Document:

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                                                                    EXHIBIT 10.6

                            ODYSSEY HEALTHCARE, INC.

                       2001 EQUITY-BASED COMPENSATION PLAN

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                                TABLE OF CONTENTS

<Table>
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1.       PURPOSE..................................................................................................1

2.       DEFINITIONS..............................................................................................1

3.       ADMINISTRATION...........................................................................................6

         (a)      Authority of the Committee......................................................................6
         (b)      Manner of Exercise of Committee Authority.......................................................7
         (c)      Limitation of Liability.........................................................................7

4.       STOCK SUBJECT TO PLAN....................................................................................8

         (a)      Overall Number of Shares Available for Delivery.................................................8
         (b)      Application of Limitation to Grants of Awards...................................................8
         (c)      Availability of Shares Not Delivered under Awards...............................................8
         (d)      Stock Offered...................................................................................8

5.       ELIGIBILITY; PER PERSON AWARD LIMITATIONS................................................................8

6.       SPECIFIC TERMS OF AWARDS.................................................................................8

         (a)      General.........................................................................................8
         (b)      Options.........................................................................................9
         (c)      Stock Appreciation Rights......................................................................10
         (d)      Restricted Stock...............................................................................11
         (e)      Phantom Stock..................................................................................12
         (f)      Bonus Stock and Awards in Lieu of Obligations..................................................13
         (g)      Dividend Equivalents...........................................................................13
         (h)      Other Stock-Based Awards.......................................................................13

7.       CERTAIN PROVISIONS APPLICABLE TO AWARDS.................................................................14

         (a)      Stand-Alone, Additional, Tandem, and Substitute Awards.........................................14
         (b)      Term of Awards.................................................................................14
         (c)      Form and Timing of Payment under Awards; Deferrals.............................................14
         (d)      Exemptions from Section 16(b) Liability........................................................15
         (e)      Non-Competition Agreement......................................................................15

8.       PERFORMANCE AND ANNUAL INCENTIVE AWARDS.................................................................15

         (a)      Performance Conditions.........................................................................15
         (b)      Performance Awards Granted to Designated Covered Employees.....................................15
         (c)      Annual Incentive Awards Granted to Designated Covered Employees................................17
         (d)      Written Determinations.........................................................................18
         (e)      Status of Section 8(b) and Section 8(c) Awards under Section 162(m)
                  of the Code....................................................................................18
</Table>

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<Table>
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9.       RECAPITALIZATION OR REORGANIZATION......................................................................18

         (a)      Existence of Plans and Awards..................................................................18
         (b)      Subdivision or Consolidation of Shares.........................................................19
         (c)      Corporate Restructuring........................................................................19
         (d)      Change in Control Price........................................................................20
         (e)      Non-Option Awards..............................................................................20
         (f)      Additional Issuances...........................................................................21
         (g)      Restricted Stock Awards........................................................................21

10.      GENERAL PROVISIONS......................................................................................21

         (a)      Transferability................................................................................21
         (b)      Taxes..........................................................................................23
         (c)      Changes to this Plan and Awards................................................................23
         (d)      Limitation on Rights Conferred under Plan......................................................23
         (e)      Unfunded Status of Awards......................................................................23
         (f)      Nonexclusivity of this Plan....................................................................23
         (g)      Payments in the Event of Forfeitures; Fractional Shares........................................24
         (h)      Severability...................................................................................24
         (i)      Governing Law..................................................................................24
         (j)      Conditions to Delivery of Stock................................................................24
         (k)      Plan Effective Date and Stockholder Approval...................................................25
</Table>

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                                                                    EXHIBIT 10.6

                            ODYSSEY HEALTHCARE, INC.

                       2001 EQUITY-BASED COMPENSATION PLAN

         1. PURPOSE. The purpose of the Odyssey Healthcare, Inc. 2001
Equity-Based Compensation Plan (the "Plan") is to provide a means through which
Odyssey Healthcare, Inc., a Delaware corporation (the "Company"), and its
Subsidiaries may attract and retain able persons as employees, directors and
consultants of the Company and to provide a means whereby those persons upon
whom the responsibilities of the successful administration and management of the
Company rest, and whose present and potential contributions to the welfare of
the Company are of importance, can acquire and maintain stock ownership, or
awards the value of which is tied to the performance of the Company's stock,
thereby strengthening their concern for the welfare of the Company and their
desire to remain in its employ. A further purpose of this Plan is to provide
such employees and directors with additional incentive and reward opportunities
designed to enhance the profitable growth of the Company. Accordingly, this Plan
primarily provides for granting Incentive Stock Options, options which do not
constitute Incentive Stock Options, Restricted Stock Awards, Stock Appreciation
Rights, Phantom Stock Awards or any combination of the foregoing, as is best
suited to the circumstances of the particular individual as provided herein.

         2. DEFINITIONS. For purposes of this Plan, the following terms shall be
defined as set forth below, in addition to such terms defined in Section 1
hereof:

                  (a) "Annual Incentive Award" means a conditional right granted
to a Participant under Section 8(c) hereof to receive a cash payment, Stock or
other Award, unless otherwise determined by the Committee, after the end of a
specified fiscal year.

                  (b) "Award" means any Option, SAR (including Limited SAR),
Restricted Stock Award, Phantom Stock Award, Stock granted as a bonus or in lieu
of another award, Dividend Equivalent, Other Stock-Based Award, Performance
Award or Annual Incentive Award, together with any other right or interest
granted to a Participant under this Plan.

                  (c) "Beneficiary" means one or more persons, trusts or other
entities which have been designated by a Participant in his or her most recent
written beneficiary designation filed with the Committee to receive the benefits
specified under this Plan upon such Participant's death or to which Awards or
other rights are transferred if and to the extent permitted under Section 10(a)
hereof. If, upon a Participant's death, there is no designated Beneficiary or
surviving designated Beneficiary, then the term Beneficiary means the persons,
trusts or other entities entitled by will or the laws of descent and
distribution to receive such benefits.

                  (d) "Beneficial Owner" shall have the meaning ascribed to such
term in Rule 13d-3 under the Exchange Act and any successor to such Rule.

                  (e) "Board" means the Company's Board of Directors.

                  (f) "Business Day" means any day other than a Saturday, a
Sunday, or a day on which banking institutions in the state of Texas are
authorized or obligated by law or executive order to close.

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                  (g) "Change in Control" means the occurrence of any of the
following events:

                           (i) The agreement to acquire or a tender offer for
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act by any individual, entity or group (within the meaning of section
13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person"), of 50% or more of either
(x) the then outstanding shares of Stock (the "Outstanding Stock") or (y) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a Change in
Control: (A) any acquisition directly from the Company, (B) any acquisition by
the Company, (C) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company or (D) any acquisition by any corporation pursuant to a transaction
which complies with clauses (A), (B) and (C) of paragraph (iii) below; or

                           (ii) Individuals who, as of the date of this Plan,
constitute the Board cease for any reason to constitute at least a majority of
the Incumbent Board, which shall be defined as the individuals who, as of the
Effective Date, constitute the Board and any other individual who becomes a
director of the Company after that date and whose election or appointment by the
Board or nomination for election by the Company's stockholders was approved by a
vote of at least a majority of the directors then comprising the Incumbent
Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Incumbent Board; or

                           (iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company or an acquisition of assets of another corporation (a
"Business Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company, or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be, (B)
no Person (excluding any employee benefit plan (or related trust) of the Company
or the corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership of the
Company existed prior to the Business Combination and (C) at least a majority of
the members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at

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the time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or

                           (iv) Approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.

                  (h) "Change in Control Price" means the amount calculated in
accordance with Section 9 of this Plan.

                  (i) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, including regulations thereunder and successor provisions and
regulations thereto.

                  (j) "Committee" means a committee of two or more directors
designated by the Board to administer this Plan; provided, however, that, unless
otherwise determined by the Board, the Committee shall consist solely of two or
more directors, each of whom shall be (i) a "nonemployee director" within the
meaning of Rule 16b-3 under the Exchange Act, and (ii) an "outside director" as
defined under section 162(m) of the Code, unless administration of this Plan by
"outside directors" is not then required in order to qualify for tax
deductibility under section 162(m) of the Code.

                  (k) "Covered Employee" means an Eligible Person who is a
Covered Employee as specified in Section 8(e) of this Plan.

                  (l) "Disability" means, as determined by the Board in the sole
discretion exercised in good faith of the Board, a physical or mental impairment
of sufficient severity that either the Participant is unable to continue
performing the duties he performed before such impairment or the Participant's
condition entitles him to disability benefits under any insurance or employee
benefit plan of the Company or its Subsidiaries and that impairment or condition
is cited by the Company as the reason for termination of the participant's
employment or participation as a member of the Board.

                  (m) "Dividend Equivalent" means a right, granted to a
Participant under Section 6(g), to receive cash, Stock, other Awards or other
property equal in value to dividends paid with respect to a specified number of
shares of Stock, or other periodic payments.

                  (n) "Effective Date" means the date of the consummation of a
firm commitment underwritten public offering of the Stock for cash.

                  (o) "Eligible Person" means all officers and employees of the
Company or of any Subsidiary, and other persons who provide services to the
Company or any of its Subsidiaries, including directors of the Company. An
employee on leave of absence may be considered as still in the employ of the
Company or a Subsidiary for purposes of eligibility for participation in this
Plan.

                  (p) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, including rules thereunder and successor
provisions and rules thereto.

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                  (q) "Executive Officer" means an executive officer of the
Company as defined under the Exchange Act.

                  (r) "Fair Market Value" means, for a particular day:

                           (i) if shares of Stock of the same class are listed
or admitted to unlisted trading privileges on any national or regional
securities exchange at the date of determining the Fair Market Value, then the
last reported sale price, regular way, on the composite tape of that exchange on
that business day or, if no such sale takes place on that business day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to unlisted trading privileges on that
securities exchange or, if no such closing prices are available for that day,
the last reported sale price, regular way, on the composite tape of that
exchange on the last business day before the date in question; or

                           (ii) if shares of Stock of the same class are not
listed or admitted to unlisted trading privileges as provided in subparagraph
(i) and if sales prices for shares of Stock of the same class in the
over-the-counter market are reported by the National Association of Securities
Dealers, Inc. Automated Quotations, Inc. ("NASDAQ") National Market System as of
the date of determining the Fair Market Value, then the last reported sales
price so reported on that business day or, if no such sale takes place on that
business day, the average of the high bid and low asked prices so reported or,
if no such prices are available for that day, the last reported sale price so
reported on the last business day before the date in question; or

                           (iii) if shares of Stock of the same class are not
listed or admitted to unlisted trading privileges as provided in subparagraph
(i) and sales prices for shares of Stock of the same class are not reported by
the NASDAQ National Market System (or a similar system then in use) as provided
in subparagraph (ii), and if bid and asked prices for shares of Stock of the
same class in the over-the-counter market are reported by NASDAQ (or, if not so
reported, by the National Quotation Bureau Incorporated) as of the date of
determining the Fair Market Value, then the average of the high bid and low
asked prices on that business day or, if no such prices are available for that
day, the average of the high bid and low asked prices on the last business day
before the date in question; or

                           (iv) if shares of Stock of the same class are not
listed or admitted to unlisted trading privileges as provided in subparagraph
(i) and sales prices or bid and asked prices therefor are not reported by NASDAQ
(or the National Quotation Bureau Incorporated) as provided in subparagraph (ii)
or subparagraph (iii) as of the date of determining the Fair Market Value, then
the value determined in good faith by the Committee, which determination shall
be conclusive for all purposes; or

                           (v) if shares of Stock of the same class are listed
or admitted to unlisted trading privileges as provided in subparagraph (i) or
sales prices or bid and asked prices therefor are reported by NASDAQ (or the
National Quotation Bureau Incorporated) as provided in subparagraph (ii) or
subparagraph (iii) as of the date of determining the Fair Market Value, but the
volume of trading is so low that the Board of Directors determines in good faith
that such prices are not indicative of the fair value of the Stock, then the
value determined in good faith by

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the Committee, which determination shall be conclusive for all purposes
notwithstanding the provisions of subparagraphs (i), (ii) or (iii).

For purposes of valuing Incentive Stock Options, the Fair Market Value of Stock
shall be determined without regard to any restriction other than one that, by
its terms, will never lapse.

                  (s) "Incentive Stock Option" or "ISO" means any Option
intended to be and designated as an incentive stock option within the meaning of
section 422 of the Code or any successor provision thereto.

                  (t) "Incumbent Board" shall mean individuals who, as of the
Effective Date, constitute the Board and any other individual who becomes a
director of the Company after that date and whose election or appointment by the
Board or nomination for election by the Company's stockholders was approved by a
vote of at least a majority of the directors then comprising the Incumbent
Board.

                  (u) "Limited SAR" means a right granted to a Participant under
Section 6(c) hereof.

                  (v) "Option" means a right, granted to a Participant under
Section 6(b) hereof, to purchase Stock or other Awards at a specified price
during specified time periods.

                  (w) "Other Stock-Based Awards" means Awards granted to a
Participant under Section 6(h) hereof.

                  (x) "Participant" means a person who has been granted an Award
under this Plan which remains outstanding, including a person who is no longer
an Eligible Person.

                  (y) "Performance Award" means a right, granted to a
Participant under Section 8 hereof, to receive Awards based upon performance
criteria specified by the Committee.

                  (z) "Person" means any person or entity of any nature
whatsoever, specifically including an individual, a firm, a company, a
corporation, a partnership, a limited liability company, a trust or other
entity; a Person, together with that Person's Affiliates and Associates (as
those terms are defined in Rule 12b-2 under the Exchange Act), and any Persons
acting as a partnership, limited partnership, joint venture, association,
syndicate or other group (whether or not formally organized), or otherwise
acting jointly or in concert or in a coordinated or consciously parallel manner
(whether or not pursuant to any express agreement), for the purpose of
acquiring, holding, voting or disposing of securities of the Company with such
Person, shall be deemed a single "Person."

                  (aa) "Phantom Stock" means a right, granted to a Participant
under Section 6(e) hereof, to receive Stock, cash or a combination thereof at
the end of a specified deferral period.

                  (bb) "Qualified Member" means a member of the Committee who is
a "Non-Employee Director" within the meaning of Rule 16b-3(b)(3) and an "outside
director" within the meaning of regulation 1.162-27 under section 162(m) of the
Code.

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                  (cc) "Restricted Stock" means Stock granted to a Participant
under Section 6(d) hereof, that is subject to certain restrictions and to a risk
of forfeiture.

                  (dd) "Rule 16b-3" means Rule 16b-3, promulgated by the
Securities and Exchange Commission under section 16 of the Exchange Act, as from
time to time in effect and applicable to this Plan and Participants.

                  (ee) "Rule 701" means Rule 701, promulgated by the Securities
and Exchange Commission under the Securities Act, as from time to time in effect
and applicable to the Plan and Participants.

                  (ff) "Securities Act" means the Securities Act of 1933 and the
rules and regulations promulgated thereunder, or any successor law, as it may be
amended from time to time.

                  (gg) "Stock" means the Company's Common Stock, par value $.001
per share, and such other securities as may be substituted (or resubstituted)
for Stock pursuant to Section 9.

                  (hh) "Stock Appreciation Rights" or "SAR" means a right
granted to a Participant under Section 6(c) hereof.

                  (ii) "Subsidiary" means with respect to any Person, any
corporation or other entity of which a majority of the voting power of the
voting equity securities or equity interest is owned, directly or indirectly, by
that Person.

         3. ADMINISTRATION.

                  (a) Authority of the Committee. This Plan shall be
administered by the Committee except to the extent the Board elects to
administer this Plan, in which case references herein to the "Committee" shall
be deemed to include references to the "Board." Subject to the express
provisions of the Plan and Rule 16b-3, the Committee shall have the authority,
in its sole and absolute discretion, to (i) adopt, amend, and rescind
administrative and interpretive rules and regulations relating to the Plan; (ii)
determine the Eligible Persons to whom, and the time or times at which, Awards
shall be granted; (iii) determine the amount of cash and the number of shares of
Stock, Stock Appreciation Rights, Phantom Stock Rights, or Restricted Stock
Awards, or any combination thereof, that shall be the subject of each Award;
(iv) determine the terms and provisions of each Award agreement (which need not
be identical), including provisions defining or otherwise relating to (A) the
term and the period or periods and extent of exercisability of the Options, (B)
the extent to which the transferability of shares of Stock issued or transferred
pursuant to any Award is restricted, (C) the effect of termination of employment
of a Participant on the Award, and (D) the effect of approved leaves of absence
(consistent with any applicable regulations of the Internal Revenue Service);
(v) accelerate the time of exercisability of any Option that has been granted;
(vi) construe the respective Award agreements and the Plan; (vii) make
determinations of the Fair Market Value of the Stock pursuant to the Plan;
(viii) delegate its duties under the Plan to such agents as it may appoint from
time to time, provided that the Committee may not delegate its duties with
respect to making Awards to, or otherwise with respect to Awards granted to,
Eligible Persons who are subject to section 16(b) of the Exchange Act or section
162(m) of the Code; (ix) subject to ratification by the Board, terminate,
modify, or

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amend the Plan; and (x) make all other determinations, perform all other acts,
and exercise all other powers and authority necessary or advisable for
administering the Plan, including the delegation of those ministerial acts and
responsibilities as the Committee deems appropriate. Subject to Rule 16b-3 and
section 162(m) of the Code, the Committee may correct any defect, supply any
omission, or reconcile any inconsistency in the Plan, in any Award, or in any
Award agreement in the manner and to the extent it deems necessary or desirable
to carry the Plan into effect, and the Committee shall be the sole and final
judge of that necessity or desirability. The determinations of the Committee on
the matters referred to in this Section 3(a) shall be final and conclusive.

                  (b) Manner of Exercise of Committee Authority. At any time
that a member of the Committee is not a Qualified Member, any action of the
Committee relating to an Award granted or to be granted to a Participant who is
then subject to section 16 of the Exchange Act in respect of the Company, or
relating to an Award intended by the Committee to qualify as "performance-based
compensation" within the meaning of section 162(m) of the Code and regulations
thereunder, may be taken either (i) by a subcommittee, designated by the
Committee, composed solely of two or more Qualified Members, or (ii) by the
Committee but with each such member who is not a Qualified Member abstaining or
recusing himself or herself from such action; provided, however, that, upon such
abstention or recusal, the Committee remains composed solely of two or more
Qualified Members. Such action, authorized by such a subcommittee or by the
Committee upon the abstention or recusal of such non-Qualified Member(s), shall
be the action of the Committee for purposes of this Plan. Any action of the
Committee shall be final, conclusive and binding on all persons, including the
Company, its Subsidiaries, stockholders, Participants, Beneficiaries, and
transferees under Section 10(a) hereof or other persons claiming rights from or
through a Participant. The express grant of any specific power to the Committee,
and the taking of any action by the Committee, shall not be construed as
limiting any power or authority of the Committee. The Committee may delegate to
officers or managers of the Company or any Subsidiary, or committees thereof,
the authority, subject to such terms as the Committee shall determine, to
perform such functions, including administrative functions, as the Committee may
determine, to the extent that such delegation will not result in the loss of an
exemption under Rule 16b-3(d)(1) for Awards granted to Participants subject to
section 16 of the Exchange Act in respect of the Company and will not cause
Awards intended to qualify as "performance-based compensation" under section
162(m) of the Code to fail to so qualify. The Committee may appoint agents to
assist it in administering this Plan.

                  (c) Limitation of Liability. The Committee and each member
thereof shall be entitled to, in good faith, rely or act upon any report or
other information furnished to him or her by any officer or employee of the
Company or a Subsidiary, the Company's legal counsel, independent auditors,
consultants or any other agents assisting in the administration of this Plan.
Members of the Committee and any officer or employee of the Company or a
Subsidiary acting at the direction or on behalf of the Committee shall not be
personally liable for any action or determination taken or made in good faith
with respect to this Plan, and shall, to the fullest extent permitted by law, be
indemnified and held harmless by the Company with respect to any such action or
determination.

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         4. STOCK SUBJECT TO PLAN.

                  (a) Overall Number of Shares Available for Delivery. Subject
to adjustment in a manner consistent with any adjustment made pursuant to
Section 9, the total number of shares of Stock reserved and available for
delivery in connection with Awards under this Plan shall not exceed the lesser
of 100,000,000 shares or ten percent (10%) of the total number of shares of
Stock then outstanding, assuming the exercise of all outstanding Options,
warrants or other rights to purchase stock and assuming the conversion or
exchange or exercise of all other securities convertible into Stock.

                  (b) Application of Limitation to Grants of Awards. No Award
may be granted if (i)(A) the number of shares of Stock to be delivered in
connection with such Award or, (B) in the case of an Award relating to shares of
Stock but settleable only in cash (such as cash-only SARs), the number of shares
to which such Award relates exceeds (ii) the number of shares of Stock remaining
available under this Plan minus the number of shares of Stock issuable in
settlement of or relating to then-outstanding Awards. The Committee may adopt
reasonable counting procedures to ensure appropriate counting, avoid double
counting (as, for example, in the case of tandem or substitute awards) and make
adjustments if the number of shares of Stock actually delivered differs from the
number of shares previously counted in connection with an Award.

                  (c) Availability of Shares Not Delivered under Awards. Shares
of Stock subject to an Award under this Plan that expire or are canceled,
forfeited, settled in cash or otherwise terminated without a delivery of shares
to the Participant, including (i) the number of shares withheld in payment of
any exercise or purchase price of an Award or taxes relating to Awards, and (ii)
the number of shares surrendered in payment of any exercise or purchase price of
an Award or taxes relating to any Award, will again be available for Awards
under this Plan, except that if any such shares could not again be available for
Awards to a particular Participant under any applicable law or regulation, such
shares shall be available exclusively for Awards to Participants who are not
subject to such limitation.

                  (d) Stock Offered. The shares to be delivered under the Plan
shall be made available from (i) authorized but unissued shares of Stock, (ii)
Stock held in the treasury of the Company, or (iii) previously issued shares of
Stock reacquired by the Company, including shares purchased on the open market,
in each situation as the Board or the Committee may determine from time to time
at its sole option.

         5. ELIGIBILITY; PER PERSON AWARD LIMITATIONS. Awards may be granted
under this Plan only to Eligible Persons. In each fiscal year or 12-month
period, as applicable, during any part of which this Plan is in effect, a
Covered Employee may not be granted Awards relating to more than 100,000,000
shares of Stock, subject to adjustment in a manner consistent with any
adjustment made pursuant to Section 9.

         6. SPECIFIC TERMS OF AWARDS.

                  (a) General. Awards may be granted on the terms and conditions
set forth in this Section 6. In addition, the Committee may impose on any Award
or the exercise thereof, at

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the date of grant or thereafter (subject to Section 10(c)), such additional
terms and conditions, not inconsistent with the provisions of this Plan, as the
Committee shall determine, including terms requiring forfeiture of Awards in the
event of termination of employment by the Participant and terms permitting a
Participant to make elections relating to his or her Award. The Committee shall
retain full power and discretion to accelerate, waive or modify, at any time,
any term or condition of an Award that is not mandatory under this Plan;
provided, however, that the Committee shall not have any discretion to
accelerate, waive or modify any term or condition of an Award that is intended
to qualify as "performance-based compensation" for purposes of section 162(m) of
the Code if such discretion would cause the Award to not so qualify. Except in
cases in which the Committee is authorized to require other forms of
consideration under this Plan, or to the extent other forms of consideration
must be paid to satisfy the requirements of the Delaware General Corporation
Law, no consideration other than services may be required for the grant (but not
the exercise) of any Award.

                  (b) Options. The Committee is authorized to grant Options to
Participants on the following terms and conditions:

                           (i) Exercise Price. Each Option agreement shall state
the exercise price per share of Stock (the "Exercise Price"); provided, however,
that the Exercise Price per share of Stock subject to an Incentive Stock Option
shall not be less than the greater of (A) the par value per share of the Stock
or (B) 100% of the Fair Market Value per share of the Stock on the date of grant
of the Option or in the case of an individual who owns stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
the Corporation or its parent or any Subsidiary 110% of the Fair Market Value
per share of the Stock on the date of grant, and the exercise price per share of
Stock subject to an Option other than an Incentive Stock Option shall not be
less than the par value per share of the Stock (but may be less than the Fair
Market Value of a share of the Stock on the date of grant).

                           (ii) Time and Method of Exercise. The Committee shall
determine the time or times at which or the circumstances under which an Option
may be exercised in whole or in part (including based on achievement of
performance goals and/or future service requirements), the methods by which such
exercise price may be paid or deemed to be paid, the form of such payment,
including without limitation cash, Stock, other Awards or awards granted under
other plans of the Company or any Subsidiary, or other property (including notes
or other contractual obligations of Participants to make payment on a deferred
basis), and the methods by or forms in which Stock will be delivered or deemed
to be delivered to Participants, including, but not limited to, the delivery of
Restricted Stock subject to Section 6(d). In the case of an exercise whereby the
Exercise Price is paid with Stock, such Stock shall be valued as of the date of
exercise.

                           (iii) ISOs. The terms of any ISO granted under this
Plan shall comply in all respects with the provisions of section 422 of the
Code. Anything in this Plan to the contrary notwithstanding, no term of this
Plan relating to ISOs (including any SAR in tandem therewith) shall be
interpreted, amended or altered, nor shall any discretion or authority granted
under this Plan be exercised, so as to disqualify either this Plan or any ISO
under section 422 of the Code, unless the Participant has first requested the
change that will result in such disqualification. ISOs shall not be granted more
than ten years after the earlier of the adoption of

                                     - 9 -
<PAGE>   13

this Plan or the approval of this Plan by the Company's stockholders.
Notwithstanding the foregoing, the Fair Market Value of shares of Stock subject
to an ISO and the aggregate Fair Market Value of shares of stock of any parent
or Subsidiary corporation (within the meaning of sections 424(e) and (f) of the
Code) subject to any other incentive stock option (within the meaning of section
422 of the Code)) of the Company or a parent or Subsidiary corporation (within
the meaning of sections 424(e) and (f) of the Code) that first becomes
purchasable by a Participant in any calendar year may not (with respect to that
Participant) exceed $100,000, or such other amount as may be prescribed under
section 422 of the Code or applicable regulations or rulings from time to time.
As used in the previous sentence, Fair Market Value shall be determined as of
the date the incentive stock options is granted. Failure to comply with this
provision shall not impair the enforceability or exercisability of any Option,
but shall cause the excess amount of shares to be reclassified in accordance
with the Code.

                  (c) Stock Appreciation Rights. The Committee is authorized to
grant SARs to Participants on the following terms and conditions:

                           (i) Right to Payment. An SAR shall confer on the
Participant to whom it is granted a right to receive, upon exercise thereof, the
excess of (A) the Fair Market Value of one share of Stock on the date of
exercise (or, in the case of a "Limited SAR," the Fair Market Value determined
by reference to the Change in Control Price, as defined under Section 2(h)
hereof) over (B) the grant price of the SAR as determined by the Committee.

                           (ii) Rights Related to Options. A Stock Appreciation
Right granted pursuant to an Option shall entitle a Participant, upon exercise,
to surrender that Option or any portion thereof, to the extent unexercised, and
to receive payment of an amount computed pursuant to Subsection 6(c)(ii)(B).
That Option shall then cease to be exercisable to the extent surrendered. Stock
Appreciation Rights granted in connection with an Option shall be subject to the
terms of the Award agreement governing the Option, which shall comply with the
following provisions in addition to those applicable to Options:

                                    (A) A Stock Appreciation Right granted in
         connection with an Option shall be exercisable only at such time or
         times and only to the extent that the related Option is exercisable and
         shall not be transferable except to the extent that the related Option
         is transferable.

                                    (B) Upon the exercise of a Stock
         Appreciation Right related to an Option, a Participant shall be
         entitled to receive payment from the Company of an amount determined by
         multiplying:

                                             (1) the difference obtained by
                  subtracting the exercise price of a share of Stock specified
                  in the related Option from the Fair Market Value of a share of
                  Stock on the date of exercise of the Stock Appreciation Right,
                  by

                                             (2) the number of shares as to
                  which that Stock Appreciation Right has been exercised.

                                     - 10 -
<PAGE>   14

                           (iii) Right Without Option. A Stock Appreciation
Right granted independent of an Option shall be exercisable as determined by the
Committee and set forth in the Award agreement governing the Stock Appreciation
Right, which Award agreement shall comply with the following provisions:

                                    (A) Each Award agreement shall state the
         total number of shares of Stock to which the Stock Appreciation Right
         relates.

                                    (B) Each Award agreement shall state the
         time or periods in which the right to exercise the Stock Appreciation
         Right or a portion thereof shall vest and the number of shares of Stock
         for which the right to exercise the Stock Appreciation Right shall vest
         at each such time or period.

                                    (C) Each Award agreement shall state the
         date at which the Stock Appreciation Rights shall expire if not
         previously exercised.

                                    (D) Each Stock Appreciation Right shall
         entitle a participant, upon exercise thereof, to receive payment of an
         amount determined by multiplying:

                                             (1) the difference obtained by
                  subtracting the Fair Market Value of a share of Stock on the
                  date of grant of the Stock Appreciation Right from the Fair
                  Market Value of a share of Stock on the date of exercise of
                  that Stock Appreciation Right, by

                                             (2) the number of shares as to
                  which the Stock Appreciation Right has been exercised.

                           (iv) Terms. The Committee shall determine at the date
of grant or thereafter, the time or times at which and the circumstances under
which an SAR may be exercised in whole or in part (including based on
achievement of performance goals and/or future service requirements), the method
of exercise, method of settlement, form of consideration payable in settlement,
method by or forms in which Stock will be delivered or deemed to be delivered to
Participants, whether or not an SAR shall be in tandem or in combination with
any other Award, and any other terms and conditions of any SAR. Limited SARs
that may only be exercised in connection with a Change in Control or other event
as specified by the Committee may be granted on such terms, not inconsistent
with this Section 6(c), as the Committee may determine. SARs and Limited SARs
may be either freestanding or in tandem with other Awards.

                  (d) Restricted Stock. The Committee is authorized to grant
Restricted Stock to Participants on the following terms and conditions:

                           (i) Grant and Restrictions. Restricted Stock shall be
subject to such restrictions on transferability, risk of forfeiture and other
restrictions, if any, as the Committee may impose, which restrictions may lapse
separately or in combination at such times, under such circumstances (including
based on achievement of performance goals and/or future service requirements),
in such installments or otherwise, as the Committee may determine at the date of
grant or thereafter. Except to the extent restricted under the terms of this
Plan and any Award agreement relating to the Restricted Stock, a Participant
granted Restricted Stock shall have all

                                     - 11 -
<PAGE>   15

of the rights of a stockholder, including the right to vote the Restricted Stock
and the right to receive dividends thereon (subject to any mandatory
reinvestment or other requirement imposed by the Committee). During the
restricted period applicable to the Restricted Stock, the Restricted Stock may
not be sold, transferred, pledged, hypothecated, margined or otherwise
encumbered by the Participant.

                           (ii) Forfeiture. Except as otherwise determined by
the Committee, upon termination of employment during the applicable restriction
period, Restricted Stock that is at that time subject to restrictions shall be
forfeited and reacquired by the Company; provided that the Committee may
provide, by rule or regulation or in any Award agreement, or may determine in
any individual case, that restrictions or forfeiture conditions relating to
Restricted Stock shall be waived in whole or in part in the event of
terminations resulting from specified causes, and the Committee may in other
cases waive in whole or in part the forfeiture of Restricted Stock.

                           (iii) Certificates for Stock. Restricted Stock
granted under this Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Stock are registered in the
name of the Participant, the Committee may require that such certificates bear
an appropriate legend referring to the terms, conditions and restrictions
applicable to such Restricted Stock, that the Company retain physical possession
of the certificates, and that the Participant deliver a stock power to the
Company, endorsed in blank, relating to the Restricted Stock.

                           (iv) Dividends and Splits. As a condition to the
grant of an Award of Restricted Stock, the Committee may require or permit a
Participant to elect that any cash dividends paid on a share of Restricted Stock
be automatically reinvested in additional shares of Restricted Stock or applied
to the purchase of additional Awards under this Plan. Unless otherwise
determined by the Committee, Stock distributed in connection with a Stock split
or Stock dividend, and other property distributed as a dividend, shall be
subject to restrictions and a risk of forfeiture to the same extent as the
Restricted Stock with respect to which such Stock or other property has been
distributed.

                  (e) Phantom Stock. The Committee is authorized to grant
Phantom Stock to Participants, which are rights to receive Stock, cash, or a
combination thereof at the end of a specified deferral period, subject to the
following terms and conditions:

                           (i) Award and Restrictions. Satisfaction of an Award
of Phantom Stock shall occur upon expiration of the deferral period specified
for such Phantom Stock by the Committee (or, if permitted by the Committee, as
elected by the Participant). In addition, Phantom Stock shall be subject to such
restrictions (which may include a risk of forfeiture) as the Committee may
impose, if any, which restrictions may lapse at the expiration of the deferral
period or at earlier specified times (including based on achievement of
performance goals and/or future service requirements), separately or in
combination, in installments or otherwise, as the Committee may determine.
Phantom Stock may be satisfied by delivery of Stock, cash equal to the Fair
Market Value of the specified number of shares of Stock covered by the Phantom
Stock, or a combination thereof, as determined by the Committee at the date of
grant or thereafter.

                                     - 12 -
<PAGE>   16

                           (ii) Forfeiture. Except as otherwise determined by
the Committee, upon termination of employment during the applicable deferral
period or portion thereof to which forfeiture conditions apply (as provided in
the Award agreement evidencing the Phantom Stock), all Phantom Stock that is at
that time subject to deferral (other than a deferral at the election of the
Participant) shall be forfeited; provided that the Committee may provide, by
rule or regulation or in any Award agreement, or may determine in any individual
case, that restrictions or forfeiture conditions relating to Phantom Stock shall
be waived in whole or in part in the event of terminations resulting from
specified causes, and the Committee may in other cases waive in whole or in part
the forfeiture of Phantom Stock.

                           (iii) Dividend Equivalents. Unless otherwise
determined by the Committee at date of grant, Dividend Equivalents on the
specified number of shares of Stock covered by an Award of Phantom Stock shall
be either (A) paid with respect to such Phantom Stock on the dividend payment
date in cash or in shares of unrestricted Stock having a Fair Market Value equal
to the amount of such dividends, or (B) deferred with respect to such Phantom
Stock and the amount or value thereof automatically deemed reinvested in
additional Phantom Stock, other Awards or other investment vehicles, as the
Committee shall determine or permit the Participant to elect.

                  (f) Bonus Stock and Awards in Lieu of Obligations. The
Committee is authorized to grant Stock as a bonus, or to grant Stock or other
Awards in lieu of obligations to pay cash or deliver other property under this
Plan or under other plans or compensatory arrangements, provided that, in the
case of Participants subject to section 16 of the Exchange Act, the amount of
such grants remains within the discretion of the Committee to the extent
necessary to ensure that acquisitions of Stock or other Awards are exempt from
liability under section 16(b) of the Exchange Act. Stock or Awards granted
hereunder shall be subject to such other terms as shall be determined by the
Committee. In the case of any grant of Stock to an officer of the Company or a
Subsidiary in lieu of salary or other cash compensation, the number of shares
granted in place of such compensation shall be reasonable, as determined by the
Committee.

                  (g) Dividend Equivalents. The Committee is authorized to grant
Dividend Equivalents to a Participant, entitling the Participant to receive
cash, Stock, other Awards, or other property equal in value to dividends paid
with respect to a specified number of shares of Stock, or other periodic
payments. Dividend Equivalents may be awarded on a free-standing basis or in
connection with another Award. The Committee may provide that Dividend
Equivalents shall be paid or distributed when accrued or shall be deemed to have
been reinvested in additional Stock, Awards, or other investment vehicles, and
subject to such restrictions on transferability and risks of forfeiture, as the
Committee may specify.

                  (h) Other Stock-Based Awards. The Committee is authorized,
subject to limitations under applicable law, to grant to Participants such other
Awards that may be denominated or payable in, valued in whole or in part by
reference to, or otherwise based on, or related to, Stock, as deemed by the
Committee to be consistent with the purposes of this Plan, including without
limitation convertible or exchangeable debt securities, other rights convertible
or exchangeable into Stock, purchase rights for Stock, Awards with value and
payment contingent upon performance of the Company or any other factors
designated by the Committee,

                                     - 13 -
<PAGE>   17

and Awards valued by reference to the book value of Stock or the value of
securities of or the performance of specified Subsidiaries. The Committee shall
determine the terms and conditions of such Awards. Stock delivered pursuant to
an Award in the nature of a purchase right granted under this Section 6(h) shall
be purchased for such consideration, paid for at such times, by such methods,
and in such forms, including, without limitation, cash, Stock, other Awards, or
other property, as the Committee shall determine. Cash awards, as an element of
or supplement to any other Award under this Plan, may also be granted pursuant
to this Section 6(h).

         7. CERTAIN PROVISIONS APPLICABLE TO AWARDS.

                  (a) Stand-Alone, Additional, Tandem, and Substitute Awards.
Awards granted under this Plan may, in the discretion of the Committee, be
granted either alone or in addition to, in tandem with, or in substitution or
exchange for, any other Award or any award granted under another plan of the
Company, any Subsidiary, or any business entity to be acquired by the Company or
a Subsidiary, or any other right of a Participant to receive payment from the
Company or any Subsidiary. Such additional, tandem and substitute or exchange
Awards may be granted at any time. If an Award is granted in substitution or
exchange for another Award, the Committee shall require the surrender of such
other Award in consideration for the grant of the new Award. In addition, Awards
may be granted in lieu of cash compensation, including in lieu of cash amounts
payable under other plans of the Company or any Subsidiary, in which the value
of Stock subject to the Award is equivalent in value to the cash compensation
(for example, Phantom Stock or Restricted Stock), or in which the exercise
price, grant price or purchase price of the Award in the nature of a right that
may be exercised is equal to the Fair Market Value of the underlying Stock minus
the value of the cash compensation surrendered (for example, Options granted
with an exercise price "discounted" by the amount of the cash compensation
surrendered).

                  (b) Term of Awards. The term of each Award shall be for such
period as may be determined by the Committee; provided that in no event shall
the term of any Option or SAR exceed a period of ten years (or such shorter term
as may be required in respect of an ISO under section 422 of the Code).

                  (c) Form and Timing of Payment under Awards; Deferrals.
Subject to the terms of this Plan and any applicable Award agreement, payments
to be made by the Company or a Subsidiary upon the exercise of an Option or
other Award or settlement of an Award may be made in such forms as the Committee
shall determine, including without limitation cash, Stock, other Awards or other
property, and may be made in a single payment or transfer, in installments, or
on a deferred basis. The settlement of any Award may be accelerated, and cash
paid in lieu of Stock in connection with such settlement, in the discretion of
the Committee or upon occurrence of one or more specified events (in addition to
a Change in Control). Installment or deferred payments may be required by the
Committee (subject to Section 10(c) of this Plan, including the consent
provisions thereof in the case of any deferral of an outstanding Award not
provided for in the original Award agreement) or permitted at the election of
the Participant on terms and conditions established by the Committee. Payments
may include, without limitation, provisions for the payment or crediting of
reasonable interest on installment or deferred payments or the grant or
crediting of Dividend Equivalents or other amounts in respect of installment or
deferred payments denominated in Stock. Any deferral shall only be

                                     - 14 -
<PAGE>   18

allowed as is provided in a separate deferred compensation plan adopted by the
Company. This Plan shall not constitute an "employee benefit plan" for purposes
of section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended.

                  (d) Exemptions from Section 16(b) Liability. It is the intent
of the Company that the grant of any Awards to or other transaction by a
Participant who is subject to section 16 of the Exchange Act shall be exempt
from section 16 pursuant to an applicable exemption (except for transactions
acknowledged in writing to be non-exempt by such Participant). Accordingly, if
any provision of this Plan or any Award agreement does not comply with the
requirements of Rule 16b-3 as then applicable to any such transaction, such
provision shall be construed or deemed amended to the extent necessary to
conform to the applicable requirements of Rule 16b-3 so that such Participant
shall avoid liability under section 16(b).

                  (e) Non-Competition Agreement. Each Participant to whom an
Award is granted under this Plan may be required to agree in writing as a
condition to the granting of such Award not to engage in conduct in competition
with the Company or any of its Subsidiaries for a period after the termination
of such Participant's employment with the Company and its Subsidiaries as
determined by the Committee.

         8. PERFORMANCE AND ANNUAL INCENTIVE AWARDS.

                  (a) Performance Conditions. The right of a Participant to
exercise or receive a grant or settlement of any Award, and the timing thereof,
may be subject to such performance conditions as may be specified by the
Committee. The Committee may use such business criteria and other measures of
performance as it may deem appropriate in establishing any performance
conditions, and may exercise its discretion to reduce or increase the amounts
payable under any Award subject to performance conditions, except as limited
under Sections 8(b) and 8(c) hereof in the case of a Performance Award or Annual
Incentive Award intended to qualify under section 162(m) of the Code.

                  (b) Performance Awards Granted to Designated Covered
Employees. If the Committee determines that a Performance Award to be granted to
an Eligible Person who is designated by the Committee as likely to be a Covered
Employee should qualify as "performance-based compensation" for purposes of
section 162(m) of the Code, the grant, exercise and/or settlement of such
Performance Award may be contingent upon achievement of preestablished
performance goals and other terms set forth in this Section 8(b).

                           (i) Performance Goals Generally. The performance
goals for such Performance Awards shall consist of one or more business criteria
or individual performance criteria and a targeted level or levels of performance
with respect to each of such criteria, as specified by the Committee consistent
with this Section 8(b). Performance goals shall be objective and shall otherwise
meet the requirements of section 162(m) of the Code and regulations thereunder
(including Treasury Regulation Section 1.162-27 and successor regulations
thereto), including the requirement that the level or levels of performance
targeted by the Committee result in the achievement of performance goals being
"substantially uncertain." The Committee may determine that such Performance
Awards shall be granted, exercised, and/or settled upon achievement of any one
performance goal or that two or more of the performance

                                     - 15 -
<PAGE>   19

goals must be achieved as a condition to grant, exercise and/or settlement of
such Performance Awards. Performance goals may differ for Performance Awards
granted to any one Participant or to different Participants.

                           (ii) Business and Individual Performance Criteria

                                    (A) Business Criteria. One or more of the
         following business criteria for the Company, on a consolidated basis,
         and/or for specified Subsidiaries or business or geographical units of
         the Company (except with respect to the total stockholder return and
         earnings per share criteria), shall be used by the Committee in
         establishing performance goals for such Performance Awards: (1)
         earnings per share; (2) increase in revenues; (3) increase in cash
         flow; (4) increase in cash flow return; (5) return on net assets,
         return on assets, return on investment, return on capital, or return on
         equity; (6) economic value added; (7) operating margin or contribution
         margin; (8) net income; pretax earnings; pretax earnings before
         interest, depreciation and amortization; pretax operating earnings
         after interest expense and before incentives, service fees, and
         extraordinary or special items; or operating income; (9) total
         stockholder return; (10) debt reduction; and (11) any of the above
         goals determined on an absolute or relative basis or as compared to the
         performance of a published or special index deemed applicable by the
         Committee including, but not limited to, the Standard & Poor's 500
         Stock Index or a group of comparable companies. One or more of the
         foregoing business criteria shall also be exclusively used in
         establishing performance goals for Annual Incentive Awards granted to a
         Covered Employee under Section 8(c) hereof.

                                    (B) Individual Performance Criteria. The
         grant, exercise and/or settlement of Performance Awards may also be
         contingent upon individual performance goals established by the
         Committee. If required for compliance with section 162(m) of the Code,
         such criteria shall be approved by the stockholders of the Company.

                           (iii) Performance Period; Timing for Establishing
Performance Goals. Achievement of performance goals in respect of such
Performance Awards shall be measured over a performance period of up to ten
years, as specified by the Committee. Performance goals shall be established not
later than 90 days after the beginning of any performance period applicable to
such Performance Awards, or at such other date as may be required or permitted
for "performance-based compensation" under section 162(m) of the Code.

                           (iv) Performance Award Pool. The Committee may
establish a Performance Award pool, which shall be an unfunded pool, for
purposes of measuring performance of the Company in connection with Performance
Awards. The amount of such Performance Award pool shall be based upon the
achievement of a performance goal or goals based on one or more of the criteria
set forth in Section 8(b)(ii) hereof during the given performance period, as
specified by the Committee in accordance with Section 8(b)(iii) hereof. The
Committee may specify the amount of the Performance Award pool as a percentage
of any of such criteria, a percentage thereof in excess of a threshold amount,
or as another amount which need not bear a strictly mathematical relationship to
such criteria.

                                     - 16 -
<PAGE>   20

                           (v) Settlement of Performance Awards; Other Terms.
After the end of each performance period, the Committee shall determine the
amount, if any, of (A) the Performance Award pool, and the maximum amount of
potential Performance Award payable to each Participant in the Performance Award
pool, or (B) the amount of potential Performance Award otherwise payable to each
Participant. Settlement of such Performance Awards shall be in cash, Stock,
other Awards or other property, in the discretion of the Committee. The
Committee may, in its discretion, reduce the amount of a settlement otherwise to
be made in connection with such Performance Awards, but may not exercise
discretion to increase any such amount payable to a Covered Employee in respect
of a Performance Award subject to this Section 8(b). The Committee shall specify
the circumstances in which such Performance Awards shall be paid or forfeited in
the event of termination of employment by the Participant prior to the end of a
performance period or settlement of Performance Awards.

                  (c) Annual Incentive Awards Granted to Designated Covered
Employees. If the Committee determines that an Annual Incentive Award to be
granted to an Eligible Person who is designated by the Committee as likely to be
a Covered Employee should qualify as "performance-based compensation" for
purposes of section 162(m) of the Code, the grant, exercise and/or settlement of
such Annual Incentive Award shall be contingent upon achievement of
preestablished performance goals and other terms set forth in this Section 8(c).

                           (i) Annual Incentive Award Pool. The Committee may
establish an Annual Incentive Award pool, which shall be an unfunded pool, for
purposes of measuring performance of the Company in connection with Annual
Incentive Awards. The amount of such Annual Incentive Award pool shall be based
upon the achievement of a performance goal or goals based on one or more of the
business criteria set forth in Section 8(b)(ii) hereof during the given
performance period, as specified by the Committee in accordance with Section
8(b)(iii) hereof. The Committee may specify the amount of the Annual Incentive
Award pool as a percentage of any of such business criteria, a percentage
thereof in excess of a threshold amount, or as another amount which need not
bear a strictly mathematical relationship to such business criteria.

                           (ii) Potential Annual Incentive Awards. Not later
than the end of the 90th day of each fiscal year, or at such other date as may
be required or permitted in the case of Awards intended to be "performance-based
compensation" under section 162(m) of the Code, the Committee shall determine
the Eligible Persons who will potentially receive Annual Incentive Awards, and
the amounts potentially payable thereunder, for that fiscal year, either out of
an Annual Incentive Award pool established by such date under Section 8(c)(i)
hereof or as individual Annual Incentive Awards. In the case of individual
Annual Incentive Awards intended to qualify under section 162(m) of the Code,
the amount potentially payable shall be based upon the achievement of a
performance goal or goals based on one or more of the business criteria set
forth in Section 8(b)(ii) hereof in the given performance year, as specified by
the Committee; in other cases, such amount shall be based on such criteria as
shall be established by the Committee. In all cases, the maximum Annual
Incentive Award of any Participant shall be subject to the limitation set forth
in Section 5 hereof.

                           (iii) Payout of Annual Incentive Awards. After the
end of each fiscal year, the Committee shall determine the amount, if any, of
(A) the Annual Incentive Award pool,

                                     - 17 -
<PAGE>   21

and the maximum amount of potential Annual Incentive Award payable to each
Participant in the Annual Incentive Award pool, or (B) the amount of potential
Annual Incentive Award otherwise payable to each Participant. The Committee may,
in its discretion, determine that the amount payable to any Participant as a
final Annual Incentive Award shall be increased or reduced from the amount of
his or her potential Annual Incentive Award, including a determination to make
no final Award whatsoever, but may not exercise discretion to increase any such
amount in the case of an Annual Incentive Award intended to qualify under
section 162(m) of the Code. The Committee shall specify the circumstances in
which an Annual Incentive Award shall be paid or forfeited in the event of
termination of employment by the Participant prior to the end of a fiscal year
or settlement of such Annual Incentive Award.

                  (d) Written Determinations. All determinations by the
Committee as to the establishment of performance goals, the amount of any
Performance Award pool or potential individual Performance Awards and as to the
achievement of performance goals relating to Performance Awards under Section
8(b), and the amount of any Annual Incentive Award pool or potential individual
Annual Incentive Awards and the amount of final Annual Incentive Awards under
Section 8(c), shall be made in writing in the case of any Award intended to
qualify under section 162(m) of the Code. The Committee may not delegate any
responsibility relating to such Performance Awards or Annual Incentive Awards.

                  (e) Status of Section 8(b) and Section 8(c) Awards under
Section 162(m) of the Code. It is the intent of the Company that Performance
Awards and Annual Incentive Awards under Sections 8(b) and 8(c) hereof granted
to persons who are designated by the Committee as likely to be Covered Employees
within the meaning of section 162(m) of the Code and regulations thereunder
(including Treasury Regulation Section 1.162-27 and successor regulations
thereto) shall, if so designated by the Committee, constitute "performance-based
compensation" within the meaning of section 162(m) of the Code and regulations
thereunder. Accordingly, the terms of Sections 8(b), (c), (d) and (e), including
the definitions of Covered Employee and other terms used therein, shall be
interpreted in a manner consistent with section 162(m) of the Code and
regulations thereunder. The foregoing notwithstanding, because the Committee
cannot determine with certainty whether a given Participant will be a Covered
Employee with respect to a fiscal year that has not yet been completed, the term
Covered Employee as used herein shall mean only a person designated by the
Committee, at the time of grant of Performance Awards or an Annual Incentive
Award, who is likely to be a Covered Employee with respect to that fiscal year.
If any provision of this Plan as in effect on the date of adoption or any
agreements relating to Performance Awards or Annual Incentive Awards that are
designated as intended to comply with section 162(m) of the Code does not comply
or is inconsistent with the requirements of section 162(m) of the Code or
regulations thereunder, such provision shall be construed or deemed amended to
the extent necessary to conform to such requirements.

         9. RECAPITALIZATION OR REORGANIZATION.

                  (a) Existence of Plans and Awards. The existence of this Plan
and the Awards granted hereunder shall not affect in any way the right or power
of the Board or the stockholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other change in the Company's
capital structure or its business, any merger or consolidation of the Company,
any issue of debt or equity securities ahead of or affecting Stock

                                     - 18 -
<PAGE>   22

or the rights thereof, the dissolution or liquidation of the Company or any
sale, lease, exchange or other disposition of all or any part of its assets or
business or any other corporate act or proceeding.

                  (b) Subdivision or Consolidation of Shares. The terms of an
Award and the number of shares of Stock authorized pursuant to Section 4 for
issuance under the Plan shall be subject to adjustment from time to time, in
accordance with the following provisions:

                           (i) If at any time, or from time to time, the Company
shall subdivide as a whole (by reclassification, by a Stock split, by the
issuance of a distribution on Stock payable in Stock, or otherwise) the number
of shares of Stock then outstanding into a greater number of shares of Stock,
then (A) the maximum number of shares of Stock available for the Plan as
provided in Section 4 shall be increased proportionately, and the kind of shares
or other securities available for the Plan shall be appropriately adjusted, (B)
the number of shares of Stock (or other kind of shares or securities) that may
be acquired under any Award shall be increased proportionately, and (C) the
price (including the exercise price) for each share of Stock (or other kind of
shares or securities) subject to then outstanding Awards shall be reduced
proportionately, without changing the aggregate purchase price or value as to
which outstanding Awards remain exercisable or subject to restrictions.

                           (ii) If at any time, or from time to time, the
Company shall consolidate as a whole (by reclassification, reverse Stock split,
or otherwise) the number of shares of Stock then outstanding into a lesser
number of shares of Stock, (A) the maximum number of shares of Stock available
for the Plan as provided in Section 4 shall be decreased proportionately, and
the kind of shares or other securities available for the Plan shall be
appropriately adjusted, (B) the number of shares of Stock (or other kind of
shares or securities) that may be acquired under any Award shall be decreased
proportionately, and (C) the price (including the exercise price) for each share
of Stock (or other kind of shares or securities) subject to then outstanding
Awards shall be increased proportionately, without changing the aggregate
purchase price or value as to which outstanding Awards remain exercisable or
subject to restrictions.

                           (iii) Whenever the number of shares of Stock subject
to outstanding Awards and the price for each share of Stock subject to
outstanding Awards are required to be adjusted as provided in this Section 9(b),
the Committee shall promptly prepare a notice setting forth, in reasonable
detail, the event requiring adjustment, the amount of the adjustment, the method
by which such adjustment was calculated, and the change in price and the number
of shares of Stock, other securities, cash, or property purchasable subject to
each Award after giving effect to the adjustments. The Committee shall promptly
give each Participant such a notice.

                           (iv) Adjustments under Subsections 9(b)(i) and (ii)
shall be made by the Committee, and its determination as to what adjustments
shall be made and the extent thereof shall be final, binding, and conclusive. No
fractional interest shall be issued under the Plan on account of any such
adjustments.

                  (c) Corporate Restructuring. If the Company recapitalizes,
reclassifies its capital stock, or otherwise changes its capital structure (a
"recapitalization"), the number and

                                     - 19 -
<PAGE>   23

class of shares of Stock covered by an Option theretofore granted shall be
adjusted so that such Option shall thereafter cover the number and class of
shares of stock and securities to which the holder would have been entitled
pursuant to the terms of the recapitalization if, immediately prior to the
recapitalization, the holder had been the holder of record of the number of
shares of Stock then covered by such Option and the share limitations provided
in Sections 4 and 5 shall be adjusted in a manner consistent with the
recapitalization. Upon a Change in Control the Committee, acting in its sole
discretion without the consent or approval of any holder, shall effect one or
more of the following alternatives, which may vary among individual holders and
which may vary among Options held by any individual holder: (1) accelerate the
time at which Options then outstanding may be exercised so that such Options may
be exercised in full for a limited period of time on or before a specified date
(before or after such Change in Control) fixed by the Committee, after which
specified date all unexercised Options and all rights of holders thereunder
shall terminate, (2) require the mandatory surrender to the Company by selected
holders of some or all of the outstanding Options held by such holders
(irrespective of whether such Options are then exercisable under the provisions
of this Plan) as of a date, before or after such Change in Control, specified by
the Committee, in which event the Committee shall thereupon cancel such Options
and pay to each holder an amount of cash per share equal to the excess, if any,
of the amount calculated in Section 9(d) (the "Change in Control Price") of the
shares subject to such Option over the exercise price(s) under such Options for
such shares, or (3) make such adjustments to Options then outstanding as the
Committee deems appropriate to reflect such Change in Control (provided,
however, that the Committee may determine in its sole discretion that no
adjustment is necessary to Options then outstanding).

                  (d) Change in Control Price. The "Change in Control Price"
shall equal the amount determined in clause (i), (ii), (iii), (iv) or (v),
whichever is applicable, as follows: (i) the per share price offered to holders
of the same class of Stock of the Company in any such merger or consolidation,
(ii) the per share value of the Stock immediately before the Change in Control
without regard to assets sold in the Change in Control and assuming the Company
has received the consideration paid for the assets in the case of a sale of the
assets, (iii) the amount distributed per share of Stock in a dissolution
transaction, (iv) the price per share offered to holders of the same class of
Stock of the Company in any tender offer or exchange offer whereby a Change in
Control takes place, or (v) if such Change in Control occurs other than pursuant
to a tender or exchange offer, the fair market value per share of the shares
into which such Options being surrendered are exercisable, as determined by the
Committee as of the date determined by the Committee to be the date of
cancellation and surrender of such Options. In the event that the consideration
offered to stockholders of the Company in any transaction described in this
Section 9(d) or Section 9(c) above consists of anything other than cash, the
Committee shall determine the fair cash equivalent of the portion of the
consideration offered which is other than cash.

                  (e) Non-Option Awards. In the event of changes in the
outstanding Stock by reason of recapitalization, reorganizations, mergers,
consolidations, combinations, exchanges or other relevant changes in
capitalization occurring after the date of the grant of any Award and not
otherwise provided for by this Section 9, any outstanding Awards and any
agreements evidencing such Awards shall be subject to adjustment by the
Committee at its discretion as to the number and price of shares of Stock or
other consideration subject to such Awards. In the event of any such change in
the outstanding Stock, the aggregate number of shares available

                                     - 20 -
<PAGE>   24

under this Plan may be appropriately adjusted by the Committee, whose
determination shall be conclusive.

                  (f) Additional Issuances. Except as hereinbefore expressly
provided, the issuance by the Company of shares of stock of any class or
securities convertible into shares of stock of any class, for cash, property,
labor or services, upon direct sale, upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, and in any case whether or not
for fair value, shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number of shares of Stock subject to Awards
theretofore granted or the purchase price per share, if applicable.

                  (g) Restricted Stock Awards. Plan provisions to the contrary
notwithstanding, with respect to any Restricted Stock Awards outstanding at the
time a Change in Control as described in Section 2(g) occurs, the Committee may,
in its discretion and as of a date determined by the Committee, fully vest any
or all Stock awarded to the holder pursuant to such Restricted Stock Award and
then outstanding and, upon such vesting, all restrictions applicable to such
Restricted Stock Award shall terminate as of such date. Any action by the
Committee pursuant to this Section 9(g) may vary among individual holders and
may vary among the Restricted Stock Awards held by any individual holder.

         10. GENERAL PROVISIONS.

                  (a) Transferability.

                           (i) Permitted Transferees. The Committee may, in its
discretion, permit a Participant to transfer all or any portion of an Option,
Stock Appreciation Right, Phantom Stock Award or Restricted Stock Award (if such
Restricted Stock Award does not require the transfer of consideration by the
Participant or the holder other than usual and customary service) after the
Company's initial registration of the Stock under section 12(b) or 12(g) of the
Exchange Act, or authorize all or a portion of such Awards to be granted to an
Eligible Person to be on terms which permit transfer by such Participant;
provided that, in either case the transferee or transferees must be any child,
stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse,
sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships, in each case with respect to the Participant, any person sharing
the Participant's household (other than a tenant or employee of the Company), a
trust in which these persons have more than fifty percent of the beneficial
interest, a foundation in which these persons (or the Participant) control the
management of assets, and any other entity in which these persons (or the
Participant) own more than fifty percent of the voting interests (collectively,
"Permitted Transferees"); provided further that, (X) there may be no
consideration for any such transfer and (Y) subsequent transfers of Awards
transferred as provided above shall be prohibited except subsequent transfers
back to the original holder of the Award and transfers to other Permitted
Transferees of the original holder. Agreements evidencing Awards with respect to
which such transferability is authorized at the time of grant must be approved
by the Committee, and must expressly provide for transferability in a manner
consistent with this Subsection 10(a)(i).

                                     - 21 -
<PAGE>   25

                           (ii) Qualified Domestic Relations Orders. An Option,
Stock Appreciation Right, Phantom Stock Award or Restricted Stock Award (if such
Restricted Stock Award does not require the transfer of consideration by the
Participant or the holder other than usual and customary service) after the
Company's initial registration of the Stock under section 12(b) or 12(g) of the
Exchange Act, may be transferred, to a Permitted Transferee, pursuant to a
domestic relations order entered or approved by a court of competent
jurisdiction upon delivery to the Company of written notice of such transfer and
a certified copy of such order.

                           (iii) Other Transfers. Except as expressly permitted
by Subsections 10(a)(i) and 10(a)(ii), Awards shall not be transferable other
than by will or the laws of descent and distribution except that in the
Committee's discretion a Stock Appreciation Right, Phantom Stock Award (if such
Stock Appreciation Right or Phantom Stock Award is not exercisable for Stock and
not subject to the Participant's or holder's discretion as to the timing or
method of payment) or Restricted Stock Award (if such Restricted Stock Award
does not require the transfer of consideration by the Participant or the holder
other than usual and customary service) may be transferable, however, not for
consideration. Notwithstanding anything to the contrary in this Section 10, an
Incentive Stock Option shall not be transferable other than by will or the laws
of descent and distribution.

                           (iv) Effect of Transfer. Following the transfer of
any Award as contemplated by Subsections 10(a)(i), 10(a)(ii) and 10(a)(iii), (A)
such Award shall continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer, provided that the term "Participant"
shall be deemed to refer to the Permitted Transferee, the recipient under a
qualified domestic relations order, the estate or heirs of a deceased
Participant, or other transferee, as applicable, to the extent appropriate to
enable the Participant to exercise the transferred Award in accordance with the
terms of this Plan and applicable law and (B) the provisions of the Award
relating to exercisability hereof shall continue to be applied with respect to
the original Participant and, following the occurrence of any such events
described therein the Awards shall be exercisable by the Permitted Transferee,
the recipient under a qualified domestic relations order, the estate or heirs of
a deceased Participant, or other transferee, as applicable, only to the extent
and for the periods that would have been applicable in the absence of the
transfer.

                           (v) Procedures and Restrictions. Any Participant
desiring to transfer an Award as permitted under Subsections 10(a)(i), 10(a)(ii)
or 10(a)(iii) shall make application therefor in the manner and time specified
by the Committee and shall comply with such other requirements as the Committee
may require to assure compliance with all applicable securities laws. The
Committee shall not give permission for such a transfer if (A) it would give
rise to short-swing liability under section 16(b) of the Exchange Act or (B) it
may not be made in compliance with all applicable federal, state and foreign
securities laws.

                           (vi) Registration. To the extent the issuance to any
Permitted Transferee of any shares of Stock issuable pursuant to Awards
transferred as permitted in this Section 10(a) is not registered pursuant to the
effective registration statement of the Company generally covering the shares to
be issued pursuant to this Plan to initial holders of Awards, the Company shall
not have any obligation to register the issuance of any such shares of Stock to
any such transferee.

                                     - 22 -
<PAGE>   26

                  (b) Taxes. The Company and any Subsidiary is authorized to
withhold from any Award granted, or any payment relating to an Award under this
Plan, including from a distribution of Stock, amounts of withholding and other
taxes due or potentially payable in connection with any transaction involving an
Award, and to take such other action as the Committee may deem advisable to
enable the Company and Participants to satisfy obligations for the payment of
withholding taxes and other tax obligations relating to any Award. This
authority shall include authority to withhold or receive Stock or other property
and to make cash payments in respect thereof in satisfaction of a Participant's
tax obligations, either on a mandatory or elective basis in the discretion of
the Committee.

                  (c) Changes to this Plan and Awards. The Board may amend,
alter, suspend, discontinue or terminate this Plan or the Committee's authority
to grant Awards under this Plan without the consent of stockholders or
Participants, except that any amendment or alteration to this Plan, including
any increase in any share limitation, shall be subject to the approval of the
Company's stockholders not later than the annual meeting next following such
Board action if such stockholder approval is required by any federal or state
law or regulation or the rules of any stock exchange or automated quotation
system on which the Stock may then be listed or quoted, and the Board may
otherwise, in its discretion, determine to submit other such changes to this
Plan to stockholders for approval; provided that, without the consent of an
affected Participant, no such Board action may materially and adversely affect
the rights of such Participant under any previously granted and outstanding
Award. The Committee may waive any conditions or rights under, or amend, alter,
suspend, discontinue or terminate any Award theretofore granted and any Award
agreement relating thereto, except as otherwise provided in this Plan; provided
that, without the consent of an affected Participant, no such Committee action
may materially and adversely affect the rights of such Participant under such
Award.

                  (d) Limitation on Rights Conferred under Plan. Neither this
Plan nor any action taken hereunder shall be construed as (i) giving any
Eligible Person or Participant the right to continue as an Eligible Person or
Participant or in the employ or service of the Company or a Subsidiary, (ii)
interfering in any way with the right of the Company or a Subsidiary to
terminate any Eligible Person's or Participant's employment or service at any
time, (iii) giving an Eligible Person or Participant any claim to be granted any
Award under this Plan or to be treated uniformly with other Participants and
employees, or (iv) conferring on a Participant any of the rights of a
stockholder of the Company unless and until the Participant is duly issued or
transferred shares of Stock in accordance with the terms of an Award.

                  (e) Unfunded Status of Awards. This Plan is intended to
constitute an "unfunded" plan for certain incentive awards.

                  (f) Nonexclusivity of this Plan. Neither the adoption of this
Plan by the Board nor its submission to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board or a committee thereof to adopt such other incentive arrangements as it
may deem desirable, including incentive arrangements and awards which do not
qualify under section 162(m) of the Code. Nothing contained in this Plan shall
be construed to prevent the Company or any Subsidiary from taking any corporate
action which is deemed by the Company or such Subsidiary to be appropriate or in
its best interest, whether or not such action would have an adverse effect on
this Plan or any Award made under this Plan.

                                     - 23 -
<PAGE>   27

No employee, beneficiary or other person shall have any claim against the
Company or any Subsidiary as a result of any such action.

                  (g) Payments in the Event of Forfeitures; Fractional Shares.
Unless otherwise determined by the Committee, in the event of a forfeiture of an
Award with respect to which a Participant paid cash or other consideration to
the Company in exchange for such Award, the Participant shall be repaid the
amount of such cash or other consideration. No fractional shares of Stock shall
be issued or delivered pursuant to this Plan or any Award. The Committee shall
determine whether cash, other Awards or other property shall be issued or paid
in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.

                  (h) Severability. If any provision of this Plan is held to be
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining provisions hereof, but such provision shall be fully severable and
the Plan shall be construed and enforced as if the illegal or invalid provision
had never been included herein. If any of the terms or provisions of this Plan
or any Award agreement conflict with the requirements of Rule 16b-3 (as those
terms or provisions are applied to Eligible Persons who are subject to section
16(b) of the Exchange Act) or section 422 of the Code (with respect to Incentive
Stock Options), then those conflicting terms or provisions shall be deemed
inoperative to the extent they so conflict with the requirements of Rule 16b-3
(unless the Board or the Committee, as appropriate, has expressly determined
that the Plan or such Award should not comply with Rule 16b-3) or section 422 of
the Code. 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, that
provision shall be deemed to be incorporated herein with the same force and
effect as if that provision had been set out at length herein; provided,
further, that, to the extent any Option that is intended to qualify as an
Incentive Stock Option cannot so qualify, that Option (to that extent) shall be
deemed an Option not subject to section 422 of the Code for all purposes of the
Plan.

                  (i) Governing Law. All questions arising with respect to the
provisions of the Plan and Awards shall be determined by application of the laws
of the State of Texas, without giving effect to any conflict of law provisions
thereof, except to the extent Texas law is preempted by federal law. The
obligation of the Company to sell and deliver Stock hereunder is subject to
applicable federal and state laws and to the approval of any governmental
authority required in connection with the authorization, issuance, sale, or
delivery of such Stock.

                  (j) Conditions to Delivery of Stock. Nothing herein or in any
Award granted hereunder or any Award agreement shall require the Company to
issue any shares with respect to any Award if that issuance would, in the
opinion of counsel for the Company, constitute a violation of the Securities Act
or any similar or superseding statute or statutes, any other applicable statute
or regulation, or the rules of any applicable securities exchange or securities
association, as then in effect. At the time of any exercise of an Option or
Stock Appreciation Right, or at the time of any grant of a Restricted Stock
Award, the Company may, as a condition precedent to the exercise of such Option
or Stock Appreciation Right or vesting of any Restricted Stock Award, require
from the Participant (or in the event of his death, his legal representatives,
heirs, legatees, or distributees) such written representations, if any,
concerning the holder's intentions with regard to the retention or disposition
of the shares of Stock being acquired

                                     - 24 -
<PAGE>   28

pursuant to the Award and such written covenants and agreements, if any, as to
the manner of disposal of such shares as, in the opinion of counsel to the
Company, may be necessary to ensure that any disposition by that holder (or in
the event of the holder's death, his legal representatives, heirs, legatees, or
distributees) will not involve a violation of the Securities Act or any similar
or superseding statute or statutes, any other applicable state or federal
statute or regulation, or any rule of any applicable securities exchange or
securities association, as then in effect. No Option or Stock Appreciation Right
shall be exercisable and no restriction on any Restricted Stock Award shall
lapse with respect to a Participant unless and until the holder thereof shall
have paid cash or property to, or performed services for, the Company or any of
its Subsidiaries that the Committee believes is equal to or greater in value
than the par value of the Stock subject to such Award.

                  (k) Plan Effective Date and Stockholder Approval. This Plan
has been adopted by the Board and by the stockholders of the Company effective
as of the date of the consummation of a firm commitment underwritten public
offering of Stock for cash.

                                     - 25 -<PAGE>   1

                                                                   EXHIBIT 10.7

                            ODYSSEY HEALTHCARE, INC.

                          EMPLOYEE STOCK PURCHASE PLAN

         1. PURPOSE. The purpose of the Odyssey Healthcare, Inc. Employee Stock
Purchase Plan (the "Plan") is to provide eligible employees with an incentive to
advance the interests of Odyssey Healthcare, Inc. (the "Company") by affording
an opportunity to purchase stock of the Company at a favorable price.

         2. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a
committee (the "Committee") as appointed by the Board of Directors of the
Company (the "Board"). Subject to the provisions of the Plan, the Committee
shall interpret and construe the Plan and all options granted under the Plan,
shall make such rules as it deems necessary for the proper administration of the
Plan, shall make all other determinations necessary or advisable for the
administration of the Plan, including the determination of eligibility to
participate in the Plan and limitations on the number of shares subject to a
participant's option under the Plan, and shall correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any option granted
under the Plan in the manner and to the extent that the Committee deems
desirable to carry the Plan or any option into effect. The Committee shall, in
its sole discretion exercised in good faith, make such decisions or
determinations and take such actions as it deems appropriate, and all such
decisions, determinations and actions taken or made by the Committee pursuant to
this and the other paragraphs of the Plan shall be conclusive on all parties.
The Committee shall not be liable for any decision, determination or action
taken in good faith in connection with the administration of the Plan. The
Committee may approve the use of a voice response system through which Eligible
Employees and the Committee may act under the Plan, as an alternative to written
forms, notices and elections.

         3. PARTICIPATING COMPANIES. Each present and future parent or
subsidiary corporation of the Company (within the meaning of sections 424(e) and
(f) of the Internal Revenue Code of 1986, as amended (the "Code")) that is
eligible by law to participate in the Plan shall be a "Participating Company"
during the period that such corporation is such a parent or subsidiary
corporation; provided, however, that the Committee may at any time and from time
to time, in its sole discretion, prevent or terminate a Participating Company's
Plan participation. Any Participating Company may, by appropriate action of its
Board of Directors, prevent or terminate its participation in the Plan. Transfer
of employment among the Company and Participating Companies (and among any other
parent or subsidiary corporation of the Company) shall not be considered a
termination of employment hereunder.

         4. ELIGIBILITY. All employees of the Company and the Participating
Companies who have been continually employed by the Company or any Participating
Company (including any predecessor entity) for at least 6 months (including any
authorized leave of absence meeting the requirements of Treasury Regulation
Section 1.421-7(h)(2)) as of the applicable Date of Grant (as defined in
subparagraph 6(a)) and who are customarily employed at least 20 hours per week
and at least 5 months per year shall be eligible to participate in the Plan;
provided, however, that no option shall be granted to an employee if such
employee, immediately after the option is granted, owns stock possessing five
percent or more of the total combined voting power or value of all classes of
stock

<PAGE>   2

of the Company or of its parent or subsidiary corporation (within the meaning of
sections 423(b)(3) and 424(d) of the Code) ("Eligible Employee").

         5. STOCK SUBJECT TO THE PLAN. Subject to the provisions of paragraph 12
(relating to adjustment upon changes in stock), the aggregate number of shares
which may be sold pursuant to options granted under the Plan shall not exceed
1,500,000 shares of the authorized $.001 par value common stock of the Company
("Stock"), which shares may be unissued shares or reacquired shares or shares
bought on the market for purposes of the Plan. Should any option granted under
the Plan expire or terminate prior to its exercise in full, the shares
theretofore subject to such option may again be subject to an option granted
under the Plan. Any shares which are not subject to outstanding options upon the
termination of the Plan shall cease to be subject to the Plan.

         6. GRANT OF OPTIONS. (a) General Statement; "Date Of Grant"; "Option
Period"; "Date Of Exercise". Upon the effective date of the Plan, as provided in
Section 14, and continuing while the Plan remains in effect, the Company shall
offer options under the Plan to all Eligible Employees to purchase shares of
Stock. Except as otherwise determined by the Committee and except as provided
below, these options shall be granted on the effective date of the Plan, the
next subsequent January 1 or July 1 whichever occurs earlier, and each six month
anniversary of such date (each of which dates is herein referred to as a "Date
of Grant"). The term of each option, except as provided below, shall begin on a
Date of Grant and shall be for a period ending on the next subsequent June 30 or
December 31 (each such 6 month period or, if necessary, shorter period in the
case of the first Option Period shall be referred to as an "Option Period"). The
first day of the first Option Period shall be a Date of Grant and the last day
of such Option Period shall be a "Date of Exercise." Notwithstanding the
foregoing, the first Date of Grant shall be the effective date of the Plan. The
number of shares subject to each option and Option Period shall be the quotient
of the sum of the payroll deductions withheld on behalf of each participant in
accordance with subparagraph 6(b) for the last three months of the Option Period
and any amount carried forward from the preceding Option Period pursuant to
subparagraph 7(a), divided by the "Option Price" (as defined in subparagraph
7(b)) of the Stock, excluding all fractions; provided, however, that the maximum
number of shares that may be subject to any option may not exceed 15,000 shares
(subject to adjustment as provided in paragraph 12).

         (b) Election To Participate; Deduction Authorization. Except as
provided in subparagraph 6(f), an Eligible Employee may participate in the Plan
only by means of payroll deduction. Except as provided in subparagraph 6(g),
each Eligible Employee who elects to participate in the Plan shall deliver to
the Company, within the time period prescribed by the Committee, a written
payroll deduction authorization on a form prepared by the Committee whereby he
gives notice of his election to participate in the Plan as of the next
following Date of Grant, and whereby he designates an integral percentage or
specific amount (as determined by the Committee) of his "Eligible Compensation"
(as defined in subparagraph 6(d)) to be deducted from his compensation for each
pay period and credited to a book entry account established in his name. The

                                       2
<PAGE>   3

designated percentage or specific amount may not result in a deduction during
any payroll period of an amount less than $20.00. The designated percentage or
specific amount may not exceed either of the following: (i) 25% of the amount
of Eligible Compensation from which the deduction is made; or (ii) an amount
which will result in noncompliance with the limitations stated in subparagraphs
6(a) or 6(e).

         (c) Changes in Payroll Authorization. Except as provided in
subparagraph 8(a), the payroll deduction authorization referred to in
subparagraph 6(b) may not be changed until the following Date of Grant.

         (d) "Eligible Compensation" Defined. The term "Eligible Compensation"
means the gross (before taxes are withheld) total of all wages, salaries,
commissions, overtime and bonuses received during the Option Period, except that
such term shall include elective contributions made on an employee's behalf by
the Company or a Participating Company that are not includable in income under
section 125 or section 402(e)(3) of the Code. Notwithstanding the foregoing,
"Eligible Compensation" shall not include (i) employer contributions to or
payments from any deferred compensation program, whether such program is
qualified under section 401(a) of the Code (other than amounts considered as
employer contributions under section 402(e)(3) of the Code) or nonqualified,
(ii) amounts realized from the receipt or exercise of a stock option that is not
an incentive stock option within the meaning of section 422 of the Code, (iii)
amounts realized at the time property described in section 83 of the Code is
freely transferable or no longer subject to a substantial risk of forfeiture,
(iv) amounts realized as a result of an election described in section 83(b) of
the Code, and (v) any amount realized as a result of a disqualifying disposition
within the meaning of section 421(b) of the Code.

         (e) $25,000 Limitation. No Eligible Employee shall be granted an option
under the Plan to the extent such grant would permit his rights to purchase
Stock under the Plan and under all other employee stock purchase plans of the
Company and its parent and subsidiary corporations (as such terms are defined in
sections 424(e) and (f) of the Code) to accrue at a rate which exceeds $25,000
of the Fair Market Value of Stock (as defined in subparagraph 7(b)), determined
at the time the option is granted, for each calendar year in which any such
option granted to such employee is outstanding at any time (within the meaning
of section 423(b)(8) of the Code).

         (f) Leaves of Absence. During a paid leave of absence approved by the
Company and meeting the requirements of Treasury Regulation Section
1.421-7(h)(2), a participant's elected payroll deductions shall continue. If a
participant takes an unpaid leave of absence, then such participant may not make
additional contributions under the Plan while on unpaid leave of absence, and
the participant's payroll deductions for the applicable Option Period shall
remain subject to the Plan and used to exercise options on the next following
Date of Exercise.

         (g) Continuing Election. A participant (i) who has elected to
participate in the Plan pursuant to subparagraph 6(b) as of a Date of Grant and
(ii) who takes no action to change or revoke such election as of the next
following Date of Grant, shall be deemed to have made the same election,
including the same attendant payroll deduction authorization, for such next
following and/or subsequent Date(s) of Grant as was in effect for the Date of
Grant for which he made such election to participate. A participant who desires
to discontinue participation in the Plan for a

                                       3
<PAGE>   4

subsequent Option Period commencing as of the next Date of Grant shall deliver
to the Company a notice of withdrawal, on a form prepared by the Committee, at
least 30 days prior to the beginning of such Option Period.

         7. EXERCISE OF OPTIONS. (a) General Statement. Each Eligible Employee
who is a participant in the Plan, automatically and without any act on his part,
shall be deemed to have exercised his option on each Date of Exercise to the
extent that the cash balance then in his account under the Plan is sufficient to
purchase at the "Option Price" (as defined in subparagraph 7(b)) whole shares of
Stock. Any balance remaining in his account after payment of the purchase price
of those whole shares, to the extent the balance is insufficient to purchase a
whole share, shall be carried forward and used towards the purchase of whole
shares in the next following Option Period. To the extent the balance remaining
in his account after the payment of the purchase price exceeds the value of a
share, at such time, the entire remaining balance shall be returned to the
participant.

         (b) "Option Price" Defined. The Option Price per share of Stock to be
paid by each optionee on each exercise of his option shall be an amount equal to
the lesser of 85% of the Fair Market Value of the Stock on the Date of Exercise
or on the Date of Grant. For all purposes under the Plan, the "Fair Market
Value" of a share of Stock means, for a particular day:

                  (i) If shares of Stock of the same class are listed or
         admitted to unlisted trading privileges on any national or regional
         securities exchange at the date of determining the Fair Market Value,
         then the last reported sale price, regular way, on the composite tape
         of that exchange on that business day or, if no such sale takes place
         on that business day, the average of the closing bid and asked prices,
         regular way, in either case as reported in the principal consolidated
         transaction reporting system with respect to securities listed or
         admitted to unlisted trading privileges on that securities exchange or,
         if no such closing prices are available for that day, the last reported
         sale price, regular way, on the composite tape of that exchange on the
         last business day before the date in question; or

                  (ii) If shares of Stock of the same class are not listed or
         admitted to unlisted trading privileges as provided in subparagraph (i)
         and if sales prices for shares of Stock of the same class in the
         over-the-counter market are reported by the National Association of
         Securities Dealers, Inc. Automated Quotations, Inc. ("NASDAQ") National
         Market System as of the date of determining the Fair Market Value, then
         the last reported sales price so reported on that business day or, if
         no such sale takes place on that business day, the average of the high
         bid and low asked prices so reported or, if no such prices are
         available for that day, the last reported sale price so reported on the
         last business day before the date in question; or

                  (iii) If shares of Stock of the same class are not listed or
         admitted to unlisted trading privileges as provided in subparagraph (i)
         and sales prices for shares of Stock of the same class are not reported
         by the NASDAQ National Market System (or a similar system then in use)
         as provided in subparagraph (ii), and if bid and asked prices for
         shares of Stock of the same class in the over-the-counter market are
         reported by NASDAQ (or, if not so reported, by the National Quotation
         Bureau Incorporated) as of the date of determining the Fair Market
         Value, then the average of the high bid and low asked prices on that
         business

                                       4
<PAGE>   5

         day or, if no such prices are available for that day, the average of
         the high bid and low asked prices on the last business day before the
         date in question; or

                  (iv) If shares of Stock of the same class are not listed or
         admitted to unlisted trading privileges as provided in subparagraph (i)
         and sales prices or bid and asked prices therefor are not reported by
         NASDAQ (or the National Quotation Bureau Incorporated) as provided in
         subparagraph (ii) or subparagraph (iii) as of the date of determining
         the Fair Market Value, then the value determined in good faith by the
         Committee, which determination shall be conclusive for all purposes; or

                  (v) If shares of Stock of the same class are listed or
         admitted to unlisted trading privileges as provided in subparagraph (i)
         or sales prices or bid and asked prices therefor are reported by NASDAQ
         (or the National Quotation Bureau Incorporated) as provided in
         subparagraph (ii) or subparagraph (iii) as of the date of determining
         the Fair Market Value, but the volume of trading is so low that the
         Board of Directors determines in good faith that such prices are not
         indicative of the fair value of the Stock, then the value determined in
         good faith by the Committee, which determination shall be conclusive
         for all purposes notwithstanding the provisions of subparagraphs (i),
         (ii) or (iii).

         (c) Delivery of Share Certificates. As soon as practicable after each
Date of Exercise, the Company shall issue one or more certificates representing
the total number of whole shares of Stock respecting exercised options in the
aggregate of all of the Eligible Employees hereunder. Any such certificate shall
be held by the Company (or its agent) and may be held in street name. If the
Company issues a certificate representing the shares of more than one Eligible
Employee, the Company shall keep accurate records of the beneficial interests of
each Eligible Employee in each such certificate by means of a Company stock
account. Each Eligible Employee shall be provided with such periodic statements
as may be directed by the Committee reflecting all activity in any such Company
stock account. In the event the Company is required to obtain from any
commission or agency authority to issue any such certificate, the Company shall
seek to obtain such authority. Inability of the Company to obtain from any such
commission or agency authority which counsel for the Company deems necessary for
the lawful issuance of any such certificate shall relieve the Company from
liability to any participant in the Plan except to return to him the amount of
the balance in his account. A participant may, on the form prescribed by the
Committee, request the Company to deliver to such participant a certificate
issued in his name representing all or a part of the aggregate whole number of
shares of Stock then held by the Company on his behalf under the Plan. Further,
upon the termination of a participant's employment with the Company and its
parent or subsidiary corporations for any reason whatsoever, the Company shall
deliver to such employee a certificate issued in his name representing the
aggregate whole number of shares of Stock then held by the Company on his behalf
under the Plan. While shares of Stock are held by the Company (or its agent),
such shares may not be sold, assigned, pledged, exchanged, hypothecated or
otherwise transferred, encumbered or disposed of by the employee who has
purchased such shares; provided, however, that such restriction shall not apply
to the transfer of such shares of Stock pursuant to (i) a plan of reorganization
of the Company, but the stock, securities or other property received in exchange
therefor shall be held by the Company pursuant to the provisions hereof or (ii)
a divorce. The Committee may cause the Stock certificates issued in connection
with the exercise of options under the Plan to bear such legend or legends, and
the Committee may take such other actions, as

                                       5
<PAGE>   6

it deems appropriate in order to reflect the provisions of this subparagraph
7(c) and to assure compliance with applicable securities laws. Neither the
Company nor the Committee shall have any liability with respect to a delay in
the delivery of a Stock certificate pursuant to this subparagraph 7(c).

         8. WITHDRAWAL FROM THE PLAN. (a) General Statement. Any participant may
withdraw in whole from the Plan at any time prior to 30 days before the Date of
Exercise relating to a particular Option Period. Partial withdrawals shall not
be permitted. A participant who wishes to withdraw from the Plan must timely
deliver to the Company a notice of withdrawal on a form prepared by the
Committee. The Company, promptly following the time when the notice of
withdrawal is delivered, shall refund to the participant the amount of the cash
balance in his account under the Plan; and thereupon, automatically and without
any further act on his part, his payroll deduction authorization and his
interest in unexercised options under the Plan shall terminate.

         (b) Eligibility Following Withdrawal. A participant who withdraws from
the Plan shall not be eligible to participate in the Plan until the following
Date of Grant (provided that he is otherwise eligible to participate in the Plan
at such time and complies with the enrollment procedures).

         9. TERMINATION OF EMPLOYMENT. If the employment of a participant
terminates for any reason whatsoever (including death), his participation in the
Plan automatically and without any act on his part shall terminate as of the
date of the termination of his employment. The Company shall refund to him the
amount of the cash balance in his account under the Plan, and thereupon his
interest in unexercised options under the Plan shall terminate.

         10. RESTRICTION UPON ASSIGNMENT OF OPTION. An option granted under the
Plan shall not be transferable otherwise than by will or the laws of descent and
distribution. Each option shall be exercisable, during his lifetime, only by the
employee to whom granted. The Company shall not recognize and shall be under no
duty to recognize any assignment or purported assignment by an employee of his
option or of any rights under his option, and any such attempt may be treated by
the Company as an election to withdraw from the Plan.

         11. NO RIGHTS OF STOCKHOLDER UNTIL CERTIFICATE ISSUES. With respect to
shares of Stock subject to an option, a participant shall not be deemed to be a
stockholder, and he shall not have any of the rights or privileges of a
stockholder. A participant shall have the rights and privileges of a stockholder
upon, but not until, a certificate for shares has been issued following exercise
of his option. With respect to a participant's Stock held by the Company (or its
agent) pursuant to subparagraph 7(c), the Company shall, as soon as practicable,
pay the participant any cash dividends attributable thereto and facilitate the
participant's voting rights attributable thereto.

         12. CHANGES IN STOCK; ADJUSTMENTS. Whenever any change is made in the
Stock, by reason of a stock dividend or by reason of subdivision, stock split,
reverse stock split, recapitalization, reorganization, combinations,
reclassification of shares, or other similar change, appropriate action will be
taken by the Committee to adjust accordingly the number of shares subject to the
Plan, the maximum number of shares that may be subject to any option, and the
number and Option Price of shares subject to options outstanding under the Plan.

                                       6
<PAGE>   7

         Upon the occurrence of a Change in Control, unless a surviving
corporation assumes or substitutes new options (within the meaning of section
424(a) of the Code) for all options then outstanding or the Committee elects to
continue the options then outstanding without change, the Date of Exercise for
all options then outstanding shall be accelerated to a date fixed by the
Committee prior to the effective date of such Change in Control.

         "Change in Control" means the occurrence of any of the following
events:

                  (i) The agreement to acquire or a tender offer for beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934 ("Exchange Act")) by any individual, entity or group
(within the meaning of section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person"), of 50% or more of either (x) the then outstanding shares of Common
Stock of the Company (the "Outstanding Company Common Stock") or (y) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a Change in
Control: (A) any acquisition directly from the Company, (B) any acquisition by
the Company, (C) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company or (D) any acquisition by any corporation pursuant to a transaction
which complies with clauses (A), (B) and (C) of paragraph (iii) below; or

                  (ii) Individuals who, as of the date of this Plan, constitute
the Board cease for any reason to constitute at least a majority of the
Incumbent Board, which shall be defined as the individuals who, as of the
Effective Date, constitute the Board and any other individual who becomes a
director of the Company after that date and whose election or appointment by the
Board or nomination for election by the Company's stockholders was approved by a
vote of at least a majority of the directors then comprising the Incumbent
Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Incumbent Board; or

                  (iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company or an acquisition of assets of another corporation (a
"Business Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company, or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be, (B)
no Person (excluding any employee benefit plan

                                       7
<PAGE>   8

(or related trust) of the Company or the corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership of the Company existed prior to the Business Combination and (C)
at least a majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or

                  (iv) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.

         13. USE OF FUNDS; NO INTEREST PAID. All funds received or held by the
Company under the Plan shall be included in the general funds of the Company
free of any trust or other restriction, and may be used for any corporate
purpose. No interest shall be paid to any participant or credited to his account
under the Plan.

         14. TERM OF THE PLAN. The Plan shall be effective as of the date of the
consummation of a firm commitment underwritten public offering of the Stock for
cash; provided that the Plan is approved by the stockholders of the Company
within 12 months of the date of adoption by the Board. Notwithstanding any
provision in the Plan, no option granted under the Plan shall be exercisable
prior to such stockholder approval, and, if the stockholders of the Company do
not approve the Plan within 12 months after its adoption by the Board, then the
Plan shall automatically terminate.

         15. AMENDMENT OR TERMINATION OF THE PLAN. The Board in its discretion
may terminate the Plan at any time with respect to any shares for which options
have not theretofore been granted. The Board and Committee shall have the right
to alter or amend the Plan or any part thereof from time to time without the
approval of the stockholders of the Company; provided, that no change in any
option theretofore granted may be made which would impair the rights of the
participant without the consent of such participant; and provided, further, that
the Board and Committee may not make any alteration or amendment which would
increase the aggregate number of shares which may be issued pursuant to the
provisions of the Plan (other than as a result of the anti-dilution provisions
of the Plan), change the class of individuals eligible to receive options under
the Plan, or cause options issued under the Plan to fail to meet the
requirements for employee stock purchase plans as defined in section 423 of the
Code without the approval of the stockholders of the Company.

         16. SECURITIES LAWS. The Company shall not be obligated to issue any
Stock pursuant to any option granted under the Plan at any time when the shares
covered by such option have not been registered under the Securities Act of
1933, as amended, and such other state and federal laws, rules or regulations as
the Company or the Committee deems applicable and, in the opinion of legal
counsel for the Company, there is no exemption from the registration
requirements of such laws, rules or regulations available for the issuance and
sale of such shares. Further, all Stock acquired pursuant to the Plan shall be
subject to the Company's policy or policies, if any, concerning compliance with
securities laws and regulations, as the same may be amended from time to time.

                                       8
<PAGE>   9

         17. NO RESTRICTION ON CORPORATE ACTION. Nothing contained in the Plan
shall be construed to prevent the Company or any subsidiary from taking any
corporate action which is deemed by the Company or such subsidiary to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any award made under the Plan. No employee,
beneficiary or other person shall have any claim against the Company or any
subsidiary as a result of any such action.

                                       9

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