGE>   19

                   (v)   If the Optionee's Termination of Directorship is for
             Cause, the Optionee may not exercise any portion of the Option
             thereafter except to the extent and at the times permitted by the
             Committee in accordance with Section 4.4(e); and

                  (vi)   Notwithstanding (i) through (v) above or anything
             contained in an Option Agreement or the Plan to the contrary, (A)
             at any time after the grant of an Option to an Independent
             Director, the Committee, in its sole and absolute discretion and
             subject to whatever terms and conditions its selects, may provide
             that the Option may be exercised after the relevant extended
             period set forth above, and (B) no Option may be exercised later
             than its Expiration Date in any circumstances.

      4.6    LIMITATION IN TERMS OF OPTION

             The Company shall not grant an Option which, and no Option shall
be exercisable to the extent that it, will, or is likely to, result in a
violation of Section 5.10.


                                   ARTICLE V
                              EXERCISE OF OPTIONS

      5.1    PARTIAL EXERCISE

             An exercisable Option may be exercised in whole or in part.
However, an Option shall not be exercisable with respect to fractional shares
and the Committee may require that, by the terms of the Option, a partial
exercise be with respect to a minimum number of shares.

      5.2    MANNER OF EXERCISE

             All or a portion of an exercisable Option shall be deemed
exercised upon:

             (a)   Delivery of all of the following to the Secretary of the
      Company or his office (or his delegate):

                   (i)   A written notice complying with the applicable rules
             established by the Committee, stating that the Option, or a
             portion thereof, is exercised.  The notice shall be signed by the
             Optionee or other person then entitled to exercise the Option or a
             portion thereof, and a copy thereof shall be delivered at the same
             time to the Operating Partnership with respect to an Operating
             Partnership Employee and to the Property Partnership with respect
             to a Property Partnership Employee;





                                       15
<PAGE>   20

                   (ii)  Such representations and documents as the Committee,
             in its sole and absolute discretion, deems necessary or advisable
             to effect compliance with all applicable provisions of the
             Securities Act and any other federal or state securities laws or
             regulations.  The Committee or Board may, in its absolute
             discretion, also take whatever additional actions it deems
             appropriate to effect such compliance including, without
             limitation, placing legends on share certificates and issuing
             stop-transfer notices to agents and registrars; and

                  (iii)  In the event that the Option shall be properly
             exercised by any person or persons other than the Optionee,
             appropriate proof of the right of such person or persons to
             exercise the Option.

             (b)   Full payment in cash, by certified or bank check or other
      instrument acceptable to the Committee for the shares with respect to
      which the Option, or portion thereof, is being exercised to:

                  (i)   the Secretary of the Company (with respect to an Option
             of an Independent Director and a Company Employee);

                  (ii)  the Operating Partnership (with respect to an Option of
             an Operating Partnership Employee); or

                  (iii) the Property Partnership (with respect to Options of a
             Property Partnership Employee).

      Notwithstanding the preceding sentence, at the sole and absolute
      discretion of the Committee, the terms of an Option granted to any
      Employee may with the approval of the Committee, in its sole and absolute
      discretion:

                   (A)   allow payment, in whole or in part, through the
             delivery of shares of Common Stock owned by the Optionee duly
             endorsed for transfer with a Fair Market Value on the date of
             delivery equal to the aggregate exercise price of the Option or
             the portion thereof intended to be paid through the delivery of
             shares of Common Stock; or

                   (B)   allow payment, in whole or in part, through the
             surrender of shares of Common Stock then issuable upon the
             exercise of the Option having a Fair Market Value on the date of
             Option exercise equal to the aggregate exercise price of the
             Option or the portion thereof intended to be paid through the
             delivery of shares of Common Stock, including a "cashless
             exercise"; or

                   (C)   (x) allow a delay in payment up to 30 days from the
             date the Option, or portion thereof, is exercised, (y) allow
             payment, in whole or in part, through the





                                       16
<PAGE>   21

             delivery of property of any kind which constitutes good and
             valuable consideration, or (z) allow payment through any
             combination of the consideration provided in clauses (A),
             (B) and (C).

      5.3    TRANSFER OF SHARES TO A COMPANY EMPLOYEE OR INDEPENDENT DIRECTOR

             Subject to Section 5.7, as soon as practicable after receipt by
the Company, pursuant to Section 5.2(b)(i), of payment for the shares with
respect to which an Option, or portion thereof, is exercised by an Optionee who
is an Independent Director or a Company Employee (or any Beneficiary thereof),
the Company shall transfer to the Optionee the number of shares to which such
Optionee is entitled upon such exercise.

      5.4    TRANSFER OF SHARES TO AN OPERATING PARTNERSHIP EMPLOYEE

             Subject to Section 5.7, as soon as practicable after receipt by
the Operating Partnership pursuant to Section 5.2(b)(ii), of payment for the
shares with respect to which an Option, or portion thereof, is exercised by an
Optionee who is an Operating Partnership Employee (or any Beneficiary thereof),
with respect to each such exercise:

             (a)   the Company shall sell to the Operating Partnership and the
      Operating Partnership shall purchase the number of shares for which such
      Option is being exercised for an aggregate purchase price (the "Operating
      Partnership Purchase Price") equal to the product of (i) the number of
      such shares multiplied by (ii) the Fair Market Value of a share of Common
      Stock on the date of the exercise; and

             (b)   the Operating Partnership shall sell such shares to the
      Optionee in return for the amount of the payment made by the Optionee to
      the Operating Partnership pursuant to Section 5.2(b).

      5.5    TRANSFER OF SHARES TO A PROPERTY PARTNERSHIP EMPLOYEE

             Subject to Section 5.7, as soon as practicable after receipt by a
Property Partnership, pursuant to Section 5.2(b)(iii), of payment for the
shares with respect to which an Option, or portion thereof, is exercised by an
Optionee who is a Property Partnership Employee (or any Beneficiary thereof),
with respect to each such exercise:

             (a)   the Company shall sell to the Property Partnership and the
      Property Partnership shall purchase the number of shares of Common Stock
      for which such Option is being exercised for an aggregate purchase price
      (the "Property Partnership Purchase Prices") equal to the product of (i)
      such





                                       17
<PAGE>   22

      number of shares multiplied by (ii) the Fair Market Value of a share of
      Common Stock on the date of exercise; and

             (b)   the Property Partnership shall sell such shares to the
      Optionee in return for the amount of the payment made by the Optionee to
      the Property Partnership pursuant to Section 5.2(b).

      5.6    TRANSFER OF PAYMENT TO THE PARTNERSHIP

             As soon as practicable after receipt by the Company with respect
to the exercise of any Option, or portion thereof, of the amount described in
Section 5.2(b)(i), the Operating Partnership Purchase Price or the Property
Partnership Purchase Price, the Company shall transfer to the Operating
Partnership an amount of cash equal to such payment and the Operating
Partnership shall issue additional Common Units to the Company corresponding to
the number of shares of Common Stock issuable upon the exercise of the relevant
Option multiplied by a fraction, the numerator of which is one and the
denominator of which is the Exchange Factor in effect on the date of such
transfer.

      5.7    CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES

             No certificate or certificates for shares of stock purchased upon
the exercise of any Option, or portion thereof, shall be required to be issued
prior to fulfillment of all of the following conditions:

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

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

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

             (d)   The lapse of such reasonable period of time following the
      exercise of the Option as the Committee may establish from time to time
      for reasons of administrative convenience; and

             (e)   The receipt of full payment for such shares, including
      payment of any applicable withholding tax in accordance with Section 7.6.





                                       18
<PAGE>   23

      5.8    RIGHTS AS STOCKHOLDERS

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

      5.9    OWNERSHIP AND TRANSFER RESTRICTIONS

             Shares acquired through the exercise of an Option shall be subject
to the restrictions on ownership and transfer set forth in the Company Charter.
The Committee, in its sole and absolute discretion, may impose such additional
restrictions on the ownership and transferability of the shares purchasable
upon the exercise of an Option as it deems appropriate in order to preserve the
qualification of the Company as a real estate investment trust, within the
meaning of Sections 856 through 860 of the Code.  The Committee may require an
Employee to give the Company prompt notice of any disposition of shares of
Common Stock acquired by exercise of an Incentive Stock Option within either of
(a) two years from the date of granting such Option to such Employee or (b) one
year after the transfer of such shares to such Employee.  Any such restriction
or notice requirement shall be set forth in the respective Option Agreement and
may be referred to on the certificates evidencing such shares.

      5.10   RESTRICTIONS ON EXERCISE OF OPTION

             An Option is not exercisable if, in the sole and absolute
discretion of the Committee, the exercise of such Option would likely result in
any of the following:

             (a)   The Optionee's ownership of Capital Stock being in violation
of the Stock Ownership Limit; or

             (b)   Income to the Company that could impair the Company's status
      as a real estate investment trust, within the meaning of Sections 856
      through 860 of the Code.

             Notwithstanding any other provision of this Plan, the Optionee
shall have no rights under this Plan to acquire Options or Common Stock which
would otherwise be prohibited under the Company Charter.


                                   ARTICLE VI
                                 ADMINISTRATION

      6.1    COMMITTEE





                                       19
<PAGE>   24

             The Committee shall consist solely of two or more Directors,
appointed by and holding office at the pleasure of the Board, each of whom is
not then an Employee and each of whom is both a "Non-Employee Director" as
defined by Rule 16b-3 and an "outside director" within the meaning of Section
162(m)(4)(C)(i) of the Code; provided, however, that if one or more of the
members of the Committee does not qualify as such a "Non-Employee Director" or
"outside director" at the time any Option is granted, such Option nevertheless
shall be deemed to be properly authorized and issued under the Plan and shall
remain in full force and effect subject to the other terms and conditions
contained in the Plan and the relevant Option Agreement.  Appointment of
Committee members shall be effective upon acceptance of appointment.  Committee
members may resign at any time by delivering written notice to the Board.
Vacancies in the Committee may be filled by the Board.

      6.2    DUTIES AND POWERS OF COMMITTEE; BOARD RATIFICATION OF GRANTS

             It shall be the duty of the Committee to conduct the general
administration of this Plan in accordance with its provisions.  The Committee
shall have the power to interpret this Plan, the Options, and the Option
Agreements, and to adopt such rules for the administration, interpretation, and
application of this Plan as are consistent therewith and to interpret, amend or
revoke any such rules.  Any such interpretations and rules with respect to
Incentive Stock Options shall be consistent with the provisions of Section 422
of the Code.  Notwithstanding any other provision of this Plan to the contrary,
the Board, in establishing or authorizing any committee of the Board to act as
the Committee, may require that any or all of the grants of Options by the
Committee with respect to the Plan be subject to ratification by the Board
and/or another committee of the Board.

      6.3    MAJORITY RULE

             The Committee shall act by a majority of its members in attendance
at a meeting at which a quorum is present or by a memorandum or other written
instrument signed by all members of the Committee.

      6.4    COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS

             Members of the Committee shall receive such compensation for their
services as members as may be determined by the Board.  All expenses and
liabilities which members of the Committee or Board incur in connection with
the administration of this Plan shall be borne by the Company.  The Committee
may, with the approval of the Board, employ attorneys, consultants,
accountants, appraisers, brokers or other persons.  The Committee, the Board,
the Company and the Company's officers and Directors and all other persons
charged with responsibility for administering the Plan shall be entitled to
rely upon the advice, opinions or valuations





                                       20
<PAGE>   25

of any such persons.  All actions taken and all interpretations and
determinations made by the Committee or Board in good faith shall be final and
binding upon all persons, including the Optionees and the Employers.  No
members of the Committee or Board shall be personally liable for any action,
determination or interpretation made in good faith with respect to this Plan or
any Option, and all members of the Committee and Board shall be fully protected
by the Company in respect of any such action, determination or interpretation.

      6.5    DELEGATION OF AUTHORITY

             The Committee may, in its sole and absolute discretion, delegate
to the Chief Financial Officer, the Secretary or any other proper officer of
the Company, or more than one of them, any or all of the administrative duties
and authority of the Committee under this Plan, other than the authority to
make grants or awards under this Plan to Employees who are directors or
officers of the Company within the meaning of Rule 16(a)-1(b) of the Exchange
Act or whose total compensation is required to be reported to the Company's
stockholders under the Exchange Act, to determine the price, timing or amount
of such grants or awards or to determine any other matter required by Rule
16b-3 or Code Section 162(m) to be determined in the sole and absolute
discretion of the Committee.

      6.6    NO LIABILITY

             No member of the Board or the Committee, Director, officer of the
Company or other Employee shall be liable, responsible or accountable in
damages or otherwise for any determination made or other action taken or any
failure to act by such person with respect to this Plan so long as such person
is not determined to be guilty by a final adjudication of willful misconduct
with respect to such determination, action or failure to act.

      6.7    INDEMNIFICATION

             To the fullest extent permitted by law, each of the members of the
Board and the Committee and each of the Directors, officers of the Company and
the Employees shall be held harmless and be indemnified by the Company for any
liability, loss (including amounts paid in settlement), damages or expenses
(including reasonable attorneys' fees) suffered by virtue of any
determinations, acts or failures to act, or alleged acts or failures to act, in
connection with the administration of this Plan so long as such person is not
determined by a final adjudication to be guilty of willful misconduct with
respect to such determination, action or failure to act.





                                       21
<PAGE>   26


                                  ARTICLE VII
                            MISCELLANEOUS PROVISIONS

      7.1    NOT TRANSFERABLE

             Options under this Plan may not be sold, pledged, assigned, or
transferred in any manner other than by will or the laws of descent and
distribution; provided, however, that, subject to the Stock Ownership Limit, an
Optionee may designate a Beneficiary to exercise his Option or other rights
under this Plan after his death, and, with respect to Non-Qualified Stock
Options, the Committee, in its sole discretion, may provide in the Option
Agreement that the Optionee may transfer, without consideration of the
transfer, all or a portion of his Options to members of his immediate family
(i.e., children, grandchildren or spouse), to trusts for the benefit of
immediate family members, to partnerships in which such family members are the
only parties and to charitable institutions; provided, however, prior to any
such transfer, the Optionee shall deliver written notice to the Company
describing in reasonable detail the proposed transfer together with an opinion
of counsel which (to the Company's satisfaction) is knowledgeable in securities
law matters to the effect that such transfer and the ownership and exercise of
such Option by the proposed transferee, taking into account any covenants or
restrictions mutually agreeable to the Company, the Optionee and the proposed
transferee, may be effected without registration under the Securities Act of
the Option or the Common Stock issuable upon exercise thereof.  No Option or
interest or right therein shall be liable for the debts, contracts or
engagements of the Optionee or his successors in interest or shall be subject
to disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect;
provided, however, that nothing in this Section 7.1 shall prevent transfers by
will or by the applicable laws of descent and distribution or, if provided in
the Option Agreement, to an immediate family member, to trusts for the benefit
of immediate family members, to partnerships in which such family members are
the only parties and to charitable institutions, as provided above.  Except as
provided in this Section 7.1 and the Option Agreement, an Option shall be
exercised during the Optionee's lifetime only the Optionee or his guardian or
legal representative.

      7.2    AMENDMENT, SUSPENSION OR TERMINATION OF THIS PLAN

             This Plan may be wholly or partially amended or otherwise
modified, suspended or terminated at any time or from time to time by the
Board.  Furthermore, without approval of the Company's stockholders given with
12 months before or after the action by the





                                       22
<PAGE>   27

Board, no action of the Board may, except as provided in Section 7.3,
materially increase the limits imposed in Section 2.1 on the maximum number of
shares which may be issued under this Plan, materially modify the eligibility
requirements of Section 3.1, reduce the minimum Option price requirements of
Section 4.2, extend the limit imposed in this Section 7.2 on the period during
which Options may be granted or otherwise materially increase the benefits
accruing to participants under the Plan and no action of the Committee or Board
may be taken that would otherwise require stockholder approval as a matter of
applicable law, regulation or rule.  No amendment, suspension or termination of
this Plan shall, without the consent of the holder of an Option, alter or
impair any rights or obligations under any Option theretofore granted or
awarded, unless the award itself otherwise expressly so provides. No Option may
be granted or awarded during any period of suspension nor after termination of
this Plan, and in no event may any Incentive Stock Option be granted under this
Plan after the first to occur of the following events:

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

             (b)   the expiration of ten years from the date the Plan is
      approved by the Company's stockholders under Section 7.5.

      7.3    CHANGES IN COMMON STOCK OR ASSETS OF THE COMPANY

             In the event that the outstanding shares of Common Stock are
hereafter changed into or exchanged for cash or a different number or kind of
shares or other securities of the Company, by reason of recapitalization,
reclassification, stock split up, stock dividend, or combination of shares,
appropriate adjustments shall be made by the Committee in the number and kind
of shares of stock for the purchase of which Options may be granted, including
adjustments of the limitation in Section 2.1 (and, to the extent permitted
under Section 162(m) of the Code, the Award Limit) on the maximum number and
kind of shares of stock which may be issued.

             In the event of such a change or exchange other than by reason of
reorganization (and other than for stock or securities of another corporation,
which shall be subject to the provisions of Section 7.4), the Committee shall
also make an appropriate and equitable adjustment in the number and kind of
shares of stock as to which all outstanding Options, or portions thereof then
unexercised, shall be exercisable.  Such adjustment shall be made with the
intent that after the change or exchange of shares of stock, each Optionee's
proportionate interest shall be maintained as before the occurrence of such
event.  Such adjustment in an outstanding Option may include a necessary or
appropriate corresponding adjustment in Option exercise price, but shall be
made without change in the total price applicable to the Option, or the
unexercised portion thereof (except for any change in the





                                       23
<PAGE>   28

aggregate price resulting from rounding-off of share quantities or prices).

             Where an adjustment of the type described above is made to an
Incentive Stock Option under this Section, the adjustment will be made in a
manner which will not be considered a "modification" under the provisions of
subsection 424(h)(3) of the Code.

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

      7.4    MERGER OF THE COMPANY

             In the event of the merger or consolidation of the Company with or
into another corporation or other entity, the exchange of all or substantially
all of the assets of the Company for the securities of another or other entity,
the acquisition by another corporation or person of all or substantially all of
the Company's assets or 80% or more of the Company's then outstanding voting
stock, or the liquidation or dissolution of the Company:

             (a)   At the sole and absolute discretion of the Committee, the
      terms of an Option may provide that it may not be exercised after such
      event; and

             (b)   In its sole and absolute discretion, and on such terms as it
      shall deem appropriate, the Committee may provide either by the terms of
      such Option or by a resolution adopted prior to the occurrence of such
      event that, for a specified period of time prior to such event, such
      Option shall be exercisable as to all shares of stock covered thereby,
      notwithstanding anything to the contrary in the Plan or the Option
      Agreement evidencing such Option.

      7.5    EFFECTIVE DATE; APPROVAL OF PLAN BY STOCKHOLDERS

             Subject to the approval of the Company's stockholders (by the
holders of a majority of the shares of the Company present or represented and
entitled to vote at the meeting at which the Plan is considered), the Plan
shall be effective as of December 19, 1996 and shall continue in effect
thereafter until terminated or suspended by the Committee.  Options may be
granted prior to such stockholder approval, provided, however, that such
Options shall not be exercisable prior to the time when this Plan is approved
by the stockholders, and provided further, that all Options granted under this
Plan shall be canceled and become null and void and of no effect, retroactive
to the date of grant, and the Plan shall be null and void and of no effect,
retroactive to the date of Board





                                       24
<PAGE>   29

approval, in the event the Plan is not approved by Company's stockholders prior
to the first anniversary of its approval by the Board.  The Company shall take
such actions with respect to the Plan as may be necessary to satisfy the
requirements of Rule 16b-3.

      7.6    TAX WITHHOLDING

             Each Optionee shall, no later than the date as of which the value
of any shares received upon the exercise of an Option first becomes includable
in gross income for federal income tax purposes, pay or make arrangements
satisfactory to the Committee regarding payment of any sums required by
federal, state or local tax law to be withheld with respect to such Option.
The Committee may, in its sole and absolute discretion, allow such Optionee to
elect to have shares of Common Stock withheld (or allow the return of shares of
Common Stock) having a Fair Market Value equal to all or a portion of the sums
required to be withheld.  If, as allowed by the Committee, the Optionee elects
to have shares of Common Stock withheld (or allow the return of shares of
Common Stock) having a Fair Market Value equal to all or a portion of the sums
required to be withheld, the value of the shares of Common Stock to be withheld
(or returned as the case may be) will equal to the Fair Market Value of such
shares (less any costs or taxes associated with the sale of such shares) on the
date that the amount of tax to be withheld is to be determined (the "Tax
Date").  Elections by such persons to have shares of Common Stock withheld for
this purpose will be subject to the following restrictions:  (a) the election
must be made on or prior to the Tax Date, (b) the election must be irrevocable,
(c) the election shall be subject to the disapproval of the Committee, (d) if
the person is an officer of the Company within the meaning of Section 16 of the
Exchange Act, the election shall be subject to such additional restrictions as
the Committee may impose in an effort to secure the benefits of any regulations
thereunder, and (e) any stock ownership resulting from such withholding shall
not violate the Stock Ownership Limit set forth in the Company Charter.

      7.7    LOANS

             The Committee may, in its sole and absolute discretion, extend one
or more loans to Optionees in connection with the exercise of Options granted
under this Plan.  The terms and conditions of any such loan shall be set by the
Committee.

      7.8    LIMITATIONS APPLICABLE TO SECTION 16 PERSONS

             Notwithstanding any other provision of this Plan, any Option
granted to an Optionee who is then subject to Section 16 of the Exchange Act
shall be subject to any additional limitations set forth in any applicable
exemptive rule under Section 16 of the Exchange Act (including any amendment to
Rule 16b-3 of the Exchange Act) the compliance with which is necessary for the
application of such exemptive rule.  Any such additional limitation shall be
set





                                       25
<PAGE>   30

forth in an annex to this Plan, such annex to be incorporated herein by the
reference and made part of this Plan.

      7.9    EFFECT OF PLAN UPON OPTIONS AND OTHER COMPENSATION PLANS

             The adoption of this Plan shall not affect any other compensation
or incentive plans established by the Company, the Operating Partnership, the
Property Partnerships or any other Employer.  Nothing in this Plan shall be
construed to limit the right of any of them (a) to establish any other forms of
incentives or compensation for their employees and directors or (b) to grant or
assume options or other rights otherwise than under this Plan in connection
with any proper corporate or partnership purpose including but not limited to
the grant or assumption of options in connection with the acquisition by
purchase, lease, merger, consolidation or otherwise, of the business, stock or
assets of any corporation, partnership, firm or association.

      7.10   COMPLIANCE WITH LAWS

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

      7.11   TITLES

             Titles are provided herein for convenience only and are not
intended to be the basis for interpretation or construction of this Plan.

      7.12   GOVERNING LAW

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





                                       26