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[ALARIS LOGO]                                                      EXHIBIT 10.7

Option No.   ISO-"Number"

                              ALARIS MEDICAL, INC.
                      NON-QUALIFIED STOCK OPTION AGREEMENT

Optionee: William H. Murphy

Exercise Price Per Share: Average of the daily closing prices for ALARIS
Medical, Inc. stock from January 2 to January 8, 2002.

Total Number of Shares Subject to Grant: Such number of shares which, when
divided by the Exercise Price Per Share, will equal a value of $115,200.

Date of Grant: January 9, 2002

1.    GRANT OF OPTION.  Subject to the closing of the ALARIS Medical Systems,
Inc. ("Systems") $170 million U.S.-denominated borrowing co-managed by UBS
Warburg and Bear Stearns & Co. Inc. and to the continuing employment of the
optionee named above (the "Optionee") by Systems through the date of grant set
forth above (the "Grant Date"), ALARIS Medical, Inc., a Delaware corporation
(the "Company") grants as of the Grant Date, to the Optionee an option
("Option") to purchase all or any part of the total number of shares of common
stock, $.01 par value per share, of the Company set forth above (the "Shares")
at the exercise price (the "Exercise Price") per Share set forth above. This
Option is also subject to all the terms and conditions of: (i) this Stock Option
Agreement (the "Agreement"); (ii) the Company's 1996 Stock Option Plan, as
amended effective December 23, 1999, attached hereto as Exhibit A (the "Plan");
and (iii) the Exercise Notice and Agreement attached hereto as Exhibit B (the
"Notice"). This Agreement shall constitute the Stock Option Agreement
contemplated by Section 9(e) of the Plan. All capitalized terms not otherwise
defined herein shall have the meanings set forth in the Plan. This Option is
intended to qualify as an "non-qualified stock option" within the meaning of the
Internal Revenue Code of 1986, as amended (the "Code").

2.    VESTING; EXERCISE PERIOD OF OPTION.  These options shall vest in full on
the Grant Date. Subject to the termination provisions of Sections 4, 5 and 11(b)
hereof, the vested portion of this Option may be exercised up to and including
the date, which is ten (10) years from the Grant Date.

3.    PARTIAL EXERCISE.  Subject to Section 2 and Section 8 hereof, exercise of
this Option may be made in part at any time and from time to time, except that
this Option may not be exercised as to fewer than one hundred (100) Shares
unless such exercise is made with respect to all of the Shares as to which this
Option is then exercisable.

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4.    TERMINATION FOR CAUSE.  In the event the Optionee is (i) an Officer or
Employee and is terminated from his/her office and/or employment with the
Company or one of its Subsidiaries or Affiliates, as the case may be, for Cause;
or (ii) a Director (but not an Officer or Employee) and is removed from his/her
position as a Director for cause (as contemplated by the charter, by-laws or
other organizational or governing documents), the unexercised portion of this
Option, if any, held by the Optionee on the date of such removal or termination
shall expire immediately.

5.    TERMINATION OTHER THAN FOR CAUSE.  In the event the Optionee is no longer
a Director, Officer or Employee other than for the reasons set forth in
Section 4 hereof the unexercised portion of this Option shall expire twelve (12)
months thereafter unless this Option by its terms expires sooner.

6.    MANNER OF EXERCISE.

(a)   This Option shall be exercisable by delivery to the Secretary of the
Company of a Notice in the form attached hereto as Exhibit B which has been duly
executed and completed by the Optionee.

(b)   The Notice shall be accompanied by payment of the purchase price of the
Shares being purchased as specified therein. Payment for the Shares may be made
in the form of cash or in the principal amount (plus accrued interest, if any,
but only if the Optionee or any of Optionee's successors, other than the
Company, is not otherwise entitled to receive such accrued interest) of the
Company's 7.25% Convertible Debentures, due January 15, 2002 (collectively, the
"Convertible Debentures"), or any combination thereof.

(c)   Subject to Section 9 hereof and provided that the Notice and payment are
in form and substance satisfactory to the Committee and adequate provision has
been made for the payment of any federal, state, local or foreign withholding
obligations of the Company or any Subsidiary associated with such exercise, the
Company shall issue the full number of Shares set forth in such Notice in the
name of the Optionee or, if the Option was exercised the Optionee's guardian or
legal representative as a result of the legal incompetence of the Optionee,
Optionee's guardian or legal representative, as the case may be.

7.    NONTRANSFERABILITY OF OPTION.  During the lifetime of the Optionee, this
Option may be exercised only by the Optionee or, in the event of the legal
incompetence of the Optionee, by his guardian or legal representative. This
Option and any interest therein may not be pledged, hypothecated, encumbered or
otherwise made subject to execution, attachment or similar process, and the
Option and any interest therein shall not be assignable or transferable by the
Optionee otherwise than by will or by the laws of descent and distribution or to
a beneficiary upon the death of the Optionee. Any attempted transfer,
assignment, pledge or hypothecation contrary to the provisions hereof, and the
levy of any execution, attachment or similar process upon this Option, shall be
null and void and without effect. Any person claiming any rights

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under the Plan from or through the Optionee shall be subject to all terms and
conditions of the Plan and the Agreement, except as waived by the Committee.

8.    OBLIGATION TO EXERCISE OPTION.  The grant of this Option imposes an
obligation on the Optionee to exercise it, for that number of shares equal to
the result obtained by dividing the Residual Amount (as defined below) by the
Exercise Price Per Share and multiplying that amount by 10%, upon a call by
the Company for such exercise. In the event that the Company effects that
call, the Optionee shall exercise this Option for the amount of shares above
referred to within one business day of such call. Other than under
circumstances in which the Company effects the call above referred to, the
grant of this Option imposes no obligation on the Optionee to exercise it.
For purposes hereof, the term "Residual Amount" means the lesser of: (a) the
amount, if any, by which the amount required to be spent by the Company and
its subsidiaries to purchase or pay for outstanding Convertible Debentures
exceeds $15 million; or (b) $1.152 million. For this purpose, if any person
exercises an option issued by the Company to purchase shares of the Company's
common stock and pays all or any portion of the purchase price for those
shares in Convertible Debentures, the amount spent by the Company for those
Convertible Debentures shall be the number of shares purchased by the person
exercising that option with those debentures multiplied by the Market Price.

9.    SECURITIES LAW REQUIREMENTS.  No Shares shall be issued hereunder unless
and until: (i) the Company and the Optionee have taken all actions required to
register the Shares under the Securities Act of 1933, as amended, or perfect an
exemption from the registration requirements thereof; (ii) any applicable
listing requirement of any stock exchange or national market system on which the
Common Stock is listed has been satisfied; and (iii) any other applicable
provision of state or federal law has been satisfied. The Company shall be under
no obligation to register the Shares with the Securities and Exchange Commission
or to effect compliance with the registration or qualification requirements of
any state securities law or stock exchange.

10.   WITHHOLDING TAXES.  Prior to issuance of the Shares upon exercise of this
Option, the Optionee shall pay or make adequate provision for the payment of any
federal, state, local or foreign withholding obligations of the Company or any
Subsidiary or Affiliate of the Company, if applicable. In the event the Optionee
shall fail to pay or make adequate provision for the payment of such
obligations, the Company shall have the right to refuse to honor the exercise
or, in the discretion of the Committee, to issue a stock certificate for an
amount of Shares equal to the difference obtained by subtracting: (i) the number
of Shares, rounded up for any fraction to the next whole number, the aggregate
of Exercise Prices for which equal the amount necessary to satisfy, or make
adequate provision for, such applicable federal state, local or foreign
withholding obligations; from (ii) the number of Shares attributable to that
portion of the Option so exercised. In such cases, although the stock
certificated elivered to the Optionee will be for a net number of Shares, such
Optionee shall be considered, for tax purposes, to have received the number of
Shares equal to the full number of Shares as to which this Option had been
exercised.

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11.   ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CHANGE OF CONTROL.

(a)   Except as otherwise provided in Section 11(b), in the event of any change
in capitalization affecting the Shares subject to this Option, such as a stock
dividend, stock split or recapitalization, the Committee, in its sole and
absolute discretion, shall make proportionate adjustments with respect to:
(i) the number of Shares which are subject to this Option and Agreement and the
exercise price(s) associated therewith; PROVIDED, HOWEVER, that the number of
Shares subject to this Option shall always be a whole number; and (ii) such
other matters as shall be appropriate in light of the circumstances. If the
Committee elects to so change the terms and provisions of this Agreement, the
Committee shall notify the Optionee in writing and the terms and provisions
contained therein, to the extent inconsistent with those contained herein, shall
govern in all respects.

(b)   In the event of a Change of Control, unless otherwise determined by the
Committee, in the event of a Change of Control the outstanding portion of this
Option shall terminate and cease to be outstanding immediately following the
Change of Control; PROVIDED, HOWEVER, that no such Option termination shall
occur unless the Optionee shall have been given five business days, following
prior written notice, to exercise the outstanding portion of his or her vested
Option at the effective time of the Change of Control, or to receive cash in an
amount by which the price paid for a Share (determined on a fully-diluted basis
and taking into account the exercise price, as determined by the Committee) in
the Change of Control exceeds the per share exercise price of this Option. In
the event of a Change of Control, in lieu of such Option termination, the
Committee, in its discretion, may make provisions for the assumption of the
outstanding portion of this Option, or the substitution for the outstanding
portion of this Option of new incentive awards covering the stock of a successor
corporation or a parent or subsidiary thereof, with appropriate adjustments as
to the number and kind of shares and prices as to prevent dilution or
enlargement of rights, provided that such Options shall be subject to vesting as
set forth in the first sentence of this Section 11(b).

12.   ENTIRE AGREEMENT.  The Plan and the Notice are incorporated herein by
reference. This Agreement, the Plan and the Notice constitute the entire
agreement of the parties and supersede all prior undertakings, agreements,
representations, warranties and understandings with respect to the subject
matter hereof.

13.   STOCKHOLDERS' RIGHTS.  Neither the Optionee nor any beneficiary or other
person claiming under or through the Optionee shall acquire any rights as a
stockholder of the Company by virtue of the Optionee having been granted this
Option. Neither the Optionee nor any beneficiary or other person claiming under
or through the Optionee will have any right, title or interest in or to any
Shares allocated or reserved under the Plan or subject to this Option, except as
to Shares, if any, that have been issued or transferred to the Optionee. No
adjustment shall be made to this Option for dividends or distributions or other
rights for which the record date is prior to the date of the exercise of this
Option.

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14.   NO RIGHT TO CONTINUE EMPLOYMENT OR SERVICES.  Nothing contained in this
Agreement, the Plan or the Notice shall be deemed to (i) confer upon the
Optionee any right to continue to render services to the Company, a Subsidiary
or Affiliate or continue as a Director, Officer or Employee; or (ii) affect the
right of the Company, a Subsidiary, an Affiliate, the Board, the board of
directors of a Subsidiary or an Affiliate, the stockholders of the Company or a
Subsidiary, or the holders of interest of an Affiliate, as applicable, to (in
the absence of any employment agreement) terminate the directorship, office or
employment, as the case may be, of the Optionee at any time with or without
Cause.

15.   HEADINGS.  The headings contained in this Agreement are for reference only
and shall not affect in any way the meaning or interpretation of this Agreement.

16.   GOVERNING LAW.  This Agreement and all actions taken hereunder shall be
enforced, governed and construed by and interpreted under the laws of the State
of Delaware applicable to contracts made and to be performed wholly within such
State without giving effect to the principles of conflict of laws thereof.

17.   ACKNOWLEDGMENT.  The Optionee hereby acknowledges receipt of a copy of the
Plan, represents that he/she has read and understands the terms and provisions
thereof, and accepts this Option subject to all the terms and provisions of the
Plan, this Agreement and the Notice. The Optionee further acknowledges that
there may be tax consequences upon exercise of this Option or upon disposition
of the Shares received on exercise of this Option and will rely on his/her own
tax adviser with respect thereto.

                                    Optionee:  William H. Murphy

                                    By:    /s/ William H. Murphy
                                        ---------------------------------------

                                    ALARIS Medical, Inc.

                                    By:    /s/ Stuart Rickerson
                                        ---------------------------------------
                                           Stuart Rickerson
                                           Vice President & General Counsel<PAGE>

                                                                     Exhibit 4.1

                              ALARIS MEDICAL, INC.
                             1996 STOCK OPTION PLAN

                    (AS AMENDED EFFECTIVE DECEMBER 23, 1999)

         1.   NAME.

         The name of this plan is the ALARIS Medical, Inc. 1996 Stock Option
Plan.

         2.   DEFINITIONS.

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

              (a)    "Affiliate" means any partnership, corporation, firm, joint
                     venture, association, trust, unincorporated organization or
                     other entity (other than a Subsidiary) that, directly or
                     indirectly through one or more intermediaries, is
                     controlled by the Company, where the term "controlled by"
                     means the possession, direct or indirect, of the power to
                     cause the direction of the management and policies of such
                     entity, whether through the ownership of voting interests
                     or voting securities, as the case may be, by contract or
                     otherwise. For purposes of Section 11 below, "Affiliate"
                     means any partnership, corporation, firm, joint venture,
                     association, trust, unincorporated organization or other
                     entity that, directly or indirectly through one or more
                     intermediaries, is "controlled by" (as defined above)
                     Jeffry M. Picower or the Picower Group (as defined in
                     Section 11(b)(i) below).

              (b)    "Board" means the board of directors of the Company.

              (c)    "Cause" as applied to any Participant means: (i) the
                     conviction of such individual for the commission of any
                     felony; (ii) the commission by such individual of any crime
                     involving moral turpitude (E.G., larceny, embezzlement)
                     which results in harm to the business, reputation,
                     prospects or financial condition of the Company, any
                     Subsidiary or Affiliate; or (iii) the willful neglect,
                     failure or refusal of such individual to carry out his
                     duties, which results in harm to the business, reputation,
                     prospects or financial condition of the Company, any
                     Subsidiary or Affiliate, which neglect, failure or refusal
                     continues for a period of ten consecutive business days
                     following notice thereof, or ten cumulative business days
                     following successive notices thereof, to such individual
                     from the Company; PROVIDED, HOWEVER, that such willful
                     neglect, failure or refusal is not due to the death or
                     disability (I.E., as a result of an injury or sickness
                     such individual is rendered unable to perform his duties as
                     an Officer, Employee, consultant or independent contractor,
                     as the case may be, on a full-time basis for an extended
                     period) of such individual or illness leading to the death
                     or disability of such individual.

              (d)    "Closing Price" means, except as otherwise reasonably
                     determined by the Committee based on reported prices of a
                     Share, (i) the daily closing price of a Share as reported
                     in the American Stock Exchange (or the principal exchange
                     on which the Shares are then traded) composite transactions
                     published in the Eastern Edition of THE WALL STREET JOURNAL
                     or (ii) if the Shares are traded in the over-the-counter
                     market, the daily average of the highest bid and lowest
                     asked prices per Share as reported through the NASDAQ
                     system or any successor thereto.

              (e)    "Code" means the Internal Revenue Code of 1986, as amended
                     from time to time and the Treasury regulations promulgated
                     thereunder.

              (f)    "Committee" means the Board or a committee appointed by the
                     Board to administer the Plan as provided in Section 4(a).

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              (g)    "Common Stock" means the $.01 par value common stock of the
                     Company or any security of the Company identified by the
                     Committee as having been issued in substitution or exchange
                     therefor or in lieu thereof.

              (h)    "Company" means ALARIS Medical, Inc., a Delaware
                     corporation.

              (i)    "Director" means an individual who: (i) is now, or
                     hereafter becomes, a member of the Board or of the board of
                     directors of any Subsidiary or Affiliate; and (ii) is not
                     eligible to participate in the Non-Employee Director NQSO
                     Plan.

              (j)    "Employee" means an individual employed by the Company, a
                     Subsidiary, or an Affiliate whose wages, if an employee in
                     the United States, are subject to the withholding of
                     federal income tax under Section 3401 of the Code.

              (k)    "Exchange Act" means the Securities Exchange Act of 1934,
                     as amended from time to time, or any successor statute.

              (l)    "Fair Market Value" of a Share as of a specified date
                     means, except as otherwise reasonably determined by the
                     Committee based on reported prices of a Share, (i) the
                     average of the highest and lowest market prices of a Share
                     on such date as reported in the American Stock Exchange (or
                     the principal exchange on which the Shares are then traded)
                     composite transactions published in the Eastern Edition of
                     THE WALL STREET JOURNAL or, if no trading of Common Stock
                     is reported for that day, the next preceding day on which
                     trading was reported, or (ii) if the Shares are traded in
                     the over-the-counter market, the average of the highest bid
                     and lowest asked prices per Share on the specified date (or
                     the next preceding date on which trading was reported) as
                     reported through the NASDAQ system or any successor
                     thereto.

              (m)    "ISO" means any stock option granted pursuant to the Plan
                     that is intended to be and is specifically designated as an
                     "incentive stock option" within the meaning of Section 422
                     of the Code.

              (n)    "Non-Employee Director NQSO Plan" means the Company's Third
                     Amended and Restated 1990 Non-Qualified Stock Option Plan
                     for Non-Employee Directors, as may be amended from time to
                     time.

              (o)    "NQSO" means any stock option granted pursuant to the
                     provisions of the Plan that is not an ISO.

              (p)    "Officer" means an individual elected or appointed by the
                     Board or by the board of directors of a Subsidiary or
                     Affiliate or chosen in such other manner as may be
                     prescribed by the by-laws of the Company, a Subsidiary or
                     Affiliate, as the case may be, to serve as such, or, in the
                     case of an Affiliate which is not a corporation, any
                     individual elected or appointed to fulfill a similar
                     function by a body or individual exercising similar
                     authority.

              (q)    "Option" means an ISO or a NQSO (including a NQSO which is
                     designated as a Performance Option) granted under the Plan.

              (r)    "Participant" means an individual who is granted an Option
                     under the Plan.

              (s)    "Performance Option" means any NQSO which is designated as
                     a Performance Option and is subject to the performance
                     vesting provisions set forth in Section 9(d) and the Stock
                     Option Agreement.

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              (t)    "Plan" means this ALARIS Medical, Inc. 1996 Stock Option
                     Plan, as it may be amended from time to time.

              (u)    "Rule 16b-3" means Rule 16b-3 promulgated by the Securities
                     and Exchange Commission under the Exchange Act, or any
                     successor or replacement rule adopted by the Securities and
                     Exchange Commission.

              (v)    "Share" means one share of Common Stock, adjusted in
                     accordance with Section 10(b), if applicable.

              (w)    "Stock Option Agreement" means the written agreement
                     between the Company and the Participant that contains the
                     terms and conditions pertaining to an Option.

              (x)    "Subsidiary" means any corporation of which the Company,
                     directly or indirectly, is the beneficial owner of fifty
                     percent (50%) or more of the total combined voting power of
                     all classes of its stock having voting power and which
                     qualifies as a subsidiary corporation pursuant to Section
                     424(f) of the Code.

              (y)    "Target Date" means the date, as described in Section 9(d),
                     on which a Target Price is achieved with respect to a
                     Performance Option.

              (z)    "Target Price" means a target price of a Share, as
                     determined by the Committee in its sole and absolute
                     discretion and so designated in the Stock Option Agreement,
                     upon the attainment of which the applicable Vesting
                     Percentage portion of a Performance Option shall become
                     vested, as described in Section 9(d).

              (aa)   "Ten Percent Shareholder" means a Participant who prior to
                     the grant of an ISO owned, directly or indirectly within
                     the meaning of Section 424(d) of the Code, ten percent
                     (10%) or more of the total combined voting power of all
                     classes of stock of the Company, any Subsidiary or any
                     parent of the Company (as defined in Section 424(e) of the
                     Code).

              (bb)   "Vesting Percentage" means a specified percentage of a
                     Performance Option, as determined by the Committee in its
                     sole and absolute discretion and set forth in the Stock
                     Option Agreement, which shall become vested upon the
                     attainment of a Target Price in accordance with Section
                     9(d).

         3.   PURPOSE.

         The purpose of the Plan is to enable the Company to provide incentives,
which are linked directly to increases in shareholder value, to certain key
personnel in order that they will be encouraged to promote the financial success
and progress of the Company.

         4.   ADMINISTRATION.

              (a)   COMPOSITION OF THE COMMITTEE.

              The Plan shall be administered by the Board or a committee
appointed by the Board. Members of that committee shall not be entitled to
participate in the Plan. Subject to the provisions of the first sentence of this
Section 4(a), the Board may from time to time remove members from, or add
members to, that committee. Vacancies on that committee, however caused, shall
be filled by the Board.

              (b)   ACTIONS BY THE COMMITTEE.

              The Committee shall hold meetings (in person or telephonically) at
such times and places as it may determine. Acts approved by a majority of the
members of the Committee present at a meeting at which a

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quorum is present, or acts reduced to or approved in writing by a majority of
the members of the Committee, shall be the valid acts of the Committee.

              (c)   POWERS OF THE COMMITTEE.

              Subject to the express terms and conditions hereof, the Committee
shall have the authority to administer the Plan in its sole and absolute
discretion. To this end, the Committee is authorized to construe and interpret
the Plan and to make all other determinations necessary or advisable for the
administration of the Plan, including, but not limited to, the authority to
determine the eligible individuals who shall be granted Options, the number of
Options to be granted, the vesting period, if any, for all Options granted
hereunder, the date on which any Option becomes first exercisable, the number of
Shares subject to each Option, the exercise price for the Shares subject to each
Option, and, whether the Option to be granted is an ISO or a NQSO. The Committee
may delegate to an Officer its authority to grant Options to eligible
individuals under the Plan who are not Officers; provided, however, that Options
to purchase no more than 50,000 Shares may be granted to any individual in any
calendar year pursuant to such delegation of authority. Any determination,
decision or action of the Committee in connection with the construction,
interpretation, administration or application of the Plan shall be final,
conclusive and binding upon all Participants and any person validly claiming
under or through a Participant.

              (d)   LIABILITY OF COMMITTEE MEMBERS.

              No member of the Board or the Committee will be liable for any
action or determination made in good faith by the Board or the Committee with
respect to the Plan or any grant or exercise of an Option thereunder.

              (e)   OPTION ACCOUNTS.

              The Committee shall maintain or cause to be maintained a journal
in which a separate account for each Participant shall be established. Whenever
an Option is granted to or exercised by a Participant, the Participant's account
shall be appropriately credited or debited. Appropriate adjustment shall also be
made in the journal with respect to each account in the event of an adjustment
pursuant to Section 10(b).

         5.   EFFECTIVE DATE AND TERM OF THE PLAN.

              (a)   EFFECTIVE DATE OF THE PLAN.

              The Plan was adopted by the Board on November 26, 1996, and became
effective on such date, subject to approval by the shareholders of the Company,
which was obtained at a meeting held on June 11, 1997. An amendment of the Plan
was approved by the Board and became effective on May 28, 1998, subject to
approval by the shareholders of the Company, which was obtained at a meeting
held on June 24, 1998. A further amendment of the Plan was approved by the Board
and became effective on December 23, 1999, subject to approval by the
shareholders of the Company at a meeting duly called and held within twelve
months following such date.

              (b)   TERM OF PLAN.

              No Option shall be granted pursuant to the Plan on or after
November 26, 2006, but Options theretofore granted may extend beyond that date.

         6.   TYPE OF OPTIONS AND SHARES SUBJECT TO THE PLAN.

         Options granted under the Plan may be either ISOs or NQSOs. Each Option
that is a Performance Option must be a NQSO. Each Stock Option Agreement shall
specify whether the Option covered thereby is an ISO or a NQSO and, in the case
of a NQSO, whether the Option is a Performance Option.

         The maximum aggregate number of Shares that may be issued with respect
to Options (other than Performance Options) under the Plan is 6,700,000 Shares.
The maximum number of Shares that may be issued with respect to Performance
Options under the Plan is 2,800,000. However, no more than 1,000,000 Shares
(subject to

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adjustment as described below) shall be awarded with respect to any one or more
Options granted to any Participant in any calendar year. The limitation on the
number of Shares which may be granted under the Plan shall be subject to
adjustment as provided in Section 10(b).

         If any Option granted under the Plan expires or is terminated for any
reason, any Shares as to which the Option has not been exercised shall again be
available for purchase under Options subsequently granted; PROVIDED, HOWEVER,
that (i) Shares which were subject to Performance Options shall again be
available for purchase only under Performance Options subsequently granted, and
(ii) Shares which were subject to Options which were not Performance Options
shall again be available for purchase only under Options subsequently granted
which are not Performance Options. At all times during the term of the Plan, the
Company shall reserve and keep available for issuance such number of Shares as
the Company is obligated to issue upon the exercise of all then outstanding
Options.

         7.   SOURCE OF SHARES ISSUED UNDER THE PLAN.

         Common Stock issued under the Plan may consist, in whole or in part, of
authorized or unissued Shares or treasury Shares, as determined in the sole and
absolute discretion of the Committee. No fractional Shares shall be issued under
the Plan.

         8.   ELIGIBILITY.

         The individuals eligible for the grant of Options under the Plan shall
be: (i) all Directors, Officers and Employees; and (ii) such individuals
determined by the Committee to be rendering substantial services as a consultant
or independent contractor to the Company or any Subsidiary or Affiliate of the
Company, as the Committee shall determine from time to time in its sole and
absolute discretion; PROVIDED, HOWEVER, that (i) only Employees of the Company
or any Subsidiary shall be eligible to receive ISOs, and (ii) only Officers and
Employees who are appointed or designated as corporate or divisional vice
presidents or directors of the Company (and such other categories of Employees
and consultants and independent contractors as shall be specifically approved by
the Committee) shall be eligible to receive Performance Options. Any Participant
shall be eligible to be granted more than one Option hereunder.

         9.   OPTIONS.

              (a)   GRANT OF OPTIONS.

              Subject to any applicable requirements of the Code and any
regulations issued thereunder, the date of the grant of an Option shall be the
date on which the Committee determines to grant the Option.

              (b)   EXERCISE PRICE OF ISOS AND PERFORMANCE OPTIONS.

              The exercise price of each Share subject to an ISO or a
Performance Option shall be determined by the Committee but shall not be less
than the Fair Market Value of a Share at the close of business on the business
day immediately preceding the date of grant of the ISO or Performance Option, as
the case may be; PROVIDED HOWEVER, except that in the case of a grant of an ISO
to a Participant who at the time such ISO was granted was a Ten Percent
Shareholder, the exercise price shall not be less than 110% of the Fair Market
Value of a Share at the close of business on the business day immediately
preceding the date of grant of the ISO.

              (c)   EXERCISE PRICE OF NQSOS (OTHER THAN PERFORMANCE OPTIONS).

              The exercise price of each Share subject to a NQSO (other than a
Performance Option) shall be determined by the Committee at the time of grant
but shall not be less than the par value of a Share.

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              (d)   EXERCISE PERIOD.

              Each Option granted hereunder shall vest and become first
exercisable as determined by the Committee in its sole and absolute discretion
and set forth in the Stock Option Agreement. Notwithstanding the foregoing, the
vesting schedule applicable to each Performance Option shall be subject to the
following requirements; PROVIDED, HOWEVER, that notwithstanding the failure to
achieve any applicable Target Price(s), an outstanding Performance Option shall
vest on the date that is seven (7) years after the date of grant of the
Performance Option.

                    (i)   The Committee shall designate one or more Vesting
                          Percentage(s) and a Target Price applicable to each
                          such Vesting Percentage with respect to each
                          Performance Option granted pursuant to this Plan. The
                          total sum of such designated Vesting Percentages (or,
                          in the case of only one Vesting Percentage, such
                          Vesting Percentage) shall equal 100% of such
                          Performance Option.

                    (ii)  That portion of each Performance Option equal to a
                          designated Vesting Percentage shall vest and become
                          first exercisable on the date ("Target Date") on which
                          the Closing Price has equaled or exceeded the Target
                          Price applicable to such Vesting Percentage with
                          respect to the Shares on each day (with exception
                          permitted for up to six days) during the ninety
                          calendar day period preceding such Target Date.

              (e)   TERMS AND CONDITIONS.

              All Options granted pursuant to the Plan shall be evidenced by a
Stock Option Agreement (which need not be the same for each Participant or
Option), approved by the Committee which shall be subject to the following
express terms and conditions and the other terms and conditions as are set forth
in this Section 9, and to such other terms and conditions as shall be determined
by the Committee in its sole and absolute discretion which are not inconsistent
with the terms of the Plan:

                    (i)   the failure of an Option to vest when due to vest
                          pursuant to its terms for any reason whatsoever shall
                          cause the unvested Option to expire and be of no
                          further force or effect;

                    (ii)  unless terminated earlier pursuant to Sections 9(i) or
                          11, the term of any Option granted under the Plan
                          shall be specified in the Stock Option Agreement but
                          shall be no greater than ten years from the date of
                          grant; PROVIDED, HOWEVER, that no ISO granted to a Ten
                          Percent Shareholder shall have a term of more than
                          five years from the date of grant;

                    (iii) in the case of an ISO, the aggregate Fair Market Value
                          (determined as of the time the ISO is granted) of
                          Shares exercisable for the first time by a Participant
                          during any calendar year (under the Plan and any other
                          incentive stock option plans of the Company, any
                          Subsidiary or any parent of the Company (as defined in
                          Section 424(e) of the Code) shall not exceed $100,000;

                    (iv)  no Option or interest therein may be pledged,
                          hypothecated, encumbered or otherwise made subject to
                          execution, attachment or similar process, and no
                          Option or interest therein shall be assignable or
                          transferable by the holder otherwise than by will or
                          by the laws of descent and distribution or to a
                          beneficiary upon the death of a Participant, and an
                          Option shall be exercisable during the lifetime of the
                          holder only by him or by his guardian or legal
                          representative, except that an Option (other than an
                          ISO) may be transferred to one or more transferees
                          during the lifetime of the Participant, and may be
                          exercised by such transferee in accordance with the
                          terms of such Option, but

                                      -6-

<PAGE>

                          only if and to the extent such transfers are permitted
                          by the Committee pursuant to the express terms of the
                          Stock Option Agreement (subject to any terms and
                          conditions which the Committee may impose thereon). A
                          transferee or other person claiming any rights under
                          the Plan from or through any Participant shall be
                          subject to all terms and conditions of the Plan and
                          any Stock Option Agreement applicable to such
                          Participant, except as otherwise determined by the
                          Committee, and to any additional terms and conditions
                          deemed necessary or appropriate by the Committee; and

                    (v)   payment for the Shares to be received upon exercise of
                          an Option may be made in cash or, if so provided by
                          the Committee in the Stock Option Agreement, in Shares
                          (determined with reference to their Fair Market Value
                          on the date of exercise), or any combination thereof.

              (f)   ADDITIONAL MEANS OF PAYMENT.

              Any Stock Option Agreement may, in the sole and absolute
discretion of the Committee, permit payment by any other form of legal
consideration consistent with applicable law and any rules and regulations
relating thereto, including, but not limited to, the execution and delivery of a
full recourse promissory note by the Participant to the Company.

              (g)   EXERCISE.

              The holder of an Option may exercise the same by filing with the
Corporate Secretary of the Company a written election, in such form as the
Committee may determine, specifying the number of Shares with respect to which
such Option is being exercised, and accompanied by payment in full of the
exercise price for such Shares. Notwithstanding the foregoing, the Committee may
specify a reasonable minimum number of Shares that may be purchased on any
exercise of an Option, provided that such minimum number will not prevent the
Participant from exercising the Option with respect to the full number of Shares
as to which the Option is then exercisable.

              (h)   WITHHOLDING TAXES.

              Prior to issuance of the Shares upon exercise of an Option, the
Participant shall pay or make adequate provision for the payment of any federal,
state, local or foreign withholding obligations of the Company or any Subsidiary
or Affiliate of the Company, if applicable. In the event a Participant shall
fail to make adequate provision for the payment of such obligations, the Company
shall have the right to withhold an amount of Shares otherwise deliverable to
the Participant sufficient to pay such withholding obligations or, in the
discretion of the Committee, to refuse to honor the exercise.

              (i)   TERMINATION OF OPTIONS.

              Options granted under the Plan shall be subject to the following
events of termination, unless otherwise provided in the Stock Option Agreement:

                    (i)   in the event a Participant who is a Director (but not
                          an Officer or Employee) is removed from the Board or
                          the board of directors of a Subsidiary or an
                          Affiliate, as the case may be, for cause (as
                          contemplated by the charter, by-laws or other
                          organizational or governing documents), all
                          unexercised Options held by such Participant on the
                          date of such removal (whether or not vested) shall
                          expire immediately;

                    (ii)  In the event the employment of a Participant who is an
                          Officer or Employee is terminated for Cause, or in the
                          event the services of a Participant who is a
                          consultant or independent contractor are terminated
                          for Cause, all unexercised

                                      -7-

<PAGE>

                          Options held by such Participant on the date of such
                          termination (whether or not vested) shall expire
                          immediately; and

                    (iii) in the event a Participant is no longer a Director,
                          Officer, Employee, consultant or independent
                          contractor, other than for the reasons set forth in
                          Sections 9(i)(i) or 9(i)(ii), all Options which remain
                          unvested on the date the Participant ceases to be a
                          Director, Officer or Employee, as the case may be,
                          shall expire immediately, and all Options which have
                          vested prior to such date shall expire twelve months
                          thereafter unless by their terms they expire sooner.

         10.  RECAPITALIZATION.

              (a)   CORPORATE FLEXIBILITY.

              The existence of the Plan and the Options granted hereunder shall
not affect or restrict in any way the right or power of the Board or the
shareholders of the Company, in their sole and absolute discretion, to make,
authorize or consummate any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of bonds, debentures, common stock,
preferred or prior preference stock ahead of or affecting the Company's capital
stock or the rights thereof, the dissolution or liquidation of the Company or
any sale or transfer of all or any part of its assets or business, or any other
grant of rights, issuance of securities, transaction, corporate act or
proceeding and notwithstanding the fact that any such activity, proceeding,
action, transaction or other event may have, or be expected to have, an impact
(whether positive or negative) on the value of any Option or underlying Shares.

              (b)   ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.

              Except as otherwise provided in Section 11, in the event of any
change in capitalization affecting the Common Stock of the Company, such as a
stock dividend, stock split or recapitalization, the Committee shall make
proportionate adjustments with respect to: (i) the aggregate number of Shares
available for issuance under the Plan; (ii) the number of Shares available for
any individual award; (iii) the number and exercise price of Shares subject to
outstanding Options; PROVIDED, HOWEVER, that the number of Shares subject to any
Option shall always be a whole number; (iv) the Target Price with respect to any
Performance Options; and (v) such other matters as shall be appropriate in light
of the circumstances.

         11.  CHANGE OF CONTROL

              (a)   In the event of a Change of Control (as defined below),
                    unless otherwise determined by the Committee at the time of
                    grant or by amendment (with the holder's consent) of such
                    grant, all Options (other than Performance Options) not
                    vested on or prior to the effective time of any such Change
                    of Control shall vest immediately prior to such effective
                    time. Unless otherwise determined by the Committee in the
                    Stock Option Agreement or at the time of a Change of
                    Control, in the event of a Change of Control, all
                    outstanding Options (including Performance Options) shall
                    terminate and cease to be outstanding immediately following
                    the Change of Control; PROVIDED, HOWEVER, that no such
                    Option termination shall occur unless a Participant shall
                    have been given five business days, following prior written
                    notice, to exercise such Participant's outstanding vested
                    Options at the effective time of the Change of Control, or
                    at the discretion of the Committee to receive cash in an
                    amount per Share subject to such Options equal to the amount
                    by which the price paid for a Share (determined on a fully
                    diluted basis and taking into account the exercise price, as
                    determined by the Committee) in the Change of Control
                    exceeds the per share exercise price of such Options. The
                    Committee in its sole and absolute discretion may make
                    provisions for the assumption of outstanding Options, or the
                    substitution for outstanding Options of new incentive awards
                    covering the stock of a successor corporation or a parent or
                    subsidiary thereof, with appropriate adjustments as to the
                    number and kind of shares and prices so as to prevent
                    dilution or enlargement of rights.

                                      -8-

<PAGE>

              (b)   A "Change of Control" will be deemed to occur on the date
                    any of the following events occur:

                    (i)   any person or persons acting together which would
                          constitute a "group" for purposes of Section 13(d) of
                          the Exchange Act (other than the Company, any
                          Subsidiary and Jeffry M. Picower (including, any of
                          his Affiliates and any lineal descendant of Mr.
                          Picower, any widow or then current spouse of Mr.
                          Picower or of any such lineal descendant, a trust
                          established principally for the benefit of any of the
                          foregoing, any entity which is at least 90%
                          beneficially owned by any of the foregoing, and the
                          executor, administrator or personal representative of
                          the estate of any of the foregoing (any one or more of
                          the foregoing being sometimes referred to herein as
                          the "Picower Group")) beneficially own (as defined in
                          Rule 13d-3 under the Exchange Act), directly or
                          indirectly, securities of the Company or any
                          Significant Subsidiary (as defined below) representing
                          greater than 10% of the total combined voting power of
                          the Company or the Significant Subsidiary entitled to
                          vote in the election of the board of directors of the
                          Company or the Significant Subsidiary; PROVIDED,
                          HOWEVER, that such event shall not constitute a Change
                          of Control unless and until the combined voting power
                          of such securities owned beneficially, directly or
                          indirectly, by such person or persons is greater than
                          the combined voting power of all such securities owned
                          beneficially, directly or indirectly, by Mr. Picower
                          and the Picower Group;

                    (ii)  persons other than the Current Directors (as herein
                          defined) constitute a majority of the members of the
                          Board (for these purposes, a "Current Director" means
                          any member of the Board as of November 27, 1996, and
                          any successor of any such member whose election, or
                          nomination for election by the Company's shareholders,
                          was approved by at least a majority of the Current
                          Directors then on the Board or by Mr. Picower or the
                          Picower Group);

                    (iii) the consummation of (A) a plan of liquidation of all
                          or substantially all of the assets of the Company or
                          any Subsidiary owning directly or indirectly all or
                          substantially all of the consolidated assets of the
                          Company (a "Significant Subsidiary"), or (B) an
                          agreement providing for the merger or consolidation of
                          the Company or a Significant Subsidiary (1) in which
                          the Company or the Significant Subsidiary is not the
                          continuing or surviving corporation (other than a
                          consolidation or merger with a wholly-owned subsidiary
                          of the Company in which all shares of Common Stock of
                          the Company or common stock in the Significant
                          Subsidiary outstanding immediately prior to the
                          effectiveness thereof are changed into or exchanged
                          for all or substantially all of the common stock of
                          the surviving corporation and (if the Company ceases
                          to exist) the surviving corporation assumes all
                          outstanding Options) or (2) pursuant to which, even
                          though the Company is the continuing or surviving
                          corporation, the shares of Common Stock of the Company
                          or common stock in the Significant Subsidiary are
                          converted into cash, securities or other property;
                          PROVIDED, HOWEVER, that no "Change of Control" shall
                          be deemed to occur as the result of a consolidation or
                          merger of the Company or a Significant Subsidiary in
                          which the holders of the shares of Common Stock of the
                          Company immediately prior to the consolidation or
                          merger have, as a result thereof, directly or
                          indirectly, at least a majority of the combined voting
                          power of all classes of voting stock of the continuing
                          or surviving corporation or its parent immediately
                          after such consolidation or merger or in which the
                          Board immediately prior to the merger or consolidation
                          would, immediately after the merger or consolidation,
                          constitute a majority of the board of directors of the
                          continuing or surviving corporation or its parent; or

                                      -9-

<PAGE>

                    (iv)  the consummation of an agreement (or agreements)
                          providing for the sale or other disposition (in one
                          transaction or a series of transactions) of all or
                          substantially all of the assets of the Company or a
                          Significant Subsidiary other than such a sale or
                          disposition immediately after which such assets will
                          be owned directly or indirectly by the stockholders of
                          the Company in substantially the same proportions as
                          their ownership of the shares of Common Stock
                          immediately prior to such sale or disposition.

              (c)   Notwithstanding the foregoing provisions of this Section 11,
                    unless otherwise determined by the Committee at the time of
                    grant or by amendment (with the holder's consent) of such
                    grant, in the event of a Sale Transaction (as defined
                    below), all Performance Options not fully vested on or prior
                    to the effective time of any such Sale Transaction shall
                    vest immediately prior to such effective time, in whole or
                    in part, if and only to the extent the price to be paid per
                    Share (determined on a fully diluted basis and taking into
                    account the exercise price, as determined by the Committee)
                    in the Sale Transaction equals or exceeds the Target Price
                    with respect to the applicable vesting percentage of such
                    Performance Option. For purposes of this Section 11, a "Sale
                    Transaction" will be deemed to have occurred on the date any
                    of the following events shall have occurred:

                    (i)   any person or persons acting together which would
                          constitute a "group" for purposes of Section 13(d) of
                          the Exchange Act (other than the Company, any
                          Subsidiary, Jeffry M. Picower and the Picower Group)
                          acquire all or substantially all of the Common Stock
                          of the Company;

                    (ii)  the consummation of (A) a plan of liquidation of all
                          or substantially all of the assets of the Company, or
                          (B) an agreement providing for the merger or
                          consolidation of the Company (1) in which the Company
                          is not the continuing or surviving corporation (other
                          than a consolidation or merger with a wholly-owned
                          subsidiary of the Company in which all shares of
                          Common Stock outstanding immediately prior to the
                          effectiveness thereof are changed into or exchanged
                          for all or substantially all of the common stock of
                          the surviving corporation and (if the Company ceases
                          to exist) the surviving corporation assumes all
                          outstanding Options) or (2) pursuant to which, even
                          though the Company is the continuing or surviving
                          corporation, the shares of Common Stock are converted
                          into cash, securities or other property; PROVIDED,
                          HOWEVER, that no "Sale Transaction" shall be deemed to
                          occur as the result of a consolidation or merger of
                          the Company in which the holders of the shares of
                          Common Stock immediately prior to the consolidation or
                          merger have, as a result thereof, directly or
                          indirectly, at least a majority of the combined voting
                          power of all classes of voting stock of the continuing
                          or surviving corporation or its parent immediately
                          after such consolidation or merger or in which the
                          Board immediately prior to the merger or consolidation
                          would, immediately after the merger or consolidation,
                          constitute a majority of the board of directors of the
                          continuing or surviving corporation or its parent; or

                    (iii) the consummation of an agreement (or agreements)
                          providing for the sale or other disposition (in one
                          transaction or a series of transactions) of all or
                          substantially all of the assets of the Company other
                          than such a sale or disposition immediately after
                          which such assets will be owned directly or indirectly
                          by the stockholders of the Company in substantially
                          the same proportions as their ownership of the shares
                          of common stock of the Company immediately prior to
                          such sale or disposition.

                                      -10-

<PAGE>

         12.  SECURITIES LAW REQUIREMENTS.

         No Shares shall be issued under the Plan unless and until: (i) the
Company and the Participant have taken all actions required to register the
Shares under the Securities Act of 1933, as amended, or perfect an exemption
from the registration requirements thereof; (ii) any applicable listing
requirement of any stock exchange or national market system on which the Common
Stock is listed has been satisfied; and (iii) any other applicable provision of
state or federal law has been satisfied. The Company shall be under no
obligation to register the Shares with the Securities and Exchange Commission or
to effect compliance with the registration or qualification requirements of any
state securities laws or stock exchange.

         13.  AMENDMENT AND TERMINATION.

              (a)   MODIFICATIONS TO THE PLAN.

              The Board may, insofar as permitted by law, from time to time,
with respect to any Shares at the time not subject to Options, suspend or
terminate the Plan or revise or amend the Plan in any respect whatsoever.
However, unless the Board specifically otherwise provides, any revision or
amendment that would cause the Plan to fail to comply with Section 422 or 162(m)
of the Code or any other requirement of applicable law or regulation if such
amendment were not approved by the shareholders of the Company, shall not be
effective unless and until such approval is obtained.

              (b)   RIGHTS OF PARTICIPANT.

              No amendment, suspension or termination of the Plan or of any
Option that would adversely affect the right of any Participant with respect to
an Option previously granted under the Plan will be effective without the
written consent of the affected Participant.

         14.  MISCELLANEOUS.

              (a)   SHAREHOLDERS' RIGHTS

              No Participant and no beneficiary or other person claiming under
or through such Participant shall acquire any rights as a shareholder of the
Company by virtue of such Participant having been granted an Option under the
Plan. No Participant and no beneficiary or other person claiming under or
through such Participant will have any right, title or interest in or to any
Shares allocated or reserved under the Plan or subject to any Option, except as
to Shares, if any, that have been issued or transferred to such Participant. No
adjustment shall be made for dividends or distributions or other rights for
which the record date is prior to the date of exercise of an Option, except as
may be provided in the Stock Option Agreement.

              (b)   OTHER COMPENSATION ARRANGEMENTS.

              Nothing contained in the Plan shall prevent the Board from
adopting other compensation arrangements, subject to shareholder approval if
such approval is required. Such other arrangements may be either generally
applicable or applicable only in specific cases.

              (c)   TREATMENT OF PROCEEDS.

              Proceeds realized from the exercise of Options under the Plan
shall constitute general funds of the Company.

              (d)   COSTS OF THE PLAN.

              The costs and expenses of administering the Plan shall be borne by
the Company.

                                      -11-

<PAGE>

              (e)   NO RIGHT TO CONTINUE EMPLOYMENT OR SERVICES.

              Nothing contained in the Plan or in any instrument executed
pursuant to the Plan will confer upon any Participant any right to continue to
render services to the Company, a Subsidiary or Affiliate; to continue as a
Director, Officer, Employee, consultant or independent contractor; or affect the
right of the Company, a Subsidiary, an Affiliate, the Board, the board of
directors of a Subsidiary or an Affiliate, the shareholders of the Company or a
Subsidiary, or the holders of interests of an Affiliate, as applicable, to
terminate the directorship, office, employment or consultant or independent
contractor relationship, as the case may be, of any Participant at any time with
or without Cause. The term "Cause" as defined herein is included solely for the
purposes of the Plan and is not, and shall not be deemed to be: (i) a
restriction on the right of the Company, a Subsidiary or Affiliate, as the case
may be, to terminate any Officer or Employee for any reason whatsoever; or (ii)
a part of the employment relationship (whether oral or written, express or
implied) of any such individual.

              (f)   SEVERABILITY.

              The provisions of the Plan shall be deemed severable and the
validity or unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof.

              (g)   GOVERNING LAW.

              The Plan and all actions taken thereunder shall be enforced,
governed and construed by and interpreted under the laws of the State of
Delaware applicable to contracts made and to be performed wholly within such
State without giving effect to the principles of conflict of laws thereof.

              (h)   HEADINGS.

              The headings contained in this Plan are for reference purposes
only and shall not affect in any way the meaning or interpretation of this Plan.

                                      -12-

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