Document:

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                                 EXHIBIT 10.6

                             ENDOREX CORPORATION
               AMENDED AND RESTATED 1995 OMNIBUS INCENTIVE PLAN
                          (As of February 11, 1998)

                                 ARTICLE ONE
                              GENERAL PROVISIONS

I.   PURPOSE OF THE PLAN

        This Amended and Restated 1995 Omnibus Incentive Plan is intended to
promote the interests of Endorex Corporation, a Delaware corporation, by
providing eligible persons with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Corporation
as an incentive for them to remain in the service of the Corporation.

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

II.  STRUCTURE OF THE PLAN

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

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

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

               (iii) the Automatic Option Grant Program under which eligible
        non-employee Board members shall automatically receive options at
        periodic intervals to purchase shares of Common Stock, and

               (iv)  the Director Fee Option Grant Program under which
        non-employee Board members may elect to have all or any portion of their
        annual retainer fee otherwise payable in cash applied to a special
        option grant.

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

III.  ADMINISTRATION OF THE PLAN

        A.  The Board shall have the authority to administer the Discretionary
Option Grant Program with respect to Section 16 Insiders but may delegate such
authority in whole or in part to the Primary Committee. The Board or the Primary
Committee shall have sole and exclusive authority to exercise all discretionary
functions under the Salary Investment Option Grant Program.

        B.  Administration of the Discretionary Option Grant Program with
respect to all other persons eligible to participate in that program may, at the
Board's discretion, be vested in the Primary Committee or a Secondary Committee,
or the Board may retain the power to administer that program with respect to all
such persons.

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

        D.  Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Discretionary Option Grant Program and to make such
determinations under, and issue such interpretations of, the provisions of such
program and any outstanding options thereunder as it may deem necessary or
advisable. Decisions of the Plan Administrator within the scope of its
administrative functions under the Plan shall be final and binding on all
parties who have an interest in the Discretionary Option Grant Program under its
jurisdiction or any option thereunder.
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        E.  Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants under the Plan.

        F.  Administration of the Automatic Option Grant and Director Fee Option
Grant Programs shall be self-executing in accordance with the terms of those
programs, and no Plan Administrator shall exercise any discretionary functions
with respect to option grants made under those programs.

IV.  ELIGIBILITY

        A.  The persons eligible to participate in the Discretionary Option
Grant Program are as follows:

               (i)   Employees,

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

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

        B.  Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.

        C.  Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority (subject to the
provisions of the Plan) to determine, with respect to the option grants under
the Discretionary Option Grant Program, which eligible persons are to receive
option grants, the time or times when such option grants are to be made, the
number of shares to be covered by each such grant, the status of the granted
option as either an Incentive Option or a Non-Statutory Option, the time or
times at which each option is to become exercisable, the vesting schedule (if
any) applicable to the option shares and the maximum term for which the option
is to remain outstanding.

        D.  Only non-employee Board members shall be eligible to participate in
the Automatic Option Grant and Director Fee Option Grant Programs.

V.  STOCK SUBJECT TO THE PLAN

        A.  The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
reserved for issuance over the term of the Plan shall not exceed 2,000,000
shares. Such authorized share reserve is comprised of (i) the number of shares
which remain available for issuance under the Plan, as of the date of the Plan
Restatement Date as last approved by the Corporation's stockholders, plus (ii)
the additional increase of 1,413,333 shares authorized by the Board on October
21, 1997 and subsequently approved by the stockholders, (iii) the number of
shares which remain available for issuance, as of the Plan Restatement Date,
under the Predecessor Plans as last approved by the Corporation's stockholders,
including the shares subject to the outstanding options to be incorporated into
the Plan and the additional shares which would otherwise be available for future
grant and (iv) the additional increase of 500,000 shares authorized by the Board
on February 11, 1998 and subsequently approved by the stockholders. The share
reserve numbers reflect the 1-for-15 reverse stock split effected on June 11,
1997.

        B.  The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of each fiscal
year during the term of the Plan, beginning with the 1999 fiscal year, by an
amount equal to one percent (1%) of the shares of Common Stock outstanding on
the last trading day of the immediately preceding fiscal year. No Incentive
Options may be granted on the basis of the additional shares of Common Stock
resulting from such annual increases.

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        C.  No one person participating in the Plan may receive options and
separately exercisable stock appreciation rights for more than 750,000 shares of
Common Stock per calendar year beginning with the 1998 calendar year.

        D.  Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently repurchased by the
Corporation at the original issue price paid per share pursuant to the
Corporation's repurchase rights under the Plan shall be added back to the number
of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent option
grants under the Plan. However, should the exercise price of an option under the
Plan be paid with shares of Common Stock or should shares of Common Stock
otherwise issuable under the Plan be withheld by the Corporation in satisfaction
of the withholding taxes incurred in connection with the exercise of an option
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised, and not by the net number of shares of Common Stock issued
to the holder of such option.

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

                                   ARTICLE TWO
                       DISCRETIONARY OPTION GRANT PROGRAM
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I.  OPTION TERMS

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

        A.  Exercise Price.

               1. The exercise price per share shall not be less than
        eighty-five percent (85%) of the Fair Market Value per share of Common
        Stock on the option grant date unless otherwise determined by the Plan
        Administrator.

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

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

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

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

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

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

        C.  Effect of Termination of Service.
            --------------------------------

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

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

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

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

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

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

               (i)   extend the period of time for which the option is to remain
        exercisable following the Optionee's cessation of Service from the
        period otherwise in effect for that option to such greater period of
        time as the Plan Administrator shall deem appropriate, but in no event
        beyond the expiration of the option term, and/or

               (ii)  permit the option to be exercised, during the applicable
        post-Service exercise period, not only with respect to the number of
        vested shares of Common Stock for which such option is exercisable at
        the time of the Optionee's cessation of Service but also with respect to
        one or more additional installments in which the Optionee would have
        vested under the option had the Optionee continued in Service.

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

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

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

II.  INCENTIVE OPTIONS

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

        A.  Eligibility.  Incentive Options may only be granted to Employees.
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        B.  Exercise Price.  The exercise price per share shall not be less than
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one hundred percent (100%) of the Fair Market Value per share of Common Stock on
the option grant date.

        C.  Dollar Limitation. The aggregate Fair Market Value of the shares of
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Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one (1) calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.

        D.  10% Stockholder. If any Employee to whom an Incentive Option is
            ---------------
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.

III.  CORPORATE TRANSACTION/CHANGE IN CONTROL

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

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

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        C.  Notwithstanding Section III.A. and Section III.B. of this Article
Two, the Plan Administrator shall have the discretion, exercisable either at the
time the option is granted or at any time while the option remains outstanding,
to provide for the automatic acceleration of one or more outstanding options
(and the automatic termination of one or more outstanding repurchase rights with
the immediate vesting of the shares of Common Stock subject to those rights)
upon the occurrence of a Corporate Transaction, whether or not those options are
to be assumed or replaced (or those repurchase rights are to be assigned) in the
Corporate Transaction. The Plan Administrator shall also have the discretion to
grant options which do not accelerate whether or not such options are assumed
(and to provide for repurchase rights that do not terminate whether or not such
rights are assigned) in connection with a Corporate Transaction.

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

        E.  Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction, (ii) the exercise price payable per share under each
outstanding option, provided the aggregate exercise price payable for such
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securities shall remain the same and (iii) the maximum number of securities
and/or class of securities for which any one person may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances under the Plan.

        F.  The Plan Administrator shall have the discretion, exercisable at the
time the option is granted or at any time while the option remains outstanding,
to provide for the automatic acceleration of any options which are assumed or
replaced in a Corporate Transaction and do not otherwise accelerate at that time
(and the termination of any of the Corporation's outstanding repurchase rights
which do not otherwise terminate at the time of the Corporate Transaction) in
the event the Optionee's Service should subsequently terminate by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of such Corporate Transaction. Any options
so accelerated shall remain exercisable for fully-vested shares until the
earlier of (i) the expiration of the option term or (ii) the expiration of the
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one (1)-year period measured from the effective date of the Involuntary
Termination.

        G.  The Plan Administrator shall have the discretion, exercisable either
at the time the option is granted or at any time while the option remains
outstanding, to (i) provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Change in Control or (ii)
condition any such option acceleration (and the termination of any outstanding
repurchase rights) upon the subsequent Involuntary Termination of the Optionee's
Service within a designated period (not to exceed eighteen (18) months)
following the effective date of such Change in Control. Any options accelerated
in connection with a Change in Control shall remain fully exercisable until the
expiration or sooner termination of the option term.

        H.  The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Non-Statutory Option under the Federal tax laws.

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

IV.  CANCELLATION AND REGRANT OF OPTIONS

        The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any

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or all outstanding options under the Discretionary Option Grant Program
(including outstanding options incorporated from the Predecessor Plans) and to
grant in substitution new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new grant date.

V.  STOCK APPRECIATION RIGHTS

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

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

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

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

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

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

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

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

               (iii) Neither the approval of the Plan Administrator nor the
        consent of the Board shall be required in connection with such option
        surrender and cash distribution.

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

                                  ARTICLE THREE
                     SALARY INVESTMENT OPTION GRANT PROGRAM
                     --------------------------------------

I.      OPTION GRANTS

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        The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Program is to be in effect and to select the Employees eligible to
participate in the Salary Investment Option Grant Program for those calendar
year or years. Each selected Employee who elects to participate in the Salary
Investment Option Grant Program must, prior to the start of each calendar year
of participation, file with the Plan Administrator (or its designate) an
irrevocable authorization directing the Corporation to reduce his or her base
salary for that calendar year by a designated percentage (in multiples of one
percent (1%)). However, the amount of such salary reduction must be not less
than Ten Thousand Dollars ($10,000.00) and must not be more than Seventy-Five
Thousand Dollars ($75,000.00). Each individual who files a proper salary
reduction authorization shall automatically be granted an option under this
Salary Investment Option Grant Program on or before the last trading day in
January of the calendar year for which that salary reduction is to be in effect.

II.  OPTION TERMS

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

        A.  Exercise Price.
            --------------

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

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

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

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

               X is the number of option shares,

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

               B is the Fair Market Value per share of Common Stock on the
               option grant date.

        C.  Exercise and Term of Options. The option shall become exercisable in
            ----------------------------
a series of twelve (12) successive equal monthly installments upon the
Optionee's completion of each calendar month of Service in the calendar year for
which the salary reduction is in effect. Each option shall have a maximum term
of ten (10) years measured from the option grant date.

        D.  Effect of Termination of Service. Should the Optionee cease Service
            --------------------------------
for any reason while holding one or more options under this Article Three, then
each such option shall remain exercisable, for any or all of the shares for
which the option is exercisable at the time of such cessation of Service, until
the earlier of (i) the expiration of the ten (10)-year option term or (ii) the
    ------
expiration of the three (3)-year period measured from the date of such cessation
of Service. Should the Optionee die while holding one or more options under this
Article Three, then each such option may be exercised, for any or all of the
shares for which the option is exercisable at the time of the Optionee's
cessation of Service (less any shares subsequently purchased by the Optionee
prior to death), by the personal representative of the Optionee's estate or by
the person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and distribution. Such
right of exercise shall lapse, and the option shall terminate, upon the earlier
                                                                        -------
of (i) the expiration of the ten (10)-year option term or (ii) the three
(3)-year period measured from the date of the Optionee's cessation of Service.
However, the option shall, immediately upon the Optionee's cessation of Service
for any reason, terminate and cease to remain

                                       8
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outstanding with respect to any and all shares of Common Stock for which the
option is not otherwise at that time exercisable.

III.  CORPORATE TRANSACTION/CHANGE IN CONTROL

      A. In the event of any Corporate Transaction while the Optionee remains
in Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for all of the shares of Common Stock at
the time subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. Each such outstanding option
shall be assumed by the successor corporation (or parent thereof) in the
Corporate Transaction and shall remain exercisable for the fully-vested shares
until the earlier of (i) the expiration of the option term or (ii) the
expiration of the three (3)-year period measured from the date of Optionee's
cessation of Service.

      B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall immediately become fully exercisable for all of the shares of
Common Stock at the time subject to such option and may be exercised for any or
all of such shares as fully-vested shares of Common Stock. The option shall
remain so exercisable until the earlier of (i) the expiration of the option term
or (ii) the expiration of the three (3)-year period measured from the date of
Optionee's cessation of Service.

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

IV.   REMAINING TERMS

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

                                  ARTICLE FOUR
                         AUTOMATIC OPTION GRANT PROGRAM
                         ------------------------------

I.    OPTION TERMS

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

               1. Each individual serving as a non-employee Board member on the
Plan Restatement Date shall automatically be granted at that time a
Non-Statutory Option to purchase 42,000 shares of Common Stock.

               2. Each individual who is first elected or appointed as a
non-employee Board member at any time after the Plan Restatement Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 42,000 shares of Common Stock.

               3. On the date of the second anniversary of the initial
42,000-share grant and every two (2) years thereafter, each non-employee Board
member shall automatically be granted a Non-Statutory Option to purchase 12,000
shares of Common Stock.

        B.  Exercise Price.
            --------------

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

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

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

                                       9
<PAGE>

        D.  Exercise and Vesting of Options. Each option shall be immediately
            -------------------------------
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each initial 42,000-share option shall vest,
and the Corporation's repurchase right shall lapse, (i) with respect to 30,000
shares in a series of two (2) successive equal annual installments upon the
Optionee's completion of each year of Board service over the two (2)-year period
measured from the option grant date and (ii) with respect to 12,000 shares in a
series of eight (8) successive equal quarterly installments on the last day of
each calendar quarter over the two (2)-year period measured from the option
grant date, provided the Optionee has attended the regular Board meeting held
during such quarter. Each 12,000-share option shall vest, and the Corporation's
repurchase right shall lapse, in a series of eight (8) successive equal
quarterly installments on the last day of each calendar quarter over the two
(2)-year period measured from the option grant date, provided the Optionee has
attended the regular Board meeting held during such quarter.

        E.  Termination of Board Service. The following provisions shall govern
            ----------------------------
the exercise of any options outstanding at the time the Optionee ceases to serve
as a Board member:

               (i)   Any option outstanding at the time of the Optionee's
        cessation of Board service for any reason shall remain exercisable for a
        twelve (12)-month period following the date of such cessation of Board
        service.

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

               (iii) During the twelve (12)-month exercise period, the option
        may not be exercised in the aggregate for more than the number of vested
        shares of Common Stock for which the option is exercisable at the time
        of the Optionee's cessation of Board service.

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

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

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

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

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

                                       10
<PAGE>

termination of the option term or the surrender of the option in connection with
a Hostile Take-Over.

        C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each of his or
her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation.

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

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

III.    REMAINING TERMS

        The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for options made under
the Discretionary Option Grant Program.

                                 ARTICLE FIVE
                       DIRECTOR FEE OPTION GRANT PROGRAM
                       ---------------------------------

I.   OPTION GRANTS

        Each non-employee Board member may elect to apply all or any portion of
the annual retainer fee otherwise payable in cash for his or her service on the
Board to the acquisition of a special option grant under this Director Fee
Option Grant Program. Such election must be filed with the Corporation's Chief
Financial Officer prior to the first day of the calendar year for which the
annual retainer fee which is the subject of that election is otherwise payable.
Each non-employee Board member who files such a timely election shall
automatically be granted an option under this Director Fee Option Grant Program
on the first trading day in January in the calendar year for which the annual
retainer fee which is the subject of that election would otherwise be payable.

II.  OPTION TERMS

        Each option shall be a Non-Statutory Option governed by the terms and
conditions specified below.

        A.  Exercise Price.
            --------------

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

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

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

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

               X is the number of option shares,

                                       11
<PAGE>

               A is the portion of the annual retainer fee subject to the non-
        employee Board member's election, and

               B is the Fair Market Value per share of Common Stock on the
        option grant date.

        C. Exercise and Term of Options. The option shall become exercisable for
           ----------------------------
fifty percent (50%) of the option shares upon the Optionee's completion of the
first six (6) months of Board service in the calendar year for which his or her
election under this Director Fee Option Grant Program is in effect, and the
balance of the option shares shall become exercisable in a series of six (6)
successive equal monthly installments upon the Optionee's completion of each
additional month of Board service during that calendar year. Each option shall
have a maximum term of ten (10) years measured from the option grant date.

        D. Termination of Board Service. Should the Optionee cease Board service
           ----------------------------
for any reason (other than death or Permanent Disability) while holding one or
more options under this Director Fee Option Grant Program, then each such option
shall remain exercisable, for any or all of the shares for which the option is
exercisable at the time of such cessation of Board service, until the earlier of
                                                                      -------
(i) the expiration of the ten (10)-year option term or (ii) the expiration of
the three (3)-year period measured from the date of such cessation of Board
service. However, each option held by the Optionee under this Director Fee
Option Grant Program at the time of his or her cessation of Board service shall
immediately terminate and cease to remain outstanding with respect to any and
all shares of Common Stock for which the option is not otherwise at that time
exercisable.

        E. Death or Permanent Disability. Should the Optionee's service as a
           -----------------------------
Board member cease by reason of death or Permanent Disability, then each option
held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully-vested shares until the earlier of (i) the expiration of the ten
                                        -------
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service.

        Should the Optionee die after cessation of Board service but while
holding one or more options under this Director Fee Option Grant Program, then
each such option may be exercised, for any or all of the shares for which the
option is exercisable at the time of the Optionee's cessation of Board service
(less any shares subsequently purchased by Optionee prior to death), by the
personal representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution. Such right of exercise shall lapse,
and the option shall terminate, upon the earlier of (i) the expiration of the
                                         -------
ten (10)-year option term or (ii) the three (3)-year period measured from the
date of the Optionee's cessation of Board service.

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

        A. In the event of any Corporate Transaction while the Optionee remains
a Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable with respect to the total number of shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. Each such
outstanding option shall be assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and shall remain exercisable for the
fully-vested shares until the earlier of (i) the expiration of the ten (10)-year
                              -------
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Board service.

        B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Director Fee
Option Grant Program shall automatically accelerate so that each such option
shall immediately become fully exercisable with respect to the total number of
shares of Common Stock at the time subject to such option and may be exercised
for any or all of those shares as fully-vested shares of Common Stock. The
option shall remain so exercisable until the earlier or (i) the expiration of
                                             -------
the ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of the Optionee's cessation of Service.

                                       12
<PAGE>

        C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each of his or
her outstanding option grants. The Optionee shall in return be entitled to a
cash distribution from the Corporation in an amount equal to the excess of (i)
the Take-Over Price of the shares of Common Stock at the time subject to each
surrendered option (whether or not the Optionee is otherwise at the time vested
in those shares) over (ii) the aggregate exercise price payable for such shares.
Such cash distribution shall be paid within five (5) days following the
surrender of the option to the Corporation.

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

IV.  REMAINING TERMS

        The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.

                                  ARTICLE SIX
                                 MISCELLANEOUS
                                 -------------

I.   FINANCING

        A. The Plan Administrator may permit any Optionee to pay the option
exercise price under the Discretionary Option Grant Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In all events, the maximum credit available to the Optionee
may not exceed the sum of (i) the aggregate option exercise price payable for
the purchased shares plus (ii) any Federal, state and local income and
employment tax liability incurred by the Optionee in connection with the option
exercise.

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

II.  TAX WITHHOLDING

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

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

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

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

III. EFFECTIVE DATE AND TERM OF THE PLAN

                                       13
<PAGE>

        A. The Plan was initially adopted by the Board on April 24, 1995. The
Plan was amended on July 15, 1996 to increase the number of shares of Common
Stock available for issuance by 15,000 shares. The Plan was subsequently amended
and restated on October 21, 1997, to effect the following changes: (i) increase
the number of shares by an additional 1,413,333 shares, (ii) provide that the
share reserve shall automatically increase on the first trading day of each
fiscal year beginning with the 1999 fiscal year by an amount equal to one
percent (1%) of the shares outstanding on the last trading day of the preceding
fiscal year, (iii) implement a limit on the number of shares for which any one
individual may be granted options or separately exercisable stock appreciation
rights, (iv) implement the Salary Investment Option Grant, Automatic Option
Grant and Director Fee Option Grant Programs, (v) extend eligibility under the
Discretionary Option Grant Program to all employees of the Corporation (or any
Parent or Subsidiary), non-employee members of the Board or the board of
directors of any Parent or Subsidiary and consultants and other advisors who
provide services to the Corporation (or any parent or Subsidiary), (vi) allow
any unvested shares issued under the Plan and subsequently repurchased by the
Company at the option exercise price paid per share to be reissued under the
Plan, (vii) eliminate the stock issuance and dividend equivalent right features
of the Plan, (viii) incorporate the Corporation's existing 1994 Non-Employee
Stock Option Plan and the Incentive Stock Option Plan so that the Plan will
serve as the successor to those plans and (ix) effect a series of additional
changes to the provisions of the Plan (including the stockholder approval
requirements) in order to allow the Plan Administrator more flexibility and to
take advantage of the recent amendments to Rule 16b-3 of the 1934 Act. The Plan
was subsequently amended on February 11, 1998 to increase the share reserve by
an additional 500,000 shares.

        B. The Plan shall serve as the successor to the Predecessor Plans, and
no further option grants or direct stock issuances shall be made under the
Predecessor Plans after the date of stockholder approval of this restatement.
All options outstanding under the Predecessor Plans on the Plan Restatement Date
have been incorporated into the Plan and shall be treated as outstanding options
under the Plan. However, each outstanding option so incorporated shall continue
to be governed solely by the terms of the documents evidencing such option, and
no provision of the Plan shall be deemed to affect or otherwise modify the
rights or obligations of the holders of such incorporated options with respect
to their acquisition of shares of Common Stock.

        C. The Plan shall terminate upon the earliest of (i) April 23, 2005,
                                             --------
(ii) the date on which all shares available for issuance under the Plan shall
have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Upon such Plan
termination, all outstanding options and unvested stock issuances shall continue
to have force and effect in accordance with the provisions of the documents
evidencing such options.

IV.  AMENDMENT OF THE PLAN

        A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect any rights and obligations with respect to
options, stock appreciation rights or unvested stock issuances at the time
outstanding under the Plan unless the Optionee consents to such amendment or
modification. In addition, amendments to the Plan shall be subject to approval
of the Corporation's stockholders to the extent required by applicable laws or
regulations.

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

V.   USE OF PROCEEDS

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

                                       14
<PAGE>

VI.  REGULATORY APPROVALS

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

        B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws and all
applicable listing requirements of any stock exchange (or the Nasdaq National
Market, if applicable) on which Common Stock is then listed for trading.

VII. NO EMPLOYMENT/SERVICE RIGHTS

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

                                       15
<PAGE>

                                   APPENDIX
                                   --------

        The following definitions shall be in effect under the Plan:

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

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

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

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

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

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

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

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

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

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

        G.  Corporation shall mean Endorex Corporation, a Delaware corporation,
            -----------
and any corporate successor to all or substantially all of the assets or voting
stock of Endorex Corporation which shall by appropriate action adopt the Plan.

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

        I.  Director Fee Option Grant Program shall mean the special stock
            ---------------------------------
option grant in effect for non-employee Board members under Article Four of the
Plan.

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

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

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

               (i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question, as such price is reported by
the National

                                       16
<PAGE>

Association of Securities Dealers on the Nasdaq National Market or any successor
system. If there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.

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

               (iii) If the Common Stock is at the time traded on the Nasdaq OTC
Market, then the Fair Market Value shall be the mean of the highest bid and
lowest asked prices per share of Common Stock on the date in question, as such
prices are quoted by the National Association of Securities Dealers. If both bid
and asked prices are not available for the date in question, then the Fair
Market Value shall be the average of the highest bid and lowest asked prices for
the last preceding date for which such quotations exist.

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

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

        O.  Involuntary Termination shall mean the termination of the Service
            -----------------------
any individual which occurs by reason of:

               (i)  such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or

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

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

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

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

        S.  Optionee shall mean any person to whom an option is granted under
            --------
the Discretionary Option Grant, Automatic Option Grant or Director Fee Option
Grant Program.

        T.  Parent shall mean any corporation (other than the Corporation) in an
            ------
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination,

                                       17
<PAGE>

stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.

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

        V.  Plan shall mean the Corporation's Amended and Restated 1995
            ----
Omnibus Incentive Plan, as set forth in this document.

        W.  Plan Administrator shall mean the particular entity, whether the
            ------------------
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant Program with respect to one or more
classes of eligible persons, to the extent such entity is carrying out its
administrative functions under that program with respect to the persons under
its jurisdiction.

        X.  Plan Restatement Date shall mean October 21, 1997, the date on
            ---------------------
which the Plan was restated by the Board.

        Y.  Predecessor Plans shall mean the 1994 Non-Employee Stock Option
            -----------------
Plan and the Incentive Stock Option Plan.

        Z.  Primary Committee shall mean the committee of two (2) or more
            -----------------
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant Program with respect to Section 16 Insiders.

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

        BB. Secondary Committee shall mean a committee of two (2) or more Board
            -------------------
members appointed by the Board to administer the Discretionary Option Grant
Program with respect to eligible persons other than Section 16 Insiders.

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

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

        EE. Stock Exchange shall mean either the American Stock Exchange or
            --------------
the New York Stock Exchange.

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

        GG. Take-Over Price shall mean the greater of (i) the Fair Market Value
            ---------------
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.

        HH. Taxes shall mean the Federal, state and local income and employment
            -----
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of those options or the
vesting of those shares.

                                       18
<PAGE>

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

                                       19<PAGE>

                                                                   EXHIBIT 10.23

                       SEPARATION AGREEMENT AND RELEASE

     The parties to this Separation and Release Agreement (Agreement) are FLIR
Systems, Inc. (Company), and Robert Daltry (Executive).

                                   RECITALS

     A.   Executive has elected to resign from his employment.

     B.   Executive elects to receive severance pay and related benefits under
this Agreement under the terms and conditions set forth below.

     Therefore, in consideration of the mutual promises set forth below, the
parties agree as follows:

     1    Employment Termination.  At a mutually agreeable time on or before
July 31, 2000, Executive will announce his retirement from Company, at which
time his employment will terminate. Executive will simultaneously resign as
Chairman of the Board and as a member of the Board of Directors.

     2    Payment.  Executive will receive all accrued wages owing through the
last date of employment, including accrued vacation pay in the amount of One
Hundred Eight Thousand Dollars ($108,000). Upon receipt of his vacation pay,
Executive shall immediately pay Company Fifty Four Thousand Dollars ($54,000) in
payment of his outstanding loan from Company.

     As consideration for this Agreement, Executive shall receive the following:

     a.   Severance in the amount of Seven Hundred Thousand Nine Hundred Six
Dollars ($700,906), payable in equal installments no less than twice monthly
over two years (the Severance Period). Company will withhold taxes on this
amount in accordance with all applicable local, state and federal laws. For the
duration of the Severance Period, Executive shall make himself available to
provide consultation to Company as needed no more than 25 hours per week on
average, on such issues as may from time to time be assigned him by Company's
Chief Executive Officer or his designee. All reasonable expenses incurred by
Executive in fulfillment of his consulting duties shall be pre-approved and paid
by the Company. Executive shall at all times comply with Company's policies and
procedures to the extent they are not inconsistent with this Agreement, in which
case the provisions of this Agreement prevail.

     b.   Continued use of Executive's cellular phone, credit card, telephone
calling card and laptop computer, payment of monthly car expenses for one
automobile and access to
<PAGE>

Company e-mail, throughout the Severance Period. Upon expiration of the
Severance Period, Executive shall return all Company property in his possession
to Company in good condition; provided, however, that Executive may keep the
laptop computer and cellular phone.

     c.   Continued vesting of Executive's existing stock options through the
Severance Period.

     d.   Payment of Executive's membership dues and assessments at the Oswego
Lake Country Club throughout the Severance Period.

     e.   Payment of Executive's expenses incurred in moving his household goods
and belongings from Maryland to Portland, Oregon.

     f.   Company shall provide Executive with an office at Company until such
time as Executive's move from Maryland to Portland is complete, but in no event
beyond September 1, 2000.

     g.   For the remainder of Executive's life, Company shall pay for
Executive's (and anyone entitled to a claim under or through Executive) out-of-
pocket cost of obtaining medical, disability and life insurance coverage at the
same level Executive was receiving on his last day of work as a full time
employee of Company. If Executive is or becomes eligible for continuation of
group health coverage under COBRA, Company may elect to pay the premiums for
continuation of Executive's group health insurance under COBRA in lieu of
reimbursing Executive for privately obtained health insurance under this Section
2(g). Moreover, in the event Executive becomes eligible for Medicare coverage,
Company shall reimburse Executive for medical coverage only to the extent
necessary to insure that such coverage, when combined with applicable Medicare
coverage, is at the same level as that provided to Executive on his last day of
work as a full time employee of Company.

     h.   At the expiration of the Severance Period, Company shall pay to
Executive a non-cancellable annual fee of $125,000 per year until the earlier of
Executive's death or March 3, 2024. In exchange for such payment obligation,
Executive shall make himself available, at employee's discretion, to provide
consultation to Company as needed on such issues as may from time to time be
requested of him by the Company's Chief Executive Officer or his designee.

     3.   Health Insurance.  Executive's coverage under Company's health
insurance plan ends on July 31, 2000. If eligible, Executive may continue full
health insurance benefits for himself and his immediate family as provided under
federal COBRA regulations at Company's expense, as provided in Section 2(g).

     4.   Employee Pension and Retirement Plans.  Executive shall be entitled to
Executive's rights under Company's benefit plans as such plans, by their
provisions, apply upon Executive's termination.
<PAGE>

     5.   General Release.  In consideration of the benefits provided in this
Agreement, Executive releases Company, its directors, officers, agents,
employees, attorneys, insurers, subsidiaries, related corporations, successors
and assigns, from any and all liability, damages or causes of action, whether
known or unknown, whether in tort, contract, or under state or federal statute,
except for the indemnity to which he is entitled under FLIR's Articles of
Incorporation. Executive understands and acknowledges that this release
includes, but is not limited to any claim for reinstatement, reemployment,
attorney fees or additional compensation in any form, and any claim, including
but not limited to those arising under the Rehabilitation Act of 1973, Title VII
of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Post Civil
War Civil Rights Act (42 U.S.C. 1981-88), the Equal Pay Act, the Age
Discrimination in Employment Act, the Older Workers Benefit Protection Act, the
Americans with Disabilities Act, the Vietnam Era Veterans Readjustment
Assistance Act, the Fair Labor Standards Act, the Family Medical Leave Act of
1993, the Uniformed Services Employment and Re-employment Rights Act, the
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), the Employee
Retirement Income Security Act of 1975 (ERISA), Executive Order 11246, as
amended, and the civil rights, employment, and labor laws of any state and any
regulation under such authorities relating to Executive's employment or
association with Company or the termination of that employment and association.

     6.   Release of Rights Under Older Workers' Benefit Protection Act.  In
accordance with the Age Discrimination in Employment Act and Older Workers'
Benefit Protection Act (collectively, the "Act"), Executive acknowledges that
(1) he has been advised in writing to consult with an attorney prior to
executing this Agreement; (2) he is aware of certain rights to which he may be
entitled under the Act; (3) as consideration for executing this Agreement,
Executive has received additional benefits and compensation of value to which he
would otherwise not be entitled, (4) the parties agree that changes to this
Agreement since its presentation, whether material or immaterial, shall not re-
start the 21-day consideration period, and (5) by signing this Agreement,
Executive will not waive rights or claims under the Act which may arise after
the execution of this Agreement. Executive acknowledges that he has been given a
period of at least 21 days from July 1, 2000, to consider this offer. Executive
acknowledges in the event he has not executed this Agreement by August 1, 2000,
the offer shall expire. Executive further acknowledges that he has a period of
seven days from the date of execution in which to revoke this Agreement by
written notice to John C. Hart, President and Chief Executive Officer. In the
event Executive does not exercise his right to revoke this Agreement, the
Agreement shall become effective on the date immediately following the seven-day
waiting period described above.

     7.   Return of Company Property.  Except as provided in Section 2,
Executive agrees that on or before the effective date of his termination, he
will return to Company all property belonging to Company, including, but not
limited to keys, credit cards, telephone calling card, files, records, computer
access codes, computer hardware, computer programs, instruction manuals,
business plans, and all other property and documents which Executive prepared or
received in connection with his employment with Company.
<PAGE>

     8.   Confidentiality.  Executive acknowledges that in the course of his
employment with Company, he obtained Confidential Information, including
proprietary, financial, employment, confidential and trade secret information
which is not generally known to third parties. Executive recognizes and affirms
his obligations not to use or disclose such information to others,
notwithstanding the termination of his employment. Executive further agrees that
upon termination of his employment with Company, Executive shall enter into
Company's then current standard form of confidentiality and proprietary rights
agreement. Executive shall at all times during the Severance and Consulting
Periods comply with Company's policies and procedures to the extent they are not
inconsistent with this Agreement, in which case the provisions of this Agreement
prevail.

     9.   Nonsolicitation.  Executive agrees that during the Severance and
Consulting Periods, he will not, without prior written consent of Company, (i)
solicit, directly or indirectly, business similar in nature to the business of
Company, its subsidiaries or affiliates (collectively, "the Company"), from any
person or entity which is a Company employee, customer, client or prospect, or
otherwise induce any such person or entity, as the case may be, to leave the
employment of the Company or cease or reduce their business relationship with
the Company; (ii) directly or indirectly hire or use the services of any Company
employee, or (iii) aid others in doing anything described in subsections (i) or
(ii) of this paragraph, whether as an employee, officer, director, shareholder,
partner, consultant or otherwise.

     For purposes of clause (i) of the preceding paragraph, the term "solicit"
includes without limitation (a) responding to requests for proposals and
invitations for bids (b) initiating contacts with Company customers, clients, or
prospects for the purpose of advising them that Executive has left the
employment of the Company and is available for work which is competitive with
the services offered by the Company, and (c) participating in joint ventures or
teaming agreements or acting as a consultant or subcontractor or employee of
others who directly solicit business prohibited by this Agreement. The terms
"client" and "customer" include any then current client or customer, and the
parent corporation, subsidiary corporation, affiliate corporation or partner or
joint venture of a client or customer. "Prospect" means any person or entity to
whom the Company has submitted a bid or proposal within the then immediately
preceding six (6) months.

     10.  Noncompetition.  Executive agrees that during the Severance and
Consulting Periods, he will not, without prior written consent of Company,
directly or indirectly Compete (defined below) with Company anywhere Company is
doing or planning to do business, nor engage in any other activity which would
conflict with the Company's business or interfere with Executive's obligations
to the Company. "Compete" means directly or indirectly: (i) have any financial
interest in, (ii) join, operate, control or participate in, or be connected as
an officer, employee, agent, independent contractor, partner, principal or
shareholder with (except as holder of not more than five percent (5%) of the
outstanding stock of any class of a corporation, the stock of which is actively
publicly traded) or (iii) provide services in any capacity to those
participating in the ownership, management, operation or control of, and/or (iv)
act as a consultant or subcontractor to, a Competitive Business (defined below).
"Competitive Business" means any corporation, proprietorship, association or
other entity or person then engaged in the
<PAGE>

sale, production and/or development of products or the rendering of services of
a kind similar to or competitive with those then being sold, produced, developed
or rendered by Company.

     11.  Disclosure of this Agreement.  Employee and Company shall keep both
the fact and terms of this Agreement secret and confidential, except that
Employee and Company may disclose this Agreement (1) to Employee's immediate
family, (2) to Employee's or Company's lawyers, tax accountants and other
advisors (including certain employees of Company) in order to seek advice about
its provisions, properly account for and report its effects, (3) to obtain
enforcement of any of its provisions, and (4) as required by law, provided
anyone to whom Employee or Company is authorized to disclose this Agreement
agrees to be bound by the terms of this paragraph.
<PAGE>

     11   Disparagement.  Executive will not make any malicious, disparaging or
false remarks about Company, its officers, directors or employees. Executive
further agrees to refrain from making any negative statements regarding Company
to any third parties or any statements which could be construed as having or
causing a diminishing effect on Company's reputation, goodwill or business. The
parties acknowledge that this commitment does not affect Executive's obligation
to testify truthfully in any litigation, and any such testimony will not
constitute a violation of this provision.

     12   Consent to Injunction.  Executive agrees that his violation of
paragraphs 8, 9, 10 or 11 will constitute a breach of this Agreement that will
cause irreparable injury to Company, and that monetary damages alone would not
adequately compensate Company for the harm suffered. Executive agrees that
Company shall be entitled to injunctive relief to enjoin any breach or
threatened breach of paragraphs 8, 9, 10 or 11 in addition to any other
available remedies.

     13   Representation.  Executive represents and warrants that, during his
tenure as an employee, officer and/or director of Company, he has engaged in no
conduct that is improper, illegal or otherwise in violation of his fiduciary
duties to Company.

     14   Cooperation.  Executive shall make himself available to the Company's
attorneys for meetings, to prepare for and provide testimony, and as reasonably
necessary in any litigation, without the requirement of a subpoena.

     15   No Admission of Liability.  Executive agrees that nothing in this
Separation Agreement and Release, its contents, and any payments made under it,
will be construed as an admission of liability on the part of Company.

     16   Dispute Resolution.  The parties agree that any dispute (1) concerning
the interpretation, construction or breach of this Agreement, (2) arising from
Executive's employment or service with Company, (3) relating to any compensation
or benefits Executive may claim, or (4) relating in any way to any claim by
Executive for reinstatement or reemployment by Company after execution of this
Agreement shall be submitted to a mediator agreed upon by the parties for
nonbinding confidential mediation under the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association (AAA). Each party
shall bear their own costs of mediation. If the matter cannot be resolved with
the aid or the mediator, it shall be submitted to AAA for final and binding
confidential arbitration. Both parties agree that the procedures outlined in
this paragraph are the exclusive methods of dispute resolution; provided,
however, that Company shall be entitled to seek injunctive relief in any court
of competent jurisdiction to prevent a breach or threatened breach of paragraphs
8, 9, 10 or 11, notwithstanding anything in this paragraph to the contrary.

     17.  Governing Law, Forum and Attorney Fees.  This Agreement shall be
interpreted and enforced in accordance with the laws of the State of Oregon. In
the event of any suit, action or arbitration to interpret or enforce this
Agreement, the prevailing party shall be entitled to its attorney fees, costs,
and out-of-pocket expenses, at trial and
<PAGE>

on appeal. The exclusive jurisdiction for any action to interpret or enforce
this Agreement shall be Multnomah County, Oregon.

     18.  Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties, and their respective heirs, executors,
administrators, successors, assigns and other legal representatives. This
Agreement may not be assigned by Executive.

     20.  Severability.  The provisions of this Agreement are severable. If any
provision of this Agreement or its application is held invalid, the invalidity
shall not affect other obligations, provisions, or applications of this
Agreement which can be given effect without the invalid obligations, provisions,
or applications.

     19.  Waiver.  The failure of either party to demand strict performance of
any provision of this Agreement shall not constitute a waiver of any provision,
term, covenant, or condition of this agreement or of the right to demand strict
performance in the future.

     20.  Section Headings.  The section headings contained herein are for
reference purposes only and will not in any way affect the meaning or
interpretation of this Agreement.

     21.  Entire Agreement.  This Agreement and any prior confidentiality,
assignment of inventions, and/or non-solicitation agreement Executive entered
into with Company or any predecessor company acquired by or affiliated with
Company, constitute the entire agreement of Company and Executive, and supersede
all prior or contemporaneous oral or written understandings, statements,
representations or promises with respect to their subject matter. Each of the
rights, obligations and remedies provided for in these agreements shall be
cumulative. This Agreement was the subject of negotiation between the parties
and, therefore, the parties agree that the rule of construction requiring that
the agreement be construed against the drafter shall not apply to the
interpretation of this agreement.

     This Agreement is not effective until it is signed by all parties.

ROBERT DALTRY                          FLIR SYSTEMS, INC.

By: /s/ Robert P. Daltry               By: /s/ John C. Hart
   -------------------------------        ---------------------------------

Date: 7/31/00                          Date: 7/28/00
     -----------------------------          -------------------------------

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