Document:

EXHIBIT 10.2
                                                                    ------------

                                                                January 31, 2002

VIA HAND DELIVERY
-----------------

Ms. Linda Lammi
10 Anglewood Lane
N. Reading, MA  01864

            Re: Severance Agreement and Release

Dear Linda:

            This letter summarizes the terms of your separation from employment
with Datawatch Corporation (the "Company") and the severance agreement and
release between you and the Company (the "Agreement"). The purpose of this
Agreement is to establish an amicable arrangement for ending your employment
relationship, to release the Company from any claims and to permit you to
receive severance pay and related benefits. With these understandings and in
exchange for the promises of you and the Company as set forth below, you and the
Company agree as follows.

1.          EMPLOYMENT STATUS AND FINAL PAYMENTS:

            (a) Your termination from employment with the Company will be
effective as of January 31, 2002 (the "Termination Date"). As of the Termination
Date, your salary will cease, and any entitlement you have or might have under a
Company-provided benefit plan, program, contract or practice will terminate,
except as required by federal or state law, or as otherwise described below.

            (b) You hereby acknowledge that as of the Termination Date, you have
been paid all wages earned but unpaid and have been paid for all vacation time
accrued but unused as of the Termination Date.

            (c) The Termination Date shall be the date of the "qualifying event"
under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and
the Company will present you with information on COBRA under separate cover.

2.          CONSIDERATION: In exchange for, and in consideration of, your full
execution of this Agreement and after the seven-day revocation  period set forth
in Section 11 has expired, the Company agrees as follows:

            (a) Severance Pay: The Company will pay you severance payments for a
period of six (6) months following the Termination Date at your current gross
semi-monthly salary
<PAGE>

rate of Five Thousand Six Hundred and Twenty-five Dollars ($5,625) in accordance
with the Company's standard payroll practices less applicable taxes.

            (b) Health Insurance: If you elect to continue medical and dental
insurance coverage after the Termination Date in accordance with the provisions
of COBRA, the Company shall pay your monthly premium payments until the earlier
of: (i) July 31, 2002; (ii) the date you obtain other employment; or (iii) the
date your COBRA continuation coverage would terminate in accordance with the
provisions of COBRA. Thereafter, medical and dental insurance coverage shall be
continued only to the extent required by COBRA and only to the extent you timely
pay the premium payments yourself.

            (c) Payments: The payments set forth in this Section 2 shall be
subject to all applicable federal, state and/or local withholding and/or payroll
taxes.

3.          STOCK OPTION: As set forth in the Datawatch Corporation Stock Option
and Incentive Plan and your Stock Option Agreement with the Company ("Stock
Option Agreement"), your options to purchase stock in the Company will cease
vesting on the Termination Date. All of your rights and obligations to stock
options, including without limitation vesting, exercise and expiration, are
governed by the terms and conditions of the Datawatch Corporation Stock Plan and
the Stock Option Agreement.

4.          RELEASE: In exchange for the amounts described in Section 2, which
are in addition to anything of value to which you are entitled to receive, and
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, you and your representatives, agents, estate, heirs, successors
and assigns, absolutely and unconditionally hereby release, remise, discharge,
indemnify and hold harmless the Company Releasees (defined to include the
Company and/or any of its parents, subsidiaries or affiliates, predecessors,
successors or assigns, and its and their respective current and/or former
partners, directors, shareholders/stockholders, officers, employees, attorneys
and/or agents, all both individually and in their official capacities), from any
and all actions or causes of action, suits, claims, complaints, contracts,
liabilities, agreements, promises, contracts, torts, debts, damages,
controversies, judgments, rights and demands, whether existing or contingent,
known or unknown, suspected or unsuspected, which arise out of your employment
with, change in employment status with, and/or separation of employment from,
the Company. This release is intended by you to be all encompassing and to act
as a full and total release of any claims, whether specifically enumerated
herein or not, that you may have or have had against the Company Releasees
arising from conduct occurring up to and through the date of this Agreement,
including, but not limited to, any claims arising from any federal, state or
local law, regulation or constitution dealing with either employment, employment
benefits or employment discrimination such as those laws or regulations
concerning discrimination on the basis of race, color, creed, religion, age,
sex, sex harassment, sexual orientation, national origin, ancestry, genetic
carrier status, handicap or disability, veteran status, any military service or
application for military service, or any other category protected under federal
or state law; any contract, whether oral or written, express or implied; any
tort; any claim for equity or other benefits; or any other statutory and/or
common law claim.

                                       2
<PAGE>

5.          ACCORD AND SATISFACTION: The amounts set forth above in Sections 1
and 2 shall be complete and unconditional payment, settlement, accord and/or
satisfaction with respect to all obligations and liabilities of the Company
Releasees to you, including, without limitation, all claims for back wages,
salary, vacation pay, draws, incentive pay, bonuses, stock and stock options,
commissions, severance pay, reimbursement of expenses, any and all other forms
of compensation or benefits, attorney's fees, or other costs or sums.

6.          WAIVER OF RIGHTS AND CLAIMS UNDER THE AGE DISCRIMINATION
            IN EMPLOYMENT ACT OF 1967:

            Since you are 40 years of age or older, you are being informed that
you have or may have specific rights and/or claims under the Age Discrimination
in Employment Act of 1967 (ADEA) and you agree that:

            (a) in consideration for the amounts described in Section 2 of this
Agreement, which you are not otherwise entitled to receive, you specifically and
voluntarily waive such rights and/or claims under the ADEA you might have
against the Company Releasees to the extent such rights and/or claims arose
prior to the date this Agreement was executed;

            (b) you understand that rights or claims under the ADEA which may
arise after the date this Agreement is executed are not waived by you;

            (c) you are advised to consider the terms of this Agreement
carefully and consult with or seek advice from an attorney of your choice or any
other person of your choosing prior to executing this Agreement;

            (d) you have carefully read and fully understand all of the
provisions of this Agreement, and you knowingly and voluntarily agree to all of
the terms set forth in this Agreement; and

            (e) in entering into this Agreement you are not relying on any
representation, promise or inducement made by the Company or its attorneys with
the exception of those promises described in this document.

7.          PERIOD FOR REVIEW AND CONSIDERATION OF AGREEMENT:

            (a) You acknowledge that you were informed and understand that you
have twenty-one days to review this Agreement and consider its terms before
signing it.

            (b) The 21-day review period will not be affected or extended by any
revisions, whether material or immaterial, that might be made to this Agreement.

8.          COMPANY FILES, DOCUMENTS AND OTHER PROPERTY: You agree that on or
before the Termination Date you will return to the Company all Company property
and materials, including but not limited to, (if applicable) personal computers,
laptops, fax machines,

                                       3
<PAGE>

scanners, copiers, cellular phones, Company credit cards and telephone charge
cards, manuals, building keys and passes, courtesy parking passes, diskettes,
intangible information stored on diskettes, software programs and data compiled
with the use of those programs, software passwords or codes, tangible copies of
trade secrets and confidential information, sales forecasts, names and addresses
of Company customers and potential customers, customer lists, customer contacts,
sales information, sales forecasts, memoranda, sales brochures, business or
marketing plans, reports, projections, and any and all other information or
property previously or currently held or used by you that is or was related to
your employment with the Company ("Company Property"). You agree that in the
event that you discover any other Company Property in your possession after the
Termination Date of this Agreement you will immediately return such materials to
the Company.

9.          FUTURE CONDUCT:

            (a) Nondisparagement: You agree not to make disparaging, critical or
otherwise detrimental comments to any person or entity concerning the Company,
its officers, directors or employees; the products, services or programs
provided or to be provided by the Company; the business affairs, operation,
management or the financial condition of the Company; or the circumstances
surrounding your employment and/or separation of employment from the Company.

            (b) Confidentiality of this Agreement: You agree that you shall not
disclose, divulge or publish, directly or indirectly, any information regarding
the substance, terms or existence of this Agreement and/or any discussion or
negotiations relating to this Agreement, to any person or organization other
than your immediate family and accountants or attorneys when such disclosure is
necessary for the accountants or attorneys to render professional services.
Prior to any such disclosure that you may make, you shall secure from your
attorney or accountant their agreement to maintain the confidentiality of such
matters.

            (c) Disclosures: Nothing herein shall prohibit or bar you from
providing truthful testimony in any legal proceeding or in communicating with
any governmental agency or representative or from making any truthful disclosure
required, authorized or permitted under law; provided, however, that in
providing such testimony or making such disclosures or communications, you will
use your best efforts to ensure that this Section is complied with to the
maximum extent possible. Notwithstanding the foregoing, nothing in this
Agreement shall bar or prohibit you from contacting, seeking assistance from or
participating in any proceeding before any federal or state administrative
agency to the extent permitted by applicable federal, state and/or local law.
However, you nevertheless will be prohibited to the fullest extent authorized by
law from obtaining monetary damages in any agency proceeding in which you do so
participate.

10.         REPRESENTATIONS AND GOVERNING LAW:

            (a) This Agreement sets forth the complete and sole agreement
between the parties and supersedes any and all other agreements or
understandings, whether oral or written, except the Proprietary Information and
Inventions Agreement between you and the Company and the Stock Option Agreement,
each of which shall remain in full force and effect in

                                       4
<PAGE>

accordance with their respective terms. This Agreement may not be changed,
amended, modified, altered or rescinded except upon the express written consent
of both the President of the Company and you.

            (b) If any provision of this Agreement, or part thereof, is held
invalid, void or voidable as against public policy or otherwise, the invalidity
shall not affect other provisions, or parts thereof, which may be given effect
without the invalid provision or part. To this extent, the provisions and parts
thereof of this Agreement are declared to be severable. Any waiver of any
provision of this Agreement shall not constitute a waiver of any other provision
of this Agreement unless expressly so indicated otherwise. The language of all
parts of this Agreement shall in all cases be construed according to its fair
meaning and not strictly for or against either of the parties.

            (c) This Agreement and any claims arising out of this Agreement (or
any other claims arising out of the relationship between the parties) shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts and shall in all respects be interpreted, enforced and governed
under the internal and domestic laws of Massachusetts, without giving effect to
the principles of conflicts of laws of such state. Any claims or legal actions
by one party against the other shall be commenced and maintained in state or
federal court located in Massachusetts, and you hereby submit to the
jurisdiction and venue of any such court.

            (d) You may not assign any of your rights or delegate any of your
duties under this Agreement. The rights and obligations of the Company shall
inure to the benefit of the Company's successors and assigns.

11.         EFFECTIVE DATE:  After signing this letter, you may revoke this
Agreement for a period of seven (7) days following said execution. The Agreement
shall not become effective or enforceable and no payments will be made until
this revocation period has expired ("Effective Date").

                                       5
<PAGE>

            If this letter correctly states the agreement and understanding we
have reached, please indicate your acceptance by countersigning the enclosed
copy and returning it to me.

                                           Very truly yours,

                                           DATAWATCH CORPORATION

                                           /s/ Robert W. Hagger
                                           -------------------------------------
                                           Robert W. Hagger, President

I REPRESENT THAT I HAVE READ THE FOREGOING AGREEMENT, THAT I FULLY UNDERSTAND
THE TERMS AND CONDITIONS OF SUCH AGREEMENT AND THAT I AM KNOWINGLY AND
VOLUNTARILY EXECUTING THE SAME. IN ENTERING INTO THIS AGREEMENT, I DO NOT RELY
ON ANY REPRESENTATION, PROMISE OR INDUCEMENT MADE BY THE COMPANY OR ITS
REPRESENTATIVES WITH THE EXCEPTION OF THE CONSIDERATION DESCRIBED IN THIS
DOCUMENT.

Accepted and Agreed to:

/s/ Linda Lammi
-------------------------------------
LINDA LAMMI

Date:   February 5, 2002
      -------------------------------

                                       6
<PAGE>

                  IF YOU DO NOT WISH TO USE THE 21-DAY PERIOD,
                 PLEASE CAREFULLY REVIEW AND SIGN THIS DOCUMENT
                 ----------------------------------------------

            I, Linda Lammi, acknowledge that I was informed and understand that
I have 21-days within which to consider the attached Severance Agreement and
Release, have been advised of my right to consult with an attorney regarding
such Agreement and have considered carefully every provision of the Agreement,
and that after having engaged in those actions, I prefer to and have requested
that I enter into the Agreement prior to the expiration of the 21-day period.

Dated:   February 5, 2002                    /s/ Linda Lammi
      ------------------------            ------------------------------------
Linda Lammi

Dated:   February 5, 2002                    /s/ Carol A. Beauchamp
      ------------------------            ------------------------------------
                                          Witness:  Carol A. Beauchamp

                                       7EXHIBIT 10.3
                                                                    ------------

                              DATAWATCH CORPORATION

                                 1996 STOCK PLAN

            1.     PURPOSE. The purpose of the Datawatch Corporation 1996 Stock
Plan (the "Plan") is to encourage key employees of Datawatch Corporation (the
"Company") and of any present or future parent or subsidiary of the Company
(collectively, "Related Corporations") and other individuals who render services
to the Company or a Related Corporation, by providing opportunities to
participate in the ownership of the Company and its future growth through (a)
the grant of options which qualify as "incentive stock options" ("ISOs") under
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code");
(b) the grant of options which do not qualify as ISOs ("Non-Qualified Options");
(c) awards of stock in the Company ("Awards"); and (d) opportunities to make
direct purchases of stock in the Company ("Purchases"). Both ISOs and
Non-Qualified Options are referred to hereafter individually as an "Option" and
collectively as "Options." Options, Awards and authorizations to make Purchases
are referred to hereafter collectively as "Stock Rights." As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation," respectively, as those terms are defined in Section 424 of the
Code.

            2.     ADMINISTRATION OF THE PLAN.

                         A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall
                    (be administered by the Board of Directors of the Company
                    (the "Board") or, subject to paragraph 2(D) (relating to
                    compliance with Section 162(m) of the Code), by a committee
                    appointed by the Board (the "Committee"). Hereinafter, all
                    references in this Plan to the "Committee" shall mean the
                    Board if no Committee has been appointed. Subject to
                    ratification of the grant or authorization of each Stock
                    Right by the Board (if so required by applicable state law),
                    and subject to the terms of the Plan, the Committee shall
                    have the authority to (i) determine to whom (from among the
                    class of employees eligible under paragraph 3 to receive
                    ISOs) ISOs shall be granted, and to whom (from among the
                    class of individuals and entities eligible under paragraph 3
                    to receive Non-Qualified Options and Awards and to make
                    Purchases) Non-Qualified Options, Awards and authorizations
                    to make Purchases may be granted; (ii) determine the time or
                    times at which Options or Awards shall be granted or
                    Purchases made; (iii) determine the purchase price of shares
                    subject to each Option or Purchase, which prices shall not
                    be less than the minimum price specified in paragraph 6;
                    (iv) determine whether each Option granted shall be an ISO
                    or a Non-Qualified Option; (v) determine (subject to
                    paragraph 7) the time or times when each Option shall become
                    exercisable and the duration of the exercise period; (vi)
                    extend the period during which outstanding Options may be
                    exercised; (vii) determine whether restrictions such as
                    repurchase options are to be imposed on shares subject to
                    Options, Awards and Purchases and the nature of such
                    restrictions, if any, and (viii) interpret the Plan and
<PAGE>
                                      -2-

                    prescribe and rescind rules and regulations relating to it.
                    If the Committee determines to issue a Non-Qualified Option,
                    it shall take whatever actions it deems necessary, under
                    Section 422 of the Code and the regulations promulgated
                    thereunder, to ensure that such Option is not treated as an
                    ISO. The interpretation and construction by the Committee of
                    any provisions of the Plan or of any Stock Right granted
                    under it shall be final unless otherwise determined by the
                    Board. The Committee may from time to time adopt such rules
                    and regulations for carrying out the Plan as it may deem
                    advisable. No member of the Board or the Committee shall be
                    liable for any action or determination made in good faith
                    with respect to the Plan or any Stock Right granted under
                    it.

                         B. COMMITTEE ACTIONS. The Committee may select one of
                    its members as its chairman, and shall hold meetings at such
                    time and places as it may determine. A majority of the
                    Committee shall constitute a quorum and acts of a majority
                    of the members of the Committee at a meeting at which a
                    quorum is present, or acts reduced to or approved in writing
                    by all the members of the Committee (if consistent with
                    applicable state law), shall be the valid acts of the
                    Committee. From time to time the Board may increase the size
                    of the Committee and appoint additional members thereof,
                    remove members (with or without cause) and appoint new
                    members in substitution therefor, fill vacancies however
                    caused, or remove all members of the Committee and
                    thereafter directly administer the Plan.

                         C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Stock Rights
                    may be granted to members of the Board. All grants of Stock
                    Rights to members of the Board shall in all respects be made
                    in accordance with the provisions of this Plan applicable to
                    other eligible persons. Members of the Board who either (i)
                    are eligible to receive grants of Stock Rights pursuant to
                    the Plan or (ii) have been granted Stock Rights may vote on
                    any matters affecting the administration of the Plan or the
                    grant of any Stock Rights pursuant to the Plan, except that
                    no such member shall act upon the granting to himself or
                    herself of Stock Rights, but any such member may be counted
                    in determining the existence of a quorum at any meeting of
                    the Board during which action is taken with respect to the
                    granting to such member of Stock Rights.

                         D. PERFORMANCE-BASED COMPENSATION. The Board, in its
                    discretion, may take such action as may be necessary to
                    ensure that Stock Rights granted under the Plan qualify as
                    "qualified performance-based compensation" within the
                    meaning of Section 162(m) of the Code and applicable
                    regulations promulgated thereunder ("Performance-Based
                    Compensation"). Such action may include, in the Board's
                    discretion, some or all of the following (i) if the Board
                    determines that Stock Rights granted under the Plan
                    generally shall constitute Performance-Based Compensation,
                    the Plan shall be administered, to the extent required for
                    such Stock Rights to constitute Performance-Based
                    Compensation, by a Committee consisting solely of two or
                    more "outside directors" (as defined in applicable
<PAGE>
                                      -3-

                    regulations promulgated under Section 162(m) of the Code),
                    (ii) if any Non-Qualified Options with an exercise price
                    less than the fair market value per share of Common Stock
                    are granted under the Plan and the Board determines that
                    such Options should constitute Performance-Based
                    Compensation, such options shall be made exercisable only
                    upon the attainment of a pre-established, objective
                    performance goal established by the Committee, and such
                    grant shall be submitted for, and shall be contingent upon
                    shareholder approval and (iii) Stock Rights granted under
                    the Plan may be subject to such other terms and conditions
                    as are necessary for compensation recognized in connection
                    with the exercise or disposition of such Stock Right or the
                    disposition of Common Stock acquired pursuant to such Stock
                    Right, to constitute Performance-Based Compensation.

            3.      ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted only to
employees of the Company or any Related Corporation. Non-Qualified Options,
Awards and authorizations to make Purchases may be granted to any employee,
officer or director (whether or not also an employee) or consultant of the
Company or any Related Corporation. The Committee may take into consideration a
recipient's individual circumstances in determining whether to grant a Stock
Right. The granting of any Stock Right to any individual or entity shall neither
entitle that individual or entity to, nor disqualify such individual or entity
from, participation in any other grant of Stock Rights.

            4.      STOCK. The stock subject to Stock Rights shall be authorized
but unissued shares of Common Stock of the Company, par value $.01 per share
(the "Common Stock"), or shares of Common Stock reacquired by the Company in any
manner. The aggregate number of shares which may be issued pursuant to the Plan
is 494,4001, subject to adjustment as provided in paragraph 13. If any Option
granted under the Plan shall expire or terminate for any reason without having
been exercised in full or shall cease for any reason to be exercisable in whole
or in part or shall be repurchased by the Company, the unpurchased shares of
Common Stock subject to such Option shall again be available for grants of Stock
Rights under the Plan.

            No employee of the Company or any Related Corporation may be granted
Options to acquire, in the aggregate, more than 155,556 shares of Common Stock
under the Plan during any fiscal year of the Company. If any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part or shall be repurchased by the Company, the shares subject to such Option
shall be included in the determination of the aggregate number of shares of
Common Stock deemed to have been granted to such employee under the Plan.

            5.     GRANTING OF STOCK RIGHTS. Stock Rights may be granted under
the Plan at any time on or after December 10, 1996 and prior to December 10,
2006. The date of grant of a Stock Right under the Plan will be the date
specified by the Committee at the time it grants the

--------
1 An amendment increasing the number of shares available for issuance under the
Plan from 366,667 to 494,400 was approved by the Board of Directors pursuant to
a Meeting of the Board of Directors held on January 29, 2002 and was approved by
the stockholders at the Annual Meeting of Stockholders held on March 8, 2002.

<PAGE>
                                      -4-

Stock Right; provided, however, that such date shall not be prior to the date on
which the Committee acts to approve the grant.

            6.     MINIMUM OPTION PRICE; ISO LIMITATIONS.

                         A. PRICE FOR NON-QUALIFIED OPTIONS, AWARDS AND
                    PURCHASES. Subject to paragraph 2(D) (relating to compliance
                    with Section 162(m) of the Code), the exercise price per
                    share specified in the agreement relating to each
                    Non-Qualified Option granted, and the purchase price per
                    share of stock granted in any Award or authorized as a
                    Purchase, under the Plan may be less than the fair market
                    value of the Common Stock of the Company on the date of
                    grant; provided that, in no event shall such exercise price
                    or such purchase price be less than the minimum legal
                    consideration required therefor under the laws of any
                    jurisdiction in which the Company or its successors in
                    interest may be organized.

                         B. PRICE FOR ISOS. The exercise price per share
                    specified in the agreement relating to each ISO granted
                    under the Plan shall not be less than the fair market value
                    per share of Common Stock on the date of such grant. In the
                    case of an ISO to be granted to an employee owning stock
                    possessing more than ten percent (10%) of the total combined
                    voting power of all classes of stock of the Company or any
                    Related Corporation, the price per share specified in the
                    agreement relating to such ISO shall not be less than one
                    hundred ten percent (110%) of the fair market value per
                    share of Common Stock on the date of grant. For purposes of
                    determining stock ownership under this paragraph, the rules
                    of Section 424(d) of the Code shall apply.

                         C. $100,000 ANNUAL LIMITATION ON ISO VESTING. Each
                    eligible employee may be granted Options treated as ISOs
                    only to the extent that, in the aggregate under this Plan
                    and all incentive stock option plans of the Company and any
                    Related Corporation, ISOs do not become exercisable for the
                    first time by such employee during any calendar year with
                    respect to stock having a fair market value (determined at
                    the time the ISOs were granted) in excess of $100,000. The
                    Company intends to designate any Options granted in excess
                    of such limitation as Non-Qualified Options, and the Company
                    shall issue separate certificates to the optionee with
                    respect to Options that are Non-Qualified Options and
                    Options that are ISOs.

                         D. DETERMINATION OF FAIR MARKET VALUE. If, at the time
                    an Option is granted under the Plan, the Company's Common
                    Stock is publicly traded, "fair market value" shall be
                    determined as of the date of grant or, if the prices or
                    quotes discussed in this sentence are unavailable for such
                    date, the last business day for which such prices or quotes
                    are available prior to the date of grant and shall mean (i)
                    the average (on that date) of the high and low prices of the
                    Common Stock on the principal national securities exchange
                    on which the Common Stock is traded, if the Common Stock is
                    then traded on a national securities exchange; or (ii) the
<PAGE>
                                      -5-

                    last reported sale price (on that date) of the Common Stock
                    on the Nasdaq National Market, if the Common Stock is not
                    then traded on a national securities exchange; or (iii) the
                    closing bid price (or average of bid prices) last quoted (on
                    that date) by an established quotation service for
                    over-the-counter securities, if the Common Stock is not
                    reported on the Nasdaq National Market. If the Common Stock
                    is not publicly traded at the time an Option is granted
                    under the Plan, "fair market value" shall mean the fair
                    value of the Common Stock as determined by the Committee
                    after taking into consideration all factors which it deems
                    appropriate, including, without limitation, recent sale and
                    offer prices of the Common Stock in private transactions
                    negotiated at arm's length.

            7.      OPTION DURATION. Subject to earlier termination as provided
in paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years from the date of grant in the case of Options generally and (ii) five
years from the date of grant in the case of ISOs granted to an employee owning
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, as determined
under paragraph 6(B). Subject to earlier termination as provided in paragraphs 9
and 10, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a Non-Qualified Option pursuant to paragraph 16.

            8.      EXERCISE OF OPTION.  Subject to the provisions of paragraphs
9 through 12, each Option granted under the Plan shall be exercisable as
follows:

                         A. VESTING. The Option shall either be fully
                    exercisable on the date of grant or shall become exercisable
                    thereafter in such installments as the Committee may
                    specify.

                         B. FULL VESTING OF INSTALLMENTS. Once an installment
                    becomes exercisable, it shall remain exercisable until
                    expiration or termination of the Option, unless otherwise
                    specified by the Committee.

                         C. PARTIAL EXERCISE. Each Option or installment may be
                    exercised at any time or from time to time, in whole or in
                    part, for up to the total number of shares with respect to
                    which it is then exercisable.

                         D. ACCELERATION OF VESTING. The Committee shall have
                    the right to accelerate the date that any installment of any
                    Option becomes exercisable; provided that the Committee
                    shall not, without the consent of an optionee, accelerate
                    the permitted exercise date of any installment of any Option
                    granted to any employee as an ISO (and not previously
                    converted into a Non-Qualified Option pursuant to paragraph
                    16) if such acceleration would violate the annual vesting
                    limitation contained in Section 422(d) of the Code, as
                    described in paragraph 6(C).
<PAGE>
                                      -6-

            9.      TERMINATION OF EMPLOYMENT. Unless otherwise specified in the
agreement relating to such ISO, if an ISO optionee ceases to be employed by the
Company and all Related Corporations other than by reason of death or disability
as defined in paragraph 10, no further installments of his or her ISOs shall
become exercisable, and his or her ISOs shall terminate on the earlier of (a)
three months after the date of termination of his or her employment, or (b)
their specified expiration dates, except to the extent that such ISOs (or
unexercised installments thereof) have been converted into Non-Qualified Options
pursuant to paragraph 16. For purposes of this paragraph 9, employment shall be
considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute or by contract. A bona fide leave of absence with the
written approval of the Committee shall not be considered an interruption of
employment under this paragraph 9, provided that such written approval
contractually obligates the Company or any Related Corporation to continue the
employment of the optionee after the approved period of absence. ISOs granted
under the Plan shall not be affected by any change of employment within or among
the Company and Related Corporations, so long as the optionee continues to be an
employee of the Company or any Related Corporation. Nothing in the Plan shall be
deemed to give any grantee of any Stock Right the right to be retained in
employment or other service by the Company or any Related Corporation for any
period of time.

            10.     DEATH; DISABILITY.

                         A. DEATH. If an ISO optionee ceases to be employed by
                    the Company and all Related Corporations by reason of his or
                    her death, any ISO owned by such optionee may be exercised,
                    to the extent otherwise exercisable on the date of death, by
                    the estate, personal representative or beneficiary who has
                    acquired the ISO by will or by the laws of descent and
                    distribution, until the earlier of (i) the specified
                    expiration date of the ISO or (ii) 180 days from the date of
                    the optionee's death.

                         B. DISABILITY. If an ISO optionee ceases to be employed
                    by the Company and all Related Corporations by reason of his
                    or her disability, such optionee shall have the right to
                    exercise any ISO held by him or her on the date of
                    termination of employment, for the number of shares for
                    which he or she could have exercised it on that date, until
                    the earlier of (i) the specified expiration date of the ISO
                    or (ii) 180 days from the date of the termination of the
                    optionee's employment. For the purposes of the Plan, the
                    term "disability" shall mean "permanent and total
                    disability" as defined in Section 22(e)(3) of the Code or
                    any successor statute.

            11.     ASSIGNABILITY. No ISO shall be assignable or transferable by
the optionee except by will or by the laws of descent and distribution, and
during the lifetime of the optionee shall be
<PAGE>
                                      -7-

exercisable only by such optionee. Stock Rights other than ISOs shall be
transferable to the extent set forth in the agreement relating to such Stock
Right.

            12.     TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced
by instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. The Committee may specify that any
Non-Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination and cancellation provisions as the
Committee may determine. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one or more officers
of the Company to execute and deliver such instruments. The proper officers of
the Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.

            13.     ADJUSTMENTS. Upon the occurrence of any of the following
events, an optionee's rights with respect to Options granted to such optionee
hereunder shall be adjusted as hereinafter provided, unless otherwise
specifically provided in the written agreement between the optionee and the
Company relating to such Option:

                         A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of
                    Common Stock shall be subdivided or combined into a greater
                    or smaller number of shares or if the Company shall issue
                    any shares of Common Stock as a stock dividend on its
                    outstanding Common Stock, the number of shares of Common
                    Stock deliverable upon the exercise of Options shall be
                    appropriately increased or decreased proportionately, and
                    appropriate adjustments shall be made in the purchase price
                    per share to reflect such subdivision, combination or stock
                    dividend.

                         B. CONSOLIDATIONS OR MERGERS. If the Company is to be
                    consolidated with or acquired by another entity in a merger
                    or other reorganization in which the holders of the
                    outstanding voting stock of the Company immediately
                    preceding the consummation of such event, shall, immediately
                    following such event, hold, as a group, less than a majority
                    of the voting securities of the surviving or successor
                    entity, or in the event of a sale of all or substantially
                    all of the Company's assets or otherwise (each, an
                    "Acquisition"), the Committee or the board of directors of
                    any entity assuming the obligations of the Company hereunder
                    (the "Successor Board"), shall, as to outstanding Options,
                    either (i) make appropriate provision for the continuation
                    of such Options by substituting on an equitable basis for
                    the shares then subject to such Options either (a) the
                    consideration payable with respect to the outstanding shares
                    of Common Stock in connection with the Acquisition, (b)
                    shares of stock of the surviving or successor corporation or
                    (c) such other securities as the Successor Board deems
                    appropriate, the fair market value of which shall not
                    materially exceed the fair market value of the shares of
<PAGE>
                                      -8-

                    Common Stock subject to such Options immediately preceding
                    the Acquisition; or (ii) upon written notice to the
                    optionees, provide that all Options must be exercised, to
                    the extent then exercisable or to be exercisable as a result
                    of the Acquisition, within a specified number of days of the
                    date of such notice, at the end of which period the Options
                    shall terminate; or (iii) terminate all Options in exchange
                    for a cash payment equal to the excess of the fair market
                    value of the shares subject to such Options (to the extent
                    then exercisable or to be exercisable as a result of the
                    Acquisition) over the exercise price thereof.

                         C. RECAPITALIZATION OR REORGANIZATION. In the event of
                    a recapitalization or reorganization of the Company (other
                    than a transaction described in subparagraph B above)
                    pursuant to which securities of the Company or of another
                    corporation are issued with respect to the outstanding
                    shares of Common Stock, an optionee upon exercising an
                    Option shall be entitled to receive for the purchase price
                    paid upon such exercise the securities he or she would have
                    received if he or she had exercised such Option prior to
                    such recapitalization or reorganization.

                         D. MODIFICATION OF ISOS. Notwithstanding the foregoing,
                    any adjustments made pursuant to subparagraphs A, B or C
                    with respect to ISOs shall be made only after the Committee,
                    after consulting with counsel for the Company, determines
                    whether such adjustments would constitute a "modification"
                    of such ISOs (as that term is defined in Section 424 of the
                    Code) or would cause any adverse tax consequences for the
                    holders of such ISOs. If the Committee determines that such
                    adjustments made with respect to ISOs would constitute a
                    modification of such ISOs or would cause adverse tax
                    consequences to the holders, it may refrain from making such
                    adjustments.

                         E. DISSOLUTION OR LIQUIDATION. In the event of the
                    proposed dissolution or liquidation of the Company, each
                    Option will terminate immediately prior to the consummation
                    of such proposed action or at such other time and subject to
                    such other conditions as shall be determined by the
                    Committee.

                         F. ISSUANCES OF SECURITIES. Except as expressly
                    provided herein, no issuance by the Company of shares of
                    stock of any class, or securities convertible into shares of
                    stock of any class, shall affect, and no adjustment by
                    reason thereof shall be made with respect to, the number or
                    price of shares subject to Options. No adjustments shall be
                    made for dividends paid in cash or in property other than
                    securities of the Company.

                         G. FRACTIONAL SHARES. No fractional shares shall be
                    issued under the Plan and the optionee shall receive from
                    the Company cash in lieu of such fractional shares.
<PAGE>
                                      -9-

                         H. ADJUSTMENTS. Upon the happening of any of the events
                    described in subparagraphs A, B or C above, the class and
                    aggregate number of shares set forth in paragraph 4 hereof
                    that are subject to Stock Rights which previously have been
                    or subsequently may be granted under the Plan shall also be
                    appropriately adjusted to reflect the events described in
                    such subparagraphs. The Committee or the Successor Board
                    shall determine the specific adjustments to be made under
                    this paragraph 13 and, subject to paragraph 2, its
                    determination shall be conclusive.

            14.     MEANS OF EXERCISING OPTIONS. An Option (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify the
number of shares as to which such Option is being exercised, accompanied by full
payment of the purchase price therefor either (a) in United States dollars in
cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) at the discretion of the
Committee, by delivery of the grantee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, (d) at the discretion
of the Committee and consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise, or (e) at the
discretion of the Committee, by any combination of (a), (b), (c) and (d) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (b), (c), (d) or
(e) of the preceding sentence, such discretion shall be exercised in writing at
the time of the grant of the ISO in question. The holder of an Option shall not
have the rights of a shareholder with respect to the shares covered by such
Option until the date of issuance of a stock certificate to such holder for such
shares. Except as expressly provided above in paragraph 13 with respect to
changes in capitalization and stock dividends, no adjustment shall be made for
dividends or similar rights for which the record date is before the date such
stock certificate is issued.

            15.     TERM AND AMENDMENT OF PLAN. This Plan was adopted by the
Board on December 10, 1996, subject, with respect to the validation of ISOs
granted under the Plan, to approval of the Plan by the stockholders of the
Company at the next Meeting of Stockholders or, in lieu thereof, by written
consent. If the approval of stockholders is not obtained prior to December 10,
1997, any grants of ISOs under the Plan made prior to that date will be
rescinded. The Plan shall expire at the end of the day on December 9, 2006
(except as to Options outstanding on that date). Subject to the provisions of
paragraph 5 above, Options may be granted under the Plan prior to the date of
stockholder approval of the Plan. The Board may terminate or amend the Plan in
any respect at any time, except that, without the approval of the stockholders
obtained within 12 months before or after the Board adopts a resolution
authorizing any of the following actions: (a) the total number of shares that
may be issued under the Plan
<PAGE>
                                      -10-

may not be increased (except by adjustment pursuant to paragraph 13); (b) the
provisions of paragraph 3 regarding eligibility for grants of ISOs may not be
modified; (c) the provisions of paragraph 6(B) regarding the exercise price at
which shares may be offered pursuant to ISOs may not be modified (except by
adjustment pursuant to paragraph 13); and (d) the expiration date of the Plan
may not be extended. Except as otherwise provided in this paragraph 15, in no
event may action of the Board or stockholders alter or impair the rights of a
grantee, without such grantee's consent, under any Stock Right previously
granted to such grantee.

            16.     MODIFICATIONS OF ISOS; CONVERSION OF ISOS INTO NON-QUALIFIED
OPTIONS. Subject to paragraph 13(D), without the prior written consent of the
holder of an ISO, the Committee shall not alter the terms of such ISO (including
the means of exercising such ISO) if such alteration would constitute a
modification (within the meaning of Section 424(h)(3) of the Code). The
Committee, at the written request or with the written consent of any optionee,
may in its discretion take such actions as may be necessary to convert such
optionee's ISOs (or any installments or portions of installments thereof) that
have not been exercised on the date of conversion into Non-Qualified Options at
any time prior to the expiration of such ISOs, regardless of whether the
optionee is an employee of the Company or a Related Corporation at the time of
such conversion. Such actions may include, but shall not be limited to,
extending the exercise period or reducing the exercise price of the appropriate
installments of such ISOs. At the time of such conversion, the Committee (with
the consent of the optionee) may impose such conditions on the exercise of the
resulting Non-Qualified Options as the Committee in its discretion may
determine, provided that such conditions shall not be inconsistent with this
Plan. Nothing in the Plan shall be deemed to give any optionee the right to have
such optionee's ISOs converted into Non-Qualified Options, and no such
conversion shall occur until and unless the Committee takes appropriate action.
Upon the taking of such action, the Company shall issue separate certificates to
the optionee with respect to Options that are Non-Qualified Options and Options
that are ISOs.

            17.     APPLICATION OF FUNDS.  The proceeds received by the Company
from the sale of shares pursuant to Options granted and Purchases authorized
under the Plan shall be used for general corporate purposes.

            18.     NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By accepting
an ISO granted under the Plan, each optionee agrees to notify the Company in
writing immediately after such optionee makes a Disqualifying Disposition (as
described in Sections 421, 422 and 424 of the Code and regulations thereunder)
of any stock acquired pursuant to the exercise of ISOs granted under the Plan. A
Disqualifying Disposition is generally any disposition occurring on or before
the later of (a) the date two years following the date the ISO was granted or
(b) the date one year following the date the ISO was exercised.

            19.     WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of
a Non-Qualified Option, the transfer of a Non-Qualified Stock Option pursuant to
an arm's-length transaction, the grant of an Award, the making of a Purchase of
Common Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 18), the vesting or transfer of restricted
stock or securities acquired on the exercise of an Option
<PAGE>
                                      -11-

hereunder, or the making of a distribution or other payment with respect to such
stock or securities, the Company may withhold taxes in respect of amounts that
constitute compensation includible in gross income. The Committee in its
discretion may condition (i) the exercise of an Option, (ii) the transfer of a
Non-Qualified Stock Option, (iii) the grant of an Award, (iv) the making of a
Purchase of Common Stock for less than its fair market value, or (v) the vesting
or transferability of restricted stock or securities acquired by exercising an
Option, on the grantee's making satisfactory arrangement for such withholding.
Such arrangement may include payment by the grantee in cash or by check of the
amount of the withholding taxes or, at the discretion of the Committee, by the
grantee's delivery of previously held shares of Common Stock or the withholding
from the shares of Common Stock otherwise deliverable upon exercise of a Option
shares having an aggregate fair market value equal to the amount of such
withholding taxes.

            20.     GOVERNMENTAL REGULATION.  The Company's obligation to sell
and deliver shares of the Common Stock under this Plan is subject to the
approval of any governmental authority required in connection with the
authorization, issuance or sale of such shares.

            Government regulations may impose reporting or other obligations on
the Company with respect to the Plan. For example, the Company may be required
to send tax information statements to employees and former employees that
exercise ISOs under the Plan, and the Company may be required to file tax
information returns reporting the income received by grantees of Options in
connection with the Plan.

            21.     GOVERNING LAW.  The validity and construction of the Plan
and the instruments evidencing Stock Rights shall be governed by the laws of the
State of Delaware, or the laws of any jurisdiction in which the Company or its
successors in interest may be organized.

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