HOOPER HOLMES, INC.
 
                             2002 STOCK OPTION PLAN
 
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                                TABLE OF CONTENTS
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ARTICLE I   DEFINITIONS....................................................   6
 
            1.1    Beneficiary.............................................   6
            1.2    Board...................................................   6
            1.3    Code....................................................   6
            1.4    Committee...............................................   6
            1.5    Common Stock............................................   6
            1.6    Company.................................................   6
            1.7    Effective Date..........................................   6
            1.8    Employee................................................   6
            1.9    Employment Period.......................................   6
            1.10   Exchange Act............................................   7
            1.11   Fair Market Value.......................................   7
            1.12   Grantee.................................................   7
            1.13   Incentive Stock Option..................................   7
            1.14   Insider Participant.....................................   7
            1.15   Noninsider Participant..................................   8
            1.16   Nonqualified Option.....................................   8
            1.17   Option..................................................   8
            1.18   Option Agreement........................................   8
            1.19   Optionee................................................   8
            1.20   Option Price............................................   8
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             1.21     Plan.................................................    8
             1.22     Reload Option........................................    8
             1.23     Retirement...........................................    8
             1.24     Rule 16b-3...........................................    8
             1.25     Stock Appreciation Right.............................    9
             1.26     Stock Appreciation Right Agreement...................    9
             1.27     Subsidiary...........................................    9
             1.28     Total Disability.....................................    9
 
ARTICLE II   PURPOSE.......................................................    9
 
             2.1      Purpose..............................................    9
             2.2      Effective Date.......................................   10
 
ARTICLE III  ELIGIBILITY...................................................   10
 
             3.1      Persons Eligible.....................................   10
             3.2      Notice...............................................   10
             3.3      Grant Contingent Upon Written Agreement..............   10
 
ARTICLE IV   COMMON STOCK COVERED BY THE PLAN..............................   11
 
             4.1      Maximum Number of Shares.............................   11
             4.2      Source of Shares.....................................   11
             4.3      Adjustment to Number of Shares.......................   12
 
ARTICLE V    TERMS AND CONDITIONS OF OPTIONS...............................   12
 
             5.1      Option Price.........................................   13
             5.2      Date of Option Grant.................................   13
             5.3      Exercise of Option...................................   13
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             5.4      Sales of Stock Underlying Options..........................   13
             5.5      Option Period..............................................   14
             5.6      Accelerated Vesting in the Event of Death, Disability,
             Retirement, Change in Control or Other Transactions.................   14
             5.7      Exercise in the Event of Death, Disability, Retirement,
             or Termination of Employment........................................   16
             5.8      Payment of Option Price....................................   17
             5.9      Reload Options.............................................   17
             5.10     Additional Terms Applicable to Incentive Stock Options.....   18
 
ARTICLE VI   STOCK APPRECIATION RIGHTS...........................................   21
 
             6.1      General....................................................   21
             6.2      Exercise and Payments......................................   22
             6.3      Restrictions...............................................   23
 
ARTICLE VII  LOANS...............................................................   24
 
             7.1      Loans......................................................   24
             7.2      Promissory Note............................................   25
             7.3      Pledge.....................................................   25
 
ARTICLE VII  DESIGNATION.........................................................   26
 
             8.1      Designation and Change of Designation......................   26
             8.2      Absence Of Valid Designation...............................   26
 
ARTICLE IX   ADMINISTRATION OF THE PLAN..........................................   27
 
             9.1      Committee..................................................   27
             9.2      Powers of Committee........................................   27
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                                       -4-
 
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             9.3      Action by Committee....................................  27
             9.4      Grant of Option and/or Stock Appreciation Right........  28
             9.5      Indemnification........................................  29
             9.6      Reliance...............................................  29
             9.7      Agents.................................................  30
 
ARTICLE X    AMENDMENT AND TERMINATION.......................................  30
 
             10.1     Amendment..............................................  30
             10.2     Termination............................................  31
 
ARTICLE XI   MISCELLANEOUS PROVISIONS........................................  31
 
             11.1     No Rights as Shareholder...............................  31
             11.2     No Rights to Continued Employment......................  31
             11.3     Compliance with Other Laws and Regulations.............  32
             11.4     Payments to Person Other Than Employee.................  32
             11.5     Use of Proceeds........................................  33
             11.6     No Right to Options and Stock Appreciation Rights......  33
             11.7     Withholding............................................  33
             11.8     Nontransferability.....................................  33
             11.9     Investment Representation..............................  34
             11.10    No Right, Title, or Interest in Company's Assets.......  34
             11.11    Headings...............................................  35
             11.12    Governing Law..........................................  35
             11.13    Pronouns...............................................  35
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                                       -5-
 
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                                    ARTICLE I
                                   DEFINITIONS
                                   -----------
 
     1.1  Beneficiary shall mean the individual or entity designated in
          -----------
accordance with Article 8 of the Plan to receive any amounts payable under the
Plan upon the death of an Optionee or Grantee.
 
     1.2  Board shall mean the Board of Directors of the Company.
          -----
 
     1.3  Code shall mean the Internal Revenue Code of 1986, in effect and as
          ----
amended from time to time, or any successor statute thereto, together with any
rules, regulations and interpretations promulgated thereunder or with respect
thereto.
 
     1.4  Committee shall mean the committee established by the Board to
          ---------
administer the Plan, in accordance with the provisions of Article 9 of the Plan,
or if no Committee is established, then the Board shall constitute the
Committee.
 
     1.5  Common Stock shall mean the common stock, par value $.04 per share, of
          ------------
the Company.
 
     1.6  Company shall mean Hooper Holmes, Inc., a New York corporation, its
          -------
Subsidiaries and their successors and assigns.
 
     1.7  Effective Date shall have the meaning ascribed to such term in Section
          --------------
2.2 of the Plan.
 
     1.8  Employee shall mean a person employed by the Company.
          --------
 
     1.9  Employment Period shall have the meaning ascribed to such term in
          -----------------
Section 3.3 of the Plan.
 
                                       -6-
 
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     1.10 Exchange Act shall mean the Securities Exchange Act of 1934, in effect
          ------------
and as amended from time to time, or any successor statute thereto, together
with any rules, regulations and interpretations promulgated thereunder or with
respect thereto.
 
     1.11 Fair Market Value shall mean, as applied to a specific date, the
          -----------------
closing price for the Common Stock on such date as reported on the principal
stock exchange upon which the Company's Common Stock is listed, or if the Common
Stock is not listed on any stock exchange, then the closing price on the
National Association of Securities Dealers Automated Quotation Service
("NASDAQ"); or if the Common Stock is not listed on NASDAQ, then the mean
between the most recent bid and asked prices on any other recognized trading
market or if no common Stock was traded on the relevant date, on the next
preceding day on which Common Stock was so traded. If no such market exists,
then the Committee shall determine in good faith the fair market value of the
Common Stock.
 
     1.12 Grantee shall mean an Employee to whom a Stock Appreciation Right has
          -------
been granted under this Plan.
 
     1.13 Incentive Stock Option shall mean any Option granted under this Plan
          ----------------------
which the Committee intends to be and which is specifically designated as (at
the time it is granted) an Incentive Stock Option within the meaning of Section
422 of the Code.
 
     1.14 Insider Participant shall mean any Employee who is selected by the
          -------------------
Committee to receive Options and/or Stock Appreciation Rights under the Plan and
who is subject to the requirements of Section 16(a) of the Exchange Act, and the
rules and regulations thereunder.
 
                                       -7-
 
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     1.15 Noninsider Participant shall mean any person who is selected by the
          ----------------------
Committee to receive Options and/or Stock Appreciation Rights under the Plan who
is not an Insider Participant.
 
     1.16 Nonqualified Option shall mean any Option granted under this Plan
          -------------------
which is not, and which is not designated as, an Incentive Stock Option.
 
     1.17 Option shall mean the right of an Optionee selected pursuant to
          ------
Section 9.4 of the Plan, to purchase Common Stock in accordance with the
provisions of this Plan.
 
     1.18 Option Agreement shall mean the agreement evidencing the grant of an
          ----------------
Option entered into between the Optionee and the Company pursuant to Section 3.3
of the Plan.
 
     1.19 Optionee shall mean any Employee who satisfies the eligibility
          --------
requirements of Article 3 of the Plan and who is selected by the Committee to
receive an Option under the Plan.
 
     1.20 Option Price shall mean the price per share of Common Stock to be paid
          ------------
by an Optionee upon exercise of an Option, as stated in the Option Agreement.
 
     1.21 Plan shall mean the Hooper Holmes, Inc. 2002 Stock Option Plan and any
          ----
amendments thereto.
 
     1.22 Reload Option shall have the meaning ascribed to such term in Section
          -------------
5.9.
 
     1.23 Retirement shall mean a termination of employment, for reasons other
          ----------
than Total Disability or death, upon or following an Optionee's or Grantee's
attainment of age fifty-five (55) and completion of at least ten (10) years of
service with the Company, or at such earlier time as the Committee may
determine.
 
     1.24 Rule 16b-3 shall mean Rule 16b-3 of the General Rules and Regulations
          ----------
under the Exchange Act or any successor rule or regulation thereto, as amended
from time to time.
 
                                       -8-
 
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     1.25 Stock Appreciation Right shall mean a right to receive a payment from
          ------------------------
the Company, granted in the discretion of the Committee in accordance with
Article 6.
 
     1.26 Stock Appreciation Right Agreement shall mean the agreement evidencing
          ----------------------------------
the grant of a Stock Appreciation Right entered into between the Grantee and the
Company pursuant to Section 3.3 of the Plan.
 
     1.27 Subsidiary shall mean any subsidiary of the Company which meets the
          ----------
definition of a "subsidiary corporation" set forth in Section 424(f) of the
Code, at the time of granting of the Option or Stock Appreciation Right in
question.
 
     1.28 Total Disability shall mean the complete and permanent inability by
          ----------------
reason of illness or accident to perform the duties of the occupation at which
an Optionee or Grantee was employed by the Company when such disability
commenced. The Committee in its sole discretion shall determine based on the
aforementioned standard whether an Optionee or Grantee is totally disabled. All
determinations as to the date and extent of disability of any Optionee or
Grantee shall be made by the Committee, upon the basis of such evidence,
including independent medical reports and data, as the Committee deems necessary
and desirable, and all such determinations of the Committee shall be final.
Notwithstanding the foregoing, for purposes of Sections 5.7(a) and 5.10(d), the
inability shall also meet the definition of permanent and total disability set
forth in Section 22(e) of the Code.
 
                                   ARTICLE II
                                     PURPOSE
                                     -------
 
     2.1  Purpose. The purpose of this Plan is to reward key managers and
          -------
Employees for exerting their best efforts on behalf of the Company, to induce
such Employees to remain in the employ of the Company, to attract talented
individuals to join the Company, to motivate such
 
                                       -9-
 
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Employees to continue to exert their best efforts on behalf of the Company, and
to encourage such Employees to secure or increase on reasonable terms their
stock ownership in the Company through the grant of Options and Stock
Appreciation Rights. The Board believes the Plan will promote the continuity of
management and provide increased incentive and personal interest in the welfare
of the Company by those who are primarily responsible for shaping and carrying
out the long-range plans of the Company and securing its continued growth and
financial success.
 
     2.2  Effective Date. The Plan shall become effective as of the date of its
          ---------------
adoption by the Board, provided that, with respect to Incentive Stock Options,
the Plan is approved by the stockholders of the Company within twelve (12)
months after the date of such adoption. No Option or Stock Appreciation Right
shall be granted after the expiration of ten (10) years from the date the Plan
was adopted by the Board.
 
                                   ARTICLE III
                                   ELIGIBILITY
                                   -----------
 
     3.1  Persons Eligible. An Option and/or Stock Appreciation Right may be
          ----------------
granted under the Plan by the Committee in its sole discretion only to a present
or future key manager or Employee of the Company. The Committee shall determine,
in its sole discretion, who is a key manager or Employee and its decision shall
be final, binding and conclusive on all parties.
 
     3.2  Notice. Within thirty (30) days from the date of the decision by the
          ------
Committee to grant an Option and/or Stock Appreciation Right to an Employee
pursuant to Section 9.4 of the Plan, the Committee shall provide such individual
with written notice of such decision.
 
     3.3  Grant Contingent Upon Written Agreement. An Employee shall be granted
          ---------------------------------------
the Option and/or Stock Appreciation Right only if he enters into an Option
Agreement or Stock Appreciation Right Agreement with the Company within thirty
(30) days after the date upon
 
                                      -10-
 
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which he receives the notice required by Section 3.2 of the Plan. The Option
Agreement or Stock Appreciation Right Agreement shall provide that an Employee
must remain in the employment of the Company for a period of at least
twenty-four (24) months from the date on which the Option and/or Stock
Appreciation Right is granted under the Plan (the "Employment Period"), or until
his earlier Retirement or Total Disability, and at such compensation as the
Company shall reasonably determine from time to time. Unless the Option
Agreement or Stock Appreciation Right Agreement provides otherwise, the Option
and/or Stock Appreciation Right shall not be exercisable prior to the completion
of the Employment Period. An Option Agreement shall specify whether the Option
is a Nonqualified Option or an Incentive Stock Option and shall also contain the
terms and conditions set forth in Article 5 of the Plan. A Stock Appreciation
Right Agreement shall specify whether the Stock Appreciation Right is related to
the exercise of an Option (such that the exercise of one automatically cancels
the right to exercise all or a portion of the other) or is granted independently
of any Option (such that the exercise of one does not cancel the right to
exercise all or a portion of the other) and shall also contain the terms and
conditions set forth in Article 6 of the Plan.
 
                                   ARTICLE IV
                        COMMON STOCK COVERED BY THE PLAN
                        --------------------------------
 
     4.1  Maximum Number of Shares. The maximum number of shares of Common Stock
          ------------------------
that may be the subject of Options and Stock Appreciation Rights granted under
this Plan is Three Million (3,000,000) shares, subject to the adjustments
provided in Section 4.3 of the Plan.
 
     4.2  Source of Shares. Shares of authorized but unissued Common Stock,
          ----------------
issued Common Stock held in the treasury of the Company, or issued Common Stock
purchased on the open market by the Company (at such time or times and in such
manner as the Company may
 
                                      -11-
 
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determine) will be reserved, as determined by the Board, for issue upon the
exercise of the Options and Stock Appreciation Rights granted under this Plan
subject to Section 4.3 of the Plan. If any Option or Stock Appreciation Right
granted under the Plan shall be forfeited, canceled or surrendered, shall
terminate or expire, or shall be settled in cash in lieu of Common Stock without
having been exercised in full, the shares of Common Stock subject to such
forfeited, canceled, surrendered, terminated, expired, or settled Option or
Stock Appreciation Right may again be the subject of new Options or Stock
Appreciation Rights granted hereunder.
 
     4.3  Adjustment to Number of Shares. In the event (a) any stock dividend,
          ------------------------------
stock split, reverse stock split, reclassification, recapitalization,
reorganization, merger, consolidation, split-up, combination, exchange of
shares, or change in corporate structure results in any change in the Common
Stock; or (b) any other similar event affects the Common Stock, the number and
kind of shares which thereafter may be subject to an Option or Stock
Appreciation Right granted under the Plan and the number and kind of shares
subject to outstanding Option Agreements and Stock Appreciation Right Agreements
and the Option Price per share of such shares shall be proportionately adjusted
by the Committee to prevent substantial dilution or enlargement of the rights
granted to, or available for, Optionees and Grantees in the Plan.
 
                                    ARTICLE V
                         TERMS AND CONDITIONS OF OPTIONS
                         -------------------------------
 
          Each Option granted under the Plan shall be subject to the following
express terms and conditions and to such other terms and conditions as the
Committee may deem appropriate as evidenced in the Option Agreement.
 
                                      -12-
 
<PAGE>
 
     5.1  Option Price.
          ------------
 
              (a)  Incentive Stock Options. The Option Price per share of Common
                   -----------------------
Stock subject to an Incentive Stock Option shall be no less than one hundred
percent (100%) of the Fair Market Value of a share of Common Stock on the date
such Incentive Stock Option is granted, except as provided in Section 5.10(c)
below.
 
              (b)  Nonqualified Options. The Option Price per share of Common
                   --------------------
Stock subject to a Nonqualified Option shall be no less than one hundred percent
(100%) of the Fair Market Value of the Common Stock on the date such
Nonqualified Option is granted.
 
     5.2  Date of Option Grant. An Option shall be deemed to be granted on the
          --------------------
date the Committee acts to grant the Option provided that the Optionee enters
into an Option Agreement within the period specified in Section 3.3.
 
     5.3  Exercise of Option. The Committee, in its sole discretion, may provide
          ------------------
in the Option Agreement that an entire Option or any portion of an Option may be
exercised prior to completion of the Employment Period, and/or thereafter, only
on or following such date or dates specified in the Option Agreement. An Option
shall be exercised in whole or in part by (a) written notice to the Committee
addressed to the Company's Secretary of the intent to exercise the Option with
respect to a specified number of shares of Common Stock and (b) payment for such
shares as specified in Section 5.8 of the Plan.
 
     5.4  Sales of Stock Underlying Options. Notwithstanding anything in the
          ---------------------------------
Plan to the contrary, except in the case of sales by an executor or
administrator of the estate of a deceased Insider Participant, shares of Common
Stock acquired through the exercise of an Option granted hereunder to an Insider
Participant may not be disposed of until a date at least six months after
 
                                      -13-
 
<PAGE>
 
the date of the grant of such Option as specified in the Option Agreement,
unless such disposition would not otherwise result in liability under Section
16(b) of the Exchange Act.
 
     5.5  Option Period. Each Option Agreement shall specify the period during
          -------------
which the Option may be exercised and shall provide that the Option shall expire
at the end of such period. The Committee may, in its sole discretion, extend
such period. However, in no event shall such period, including any extensions,
exceed ten years from the date of grant. Subject to Section 5.7 of the Plan, the
Option may be exercised by the Optionee only while he remains employed by the
Company.
 
     5.6  Accelerated Vesting in the Event of Death, Disability, Retirement,
          ------------------------------------------------------------------
Change in Control or Other Transactions.
---------------------------------------
 
          (a)  Unless specifically stated otherwise in the Option Agreement, an
Option granted under this Plan that is not fully vested and exercisable as of
the date the Optionee terminates his employment with the Company because of his
death, Total Disability, or Retirement shall become vested and exercisable in
full on such date.
 
          (b)  Unless specifically stated otherwise in the Option Agreement, all
outstanding Options will become fully vested and exercisable immediately prior
to or concurrent with an actual or threatened change in control of the Company
as defined in subsections (1) and (2) below.
 
                  (1) Change in Control. A "change in control of the Company" is
                      -----------------
defined as a change in control of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act, whether or not the Company in fact is required to comply with
Regulation 14A thereunder; provided that, without limitation, such a change in
control shall be deemed to have occurred:
 
                                      -14-
 
<PAGE>
 
          (i)    if any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), is or becomes, after the Effective Date, the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing twenty percent (20%) or
more of the combined voting power of the Company's then outstanding securities,
 
          (ii)   if, during any period of twenty-four consecutive months during
the term of an Option or Stock Appreciation Right, individuals who at the
beginning of such period constituted the Board cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by the Company's stockholders, of each director who was not a
director at the date of grant has been approved in advance by directors
representing at least two-thirds of the directors then in office who were
directors at the beginning of the period,
 
          (iii)  upon the first purchase of the Company's Common Stock pursuant
to a tender or exchange offer (other than a tender or exchange offer made by the
Company), or
 
          (iv)   upon a complete liquidation or dissolution of the Company.
 
                    (2) Threatened Change in Control. A "threatened change in
                        ----------------------------
control of the Company" is defined as any set of circumstances which in the
opinion of the Board, as expressed through a resolution, poses a real,
substantial and immediate possibility of leading to a change in control of the
Company as defined in clause (1) above.
 
          (c)  If, in connection with any merger, consolidation, sale or
transfer by the Company of substantially all its assets, any Option or Stock
Appreciation Right is not to be assumed by the surviving corporation or the
purchaser, then the Committee, in its sole discretion, may accelerate the date
of termination of such Option or Stock Appreciation Right, and the date on which
such Option or Stock Appreciation Right or any portion of such Option or Stock
 
                                      -15-
 
<PAGE>
 
Appreciation Right, not then exercisable, may be exercised. However, such dates
shall be not more than fifteen days prior to such merger, consolidation, sale or
transfer.
 
     5.7  Exercise in the Event of Death, Disability, Retirement, or Termination
          ----------------------------------------------------------------------
of Employment.
-------------
 
             (a)  Death, Disability and Retirement. If an Optionee dies (i)
                  --------------------------------
while an Employee of the Company or (ii) within three months after termination
of his employment with the Company because of a Total Disability, his Options
may be exercised by his Beneficiary at any time, or from time to time, but not
later than the expiration date specified in the Option Agreement in accordance
with Section 5.5 of the Plan. If an Optionee's employment with the Company
terminates due to Total Disability and such Optionee has not died within three
months following the Optionee's termination of employment, the Optionee may
exercise his Options at any time, or from time to time, but not later than the
expiration date specified in the Option Agreement in accordance with Section 5.5
of the Plan or twelve months after termination of employment, whichever is
earlier. If an Optionee's employment terminates by reason of his Retirement, all
rights to exercise his Options shall terminate no later than the expiration date
specified in the Option Agreement in accordance with Section 5.5 of the Plan or
twelve months after termination of employment or on such other date determined
by the Committee, whichever is earlier.
 
             (b)  Termination of Employment. If an Optionee's employment
                  -------------------------
terminates voluntarily or involuntarily for any reason other than death, Total
Disability or Retirement, all rights to exercise his Options shall terminate no
later than the expiration date specified in the Option Agreement in accordance
with Section 5.5 of the Plan or thirty days from the date of such termination of
employment, or on such other date determined by the Committee, whichever is
 
                                      -16-
 
<PAGE>
 
earlier, unless the Committee decides that such Option shall terminate on the
date of such termination of employment.
 
     5.8  Payment of Option Price. Each Option Agreement shall provide that the
          -----------------------
Option Price of the shares subject to an Option shall be paid to the Company at
the time of exercise either in cash or in such other consideration as the
Committee deems appropriate, including, but not limited to, (a) Common Stock
already owned by the Optionee having a total Fair Market Value equal to the
Option Price, or (b) a combination of cash and Common Stock having a total Fair
Market Value equal to the Option Price.
 
     5.9  Reload Options. The Committee, in its sole discretion, may provide in
          --------------
the Option Agreement for the automatic award of a new Option (a "Reload Option")
in the event an Optionee exercises his original Option, in whole or in part, by
surrendering previously acquired shares of Common Stock or a portion of the
shares being acquired upon exercise of the Option. Any such Reload Option shall
be for a number of shares of Common Stock equal to the number of surrendered
shares, shall become exercisable only in the event the shares purchased with the
original Option are held for a minimum period of time established by the
Committee and set forth in the Option Agreement, and shall be subject to such
other terms and conditions as provided in this Section 5.9 and as the Committee
may otherwise determine. The Option Price of a Reload Option shall be no less
than the Fair Market Value on the date of grant of the Reload Option. If the
shares of Common Stock which are issued upon exercise of the original Option are
sold prior to the expiration of the minimum period established by the Committee,
then the Reload Option shall immediately terminate and the Optionee shall have
no further rights with respect to that Reload Option. The Option Agreement shall
state whether any Reload Options
 
                                      -17-
 
<PAGE>
 
that may be issued under such Option Agreement shall be Incentive Stock Options
or Nonqualified Options.
 
     5.10 Additional Terms Applicable to Incentive Stock Options. All Options
          ------------------------------------------------------
issued under the Plan as Incentive Stock Options will be subject, in addition to
the terms detailed in Sections 5.1-5.9 above, to those contained in this Section
5.10.
 
          (a)  Special Limitation on Incentive Stock Option Grants.
               ---------------------------------------------------
Notwithstanding any contrary provisions contained elsewhere in this Plan, the
aggregate Fair Market Value, determined as of the time an Incentive Stock Option
is granted, of the Common Stock (and stock of a Subsidiary) with respect to
which Incentive Stock Options granted under this Plan and stock Options that
satisfy the requirements of Section 422 of the Code granted under any other
stock option plan or plans maintained by the Company (or any Subsidiary) are
exercisable for the first time by an Optionee during any calendar year shall not
exceed $100,000 for such year. The foregoing limitation shall not take into
account stock Options which, by their terms, provide that they shall not be
treated as Incentive Stock Options.
 
          (b)  Special Limitation on Incentive Stock Option Treatment.
               ------------------------------------------------------
 
                  (1) In General. To the extent that, as a result of the rules
                      ----------
described in Section 5.6 or otherwise, the aggregate Fair Market Value of Common
Stock with respect to which Incentive Stock Options granted to an Optionee are
exercisable for the first time during any calendar year exceeds $100,000, such
Options shall not be treated as Incentive Stock Options or otherwise as stock
Options which satisfy the requirements of Section 422 of the Code.
 
                  (2) Ordering Rule. Clause (1) shall be applied by taking
                      -------------
Incentive Stock Options into account in the order that they were granted.
 
                                      -18-
 
<PAGE>
 
               (3)  Allocation Rule. To the extent that the Fair Market Value of
                    ---------------
Common Stock for which the Optionee has been granted an Incentive Stock Option
causes the aggregate Fair Market Value of all Common Stock with respect to which
the Optionee has been granted Incentive Stock Options exercisable for the first
time during any calendar year to exceed $100,000, such Option shall be treated
as not qualifying as an Incentive Stock Option, and, unless the Company
designates which Common Stock acquired by such Option is to be treated as stock
acquired pursuant to the exercise of an Incentive Stock Option by issuing a
separate certificate (or certificates) for such stock and identifying such
certificate (or certificates) as Incentive Stock Option stock in its stock
transfer records, an equal proportion of each share of Common Stock acquired
pursuant to such Option shall be treated as if acquired pursuant to the exercise
of an Option that does not satisfy the requirements of Section 422 of the Code.
 
               (4)  Special Definitions. For purposes of this subsection (b),
                    -------------------
Stock Options granted to an Optionee under any other stock option plan or plans
maintained by the Company (or any subsidiary) that satisfy the requirements of
Section 422 of the Code shall be included within the term Incentive Stock
Options, stock of a Subsidiary shall be included within the term Common Stock,
and Options which, by their terms, provide that they shall not be treated as
Incentive Stock Options shall not be taken into account.
 
               (c)  Limits on Ten Percent Shareholders. The Option Price at
                    ----------------------------------
which shares of Common Stock may be purchased upon exercise of an Incentive
Stock Option granted to an individual who, at the time such Incentive Stock
Option is granted, owns, directly or indirectly, more than ten percent (10%) of
the total combined voting power of all classes of stock issued to shareholders
of the Company or any Subsidiary, shall be no less than one hundred and ten
percent (110%) of the Fair Market Value of a share of the Common Stock of the
Company at the
 
                                      -19-
 
<PAGE>
 
time of grant, and such Incentive Stock Option shall by its terms not be
exercisable after the earlier of the date determined under Section 5.5 or the
expiration of five (5) years from the date such Incentive Stock Option is
granted.
 
          (d) Federal Income Tax Treatment. A share of Common Stock transferred
              ----------------------------
to an Optionee pursuant to his exercise of an Incentive Stock Option shall not
be treated as a share transferred pursuant to the exercise of an Incentive Stock
Option for federal income tax purposes unless (i) no disposition of such share
is made by the Optionee within two (2) years from the date of the granting of
the Incentive Stock Option nor within one (1) year after the transfer of such
share to the Optionee, and (ii) at all times during the period beginning on the
date of the granting of the Incentive Stock Option and ending on the day three
(3) months before the date of exercise of the Incentive Stock Option, the
Optionee was an employee of either the Company, a parent of the Company or any
Subsidiary. The employment requirement of Section 5.10(d)(ii) shall be waived if
the Optionee's employment ceases as a result of death and the three month
employment requirement of Section 5.10(d)(ii) shall be expanded to twelve (12)
months if the Optionee's employment ceases as a result of a Total Disability.
Section 5.10(d)(i) shall not apply to an Incentive Stock Option exercised after
the death of the Optionee.
 
          (e) Notice of Disposition; Withholding; Escrow. An Optionee shall
              ------------------------------------------
immediately notify the Company in writing of any sale, transfer, assignment or
other disposition (or action constituting a disqualifying disposition within the
meaning of Section 421 of the Code) of any shares of Common Stock acquired
through exercise of an Incentive Stock Option, within two (2) years after the
grant of such Incentive Stock Option or within one (1) year after the
acquisition of such shares, setting forth the date and manner of disposition,
the number of shares disposed of, and the price at which such shares were
disposed of. The Company or any Subsidiary shall be
 
                                      -20-
 
<PAGE>
 
entitled to withhold from any compensation or other payments then or thereafter
due to the Optionee such amounts as may be necessary to satisfy any withholding
requirements of federal or state law or regulation and, further, to collect from
the Optionee any additional amounts which may be required for such purpose. The
Committee may, in its discretion, require shares of Common Stock acquired by an
Optionee upon exercise of an Incentive Stock Option to be held in an escrow
arrangement for the purpose of enabling compliance with the provisions of this
Section 5.10(e).
 
                                   ARTICLE VI
                            STOCK APPRECIATION RIGHTS
                            -------------------------
 
     6.1 General. The Committee may grant Stock Appreciation Rights to any
         -------
individual who satisfies the eligibility requirements of Article 3 of the Plan.
The Committee may grant Stock Appreciation Rights that cover (a) the same shares
of Common Stock that are covered by an Option granted to an Optionee (or such
lesser number of shares of Common Stock as the Committee may determine in its
sole discretion), or (b) shares of Common Stock that are not covered by an
Option. Stock Appreciation Rights that are related to an Option granted under
the Plan (such that the exercise of one automatically cancels the right to
exercise all or a portion of the other) may be granted either at the time of the
grant of such Option or at any time thereafter during the term of the Option and
shall, except as provided in Section 6.3 hereof, be subject to the same terms
and conditions as the related Option and such further terms and conditions not
inconsistent with the Plan as shall from time to time be determined by the
Committee in its sole discretion. Any Stock Appreciation Right granted under the
Plan that is granted independently of any Option (such that the exercise of one
does not cancel the right to exercise all or a portion of the other) shall be
exercisable at such time and under such circumstances as set forth in the
 
                                      -21-
 
<PAGE>
 
grant of the Stock Appreciation Right but in no event shall any Stock
Appreciation Right be exercisable later than the 10th anniversary of the date of
its grant.
 
     6.2 Exercise and Payments.
         ---------------------
 
          (a) Each Stock Appreciation Right that is related to any Option shall
entitle the holder of the related Option to surrender to the Company unexercised
the related Option, or any portion thereof, and to receive from the Company in
exchange therefore an amount equal to the excess of the Fair Market Value of one
share of Common Stock on the date the Stock Appreciation Right is exercised over
the Option Price times the number of shares covered by the Option, or portion
thereof, which is surrendered.
 
          (b) Upon exercise in whole or in part of a Stock Appreciation Right
that is granted independently of any Option, the holder thereof shall be
entitled to receive from the Company an amount equal to the excess of the Fair
Market Value of one share of Common Stock on the date the Stock Appreciation
Right is exercised over the price per share stated in the grant of the Stock
Appreciation Right times the number of shares covered by the Stock Appreciation
Right, or portion thereof, which is exercised. The price per share stated in the
grant of the Stock Appreciation Right shall be no less than one hundred percent
(100%) of the Fair Market Value of the Common Stock on the date such Stock
Appreciation Right is granted.
 
          (c) The grant of a Stock Appreciation Right shall state whether
payment upon exercise shall be made solely in cash, in shares of Common Stock
valued at Fair Market Value as of the date the right is exercised, or partly in
shares and partly in cash, in the sole discretion of the Committee.
 
          (d) Subject to Sections 6.1, 6.2(c) and 6.3, Stock Appreciation Rights
may be exercised from time to time upon actual receipt by the Company of written
notice stating the
 
                                      -22-
 
<PAGE>
 
number of shares of Common Stock with respect to which the Stock Appreciation
Right is being exercised. The value of any fractional shares shall be paid in
cash.
 
     6.3 Restrictions.
         ------------
 
          (a) Subject to Sections 3.3, 6.1 and 6.2(c), each Stock Appreciation
Right shall be exercisable at such time or times that any Option to which it
relates shall be exercisable or at such other times as the Committee may
determine in the grant of the Stock Appreciation Right; provided, however,
unless specifically stated otherwise in the Stock Appreciation Right Agreement,
upon the occurrence of an actual or threatened change in control of the Company,
as defined in Section 5.6(b)(1) or (2) or in the event of the termination of the
Grantee's employment by the Company as a result of the Grantee's death, Total
Disability or Retirement, all Stock Appreciation Rights, to the extent not then
fully exercisable, shall become immediately exercisable in full.
 
          (b) The Committee in its sole discretion may approve or deny in whole
or in part a request to exercise a Stock Appreciation Right. Denial or approval
of such request shall not require a subsequent request to be similarly treated
by the Committee.
 
          (c) If an Optionee is granted a Stock Appreciation Right that is
related to an Option, the right of an Optionee to exercise the Stock
Appreciation Right shall be canceled if and to the extent the related Option is
exercised. To the extent that a Stock Appreciation Right is exercised, a related
Option shall be deemed to have been surrendered. The number of shares of Common
Stock as to which the related Option was forfeited shall not become available
for future use under the Plan.
 
                                      -23-
 
<PAGE>
 
          (d) A holder of a Stock Appreciation Right shall have none of the
rights of a stockholder unless and until shares of Common Stock are issued to
him pursuant to his exercise of such right.
 
          (e) Notwithstanding any other Plan provisions to the contrary, in the
event a Stock Appreciation Right is granted together with an Incentive Stock
Option such that the exercise of one affects the right to exercise the other,
the Stock Appreciation Right shall satisfy the following requirements:
 
              (1) the Stock Appreciation Right shall expire no later than the
related Incentive Stock Option;
 
              (2) the Stock Appreciation Right shall be exercisable for no more
than one hundred percent (100%) of the difference between the Option Price of
the related Incentive Stock Option and the Fair Market Value of the Common Stock
subject to the Incentive Stock Option at the time the Stock Appreciation Right
is exercised;
 
              (3) the Stock Appreciation Right shall be transferable only when
the related Incentive Stock Option is transferable, and under the same
conditions;
 
              (4) the Stock Appreciation Right may be exercised only when the
related Incentive Stock Option is eligible to be exercised; and
 
              (5) the Stock Appreciation Right may be exercised only when the
Fair Market Value of the Common Stock subject to the related Incentive Stock
Option exceeds the Option Price.
 
                                   ARTICLE VII
                                      LOANS
                                      -----
 
     7.1 Loans. The Board or Committee may cause the Company to give or arrange
         -----
for financial assistance, in accordance with Section 7.2 of the Plan, to an
Optionee or Beneficiary,
 
                                      -24-
 
<PAGE>
 
for the purpose of providing funds for the purchase of Common Stock pursuant to
the exercise of an Option granted under the Plan. Such a loan shall be made if,
in the judgment of the Board or the Committee, such assistance may reasonably be
expected to be in the best interests of the Company, shall be consistent with
the certificate of incorporation and bylaws of the Company and applicable laws,
and will permit the Common Stock to be fully paid and nonassessable when issued.
The Board or Committee may not grant funds pursuant to this Section 7.1 in
excess of ninety percent (90%) of the purchase price of the Common Stock. The
amount of the funds granted to the Optionee or Beneficiary shall be determined
in the Board's or the Committee's sole discretion.
 
     7.2 Promissory Note. Upon the grant of financial assistance to an Optionee
         ---------------
or Beneficiary pursuant to Section 7.1 of the Plan, the Optionee or Beneficiary
shall execute and deliver to the Company, or to any third party which the
Company may designate, a negotiable promissory note or notes for the amount of
such financial assistance. The note shall be payable to the Company or its
order, and payable in installments at such times and in such amounts as
determined by the Committee, with the term of such note not to exceed five (5)
years, and with interest on the unpaid balance at such rate as shall be fixed by
the Committee (but not less than the applicable federal rate, as defined in the
Code, compounded semiannually), payable with each installment. Upon delivery of
the note to the Company, the Common Stock certificates shall be issued and
delivered to the Optionee, or to his Beneficiary.
 
     7.3 Pledge. The shares of Common Stock purchased with the financial
         ------
assistance from the Company shall be pledged under an instrument or instruments
approved by the Committee, with the Company, or with any third party which the
Company may designate, as security until payment for such shares is made in full
or such shares are sold, canceled or forfeited upon
 
                                      -25-
 
<PAGE>
 
default. During the period of such pledge, the Optionee or Beneficiary shall
have all rights of ownership including, but not limited to, the right to vote
such shares and receive dividends thereon, subject to the security interest of
the pledgee.
 
                                  ARTICLE VIII
                                   DESIGNATION
                                   -----------
 
     8.1 Designation and Change of Designation. Each Optionee shall file with
         -------------------------------------
the Committee a written designation of one or more persons as the Beneficiary
who shall be entitled to receive the amount, if any, payable under the Plan upon
his death. An Optionee may, from time to time, revoke or change his Beneficiary
designation without the consent of any prior Beneficiary by filing a new
designation with the Committee. The last such designation received by the
Committee shall be controlling; provided, however, that no designation, or
change or revocation thereof, shall be effective unless received by the
Committee prior to the Optionee's death, and in no event shall it be effective
as of any date prior to such receipt. If the Optionee designates more than one
Beneficiary, any payments under the Plan to such Beneficiaries shall be made in
equal amounts unless the Optionee has expressly designated otherwise, in which
case the payments shall be made in the amounts designated by the Optionee.
 
     8.2 Absence Of Valid Designation. If no such Beneficiary designation is in
         ----------------------------
effect at the time of an Optionee's death, or if no designated Beneficiary
survives the Optionee, or if such designation conflicts with law, the Optionee's
estate shall be deemed to have been designated his Beneficiary and shall receive
the payment of the amount, if any, payable under the Plan upon his death. If the
Committee is in doubt as to the right of any person to receive such amount, the
Committee may retain such amount, without liability for any interest thereon,
until the rights thereto are determined, or the Committee may pay such amount
into any court of appropriate
 
                                      -26-
 
<PAGE>
 
jurisdiction and such payment shall be a complete discharge of the liability of
the Plan and the Company.
 
                                   ARTICLE IX
                           ADMINISTRATION OF THE PLAN
                           --------------------------
 
     9.1 Committee. The Plan shall be administered by the Committee consisting
         ---------
of at least the minimum number of members required in order for the Plan to
satisfy the requirements of Rule 16b-3 promulgated under the Exchange Act and
Section 162(m) of the Code. Each member of the Committee shall be both a
"non-employee director" within the meaning of Rule 16b-3 and an "outside
director" within the meaning of Section 162(m). Any vacancy occurring in the
membership of the Committee shall be filled by appointment by the Board.
 
     9.2 Powers of Committee. The Committee may interpret the Plan, prescribe,
         -------------------
amend, and rescind any rules and regulations necessary or appropriate for the
administration of the Plan, and make such other determinations under, and
interpretations of, the Plan, and take such other action, as it deems necessary
or advisable, and may exercise its discretion with respect to the powers and
rights granted to it as set forth in the Plan. Any interpretation, determination
or other action made or taken by the Committee shall be final, binding and
conclusive upon all parties.
 
     9.3 Action by Committee. A majority of the members of the Committee shall
         -------------------
constitute a quorum. All determinations of the Committee shall be made by a
majority of its members. Any decision or determination reduced to writing and
signed by all of the members shall be fully as effective as if it had been made
by a majority vote at a meeting duly called and held. The Committee shall also
have express authority to hold Committee meetings by means of conference
telephone or similar communications equipment by which all persons participating
in the meeting can hear each other.
 
                                      -27-
 
<PAGE>
 
     9.4 Grant of Option and/or Stock Appreciation Right. Subject to the
         -----------------------------------------------
Provisions of the Plan, and after consultation with the Chief Executive Officer
of the Company, the Committee shall (a) determine and designate from time to
time those Employees to whom Options and/or Stock Appreciation Rights are to be
granted; (b) authorize the grant of Nonqualified Options, Incentive Stock
Options, and/or Stock Appreciation Rights; (c) determine the number of shares
subject to each Option and/or Stock Appreciation Right; (d) determine the time
or times when and the manner in which each Option and Stock Appreciation Right
shall be exercisable and the duration of the exercise period, and (e) impose
such restrictions, terms and conditions upon such Options and Stock Appreciation
Rights as the Committee shall deem appropriate. In making these determinations,
the Committee may take into account the nature of the service rendered by
respective Employees, their present and potential contributions to the success
of the Company and such other factors as the Committee in its discretion shall
deem relevant.
 
         For purposes of accrual of an Optionee's rights under his or her
Options and/or Stock Appreciation Rights, any period not exceeding 90 days
during which an Optionee is on military leave of absence from the Company, or a
longer period if such Optionee's reemployment is guaranteed by contract, will be
treated as a period of employment of such Optionee. Unless an Optionee's
reemployment is guaranteed by contract, beginning with the 91st day, the
Committee shall have the discretion to treat all or any portion of any period in
excess of 90 days during which an Optionee is on military leave of absence as a
period of employment of such Optionee by the Company. The Committee may also, in
its discretion, treat all or any portion of any period during which an Optionee
is on an approved leave of absence from the Company as a period of employment of
such Optionee by the Company.
 
                                      -28-
 
<PAGE>
 
     9.5 Indemnification. Neither the Board nor the Committee, nor any current
         ---------------
or past member of either, shall be liable for any act, omission, interpretation,
construction or determination made in good faith in connection with the Plan (or
with any Option Agreement). Current and past members of the Board and the
Committee shall be indemnified and held harmless by the Company against and from
any and all loss, cost, liability or expense that may be imposed upon or
reasonably incurred by such member in connection with or resulting from any
claim, action, suit or proceeding to which such member may be or become a party
or in which such member may be or become involved by reason of any action taken
or not taken under the Plan and against and from any and all amounts paid by
such member in settlement thereof (with the Company's written approval) or paid
by such member in satisfaction of a judgment in any such action, suit or
proceeding, except a judgment in favor of the Company based upon a finding of
such member's lack of good faith. Indemnification pursuant to this provision is
subject to the condition that, upon the institution of any claim, action, suit
or proceeding against such member, such member shall in writing give the Company
an opportunity, at its own expense, to handle and defend the same before such
member undertakes to handle and defend it on such member's behalf. The foregoing
right of indemnification shall not be exclusive of any other right to which such
member may be entitled as matter of law or otherwise, or any power that the
Company may have to indemnify or hold such member harmless.
 
     9.6 Reliance. Each member of the Board and of the Committee, and each
         --------
officer and Employee of the Company, shall be fully justified in relying or
acting in good faith upon any information furnished in connection with the
administration of the Plan by any appropriate person or persons. In no event
shall any current or past member of the Board or Committee, or any officer or
Employee of the Company, be held liable for any determination made or other
 
                                      -29-
 
<PAGE>
 
action taken or not taken in reliance upon any such information, or for any
action (including the furnishing of information) taken or not taken, if in good
faith.
 
     9.7  Agents. In administering the Plan, the Committee may employ, with the
          ------
approval of the Chief Executive Officer of the Company, accountants and counsel
(who may be the independent auditors and outside counsel for the Company) and
other persons to assist or render advice to it, all at the expense of the
Company.
 
                                    ARTICLE X
                            AMENDMENT AND TERMINATION
                            -------------------------
 
     10.1 Amendment. The Committee from time to time and without further
          ---------
approval of the stockholders, may amend the Plan in such respects as the
Committee may deem advisable; provided, however, that no amendment shall become
effective without prior approval of the stockholders which would (a) materially
increase the number of securities which may be issued under the Plan to Insider
Participants or (b) materially modify the requirements as to eligibility for
participation in the Plan to add a class of Insider Participants; provided,
further, that any increase in the number of shares available under the Plan for
grant as Incentive Stock Options and any change in the designation of the group
of employees eligible to receive Incentive Stock Options under the Plan shall be
subject to shareholder approval in accordance with Section 422 of the Code. No
amendment shall, without the Optionee's or Grantee's (or Beneficiary's) consent,
alter or impair any of the rights or obligations under any Option or Stock
Appreciation Right, previously granted to him under the Plan.
 
     10.2 Option Agreement Modifications. The Committee may, in its sole
          ------------------------------
discretion, amend or modify at any time and from time to time the restrictions,
terms and conditions of any outstanding Option or Stock Appreciation Right in
any manner to the extent that the Committee
 
                                      -30-
 
<PAGE>
 
under the Plan or any Option Agreement could have initially established the
restrictions, terms and conditions of such Option or Stock Appreciation Right.
No such amendment or modification shall, however, materially and adversely
affect the rights of any Optionee or Grantee without the consent of such
Optionee or Grantee. Notwithstanding anything to the contrary in this Section
10.2, no Option may be repriced, replaced, regranted through cancellation, or
modified without shareholder approval (except in connection with a change in the
capital structure of the Company) if the effect would be to reduce the exercise
price for the shares underlying such Option.
 
     10.3 Termination. The Board, without further approval of the stockholders,
          -----------
may terminate the Plan at any time, but no termination shall, without the
Optionee's or Grantee's (or Beneficiary's) consent, alter or impair any of the
rights under any Option or Stock Appreciation Right, previously granted to him
under the Plan.
 
                                   ARTICLE XI
                            MISCELLANEOUS PROVISIONS
                            ------------------------
 
     11.1 No Rights as Shareholder. No Optionee, Grantee, or Beneficiary shall
          ------------------------
have any rights as a shareholder with respect to any shares of Common Stock
subject to his Option or Stock Appreciation Right, prior to the date of issuance
to him of a certificate or certificates for such shares.
 
     11.2 No Rights to Continued Employment. The Plan and any Option or Stock
          ---------------------------------
Appreciation Right granted under the Plan shall not (a) confer upon any Optionee
or Grantee any right with respect to continued employment by the Company, (b)
interfere in any way with the right of the Company, or the right of the
Optionee, to terminate the employment of the Optionee
 
                                      -31-
 
<PAGE>
 
or Grantee at any time, or (c) be evidence of any agreement or understanding,
express or implied, that the Company will employ any person at any particular
rate of compensation or for any particular period of time.
 
     11.3 Compliance with Other Laws and Regulations. The Plan, the grant and
          ------------------------------------------
exercise of Options or Stock Appreciation Rights hereunder, and the obligation
of the Company to sell and deliver shares of Common Stock hereunder, shall be
subject to all applicable federal and state laws, rules, and regulations and to
such approvals as may be required by any government or regulatory agency. The
Company shall not be required to grant any Option or Stock Appreciation Right,
make any payment or issue or deliver any certificates for shares of Common Stock
hereunder prior to (a) the obtaining of any approval or ruling from the
Securities and Exchange Commission, the Internal Revenue Service or any other
governmental agency which the Company, in its sole discretion, shall determine
to be necessary or advisable, (b) the listing of such shares on any stock
exchange on which the Common Stock may then be listed, and (c) the completion of
any registration or qualification of such shares under any federal or state law,
or any rule or regulation of any government body which the Company shall, in its
sole discretion, determine to be necessary or advisable. In making such a
determination, the Committee shall rely upon an opinion of counsel for the
Company.
 
     11.4 Payments to Person Other Than Employee. If the Committee shall find
          --------------------------------------
that any person to whom any amount is payable under the Plan is unable to care
for his affairs because of illness or accident, or because he is a minor, then
any payment due him (unless a prior claim therefor has been made by a duly
appointed legal representative), may, if the Committee so directs the Company,
be paid to his spouse, a child, a relative, an institution maintaining or having
custody of such person, or any other person deemed by the Committee to be a
proper
 
                                      -32-
 
<PAGE>
 
recipient on behalf of such person otherwise entitled to payment. Any such
payment shall be a complete discharge of the liability of the Committee and the
Company therefor.
 
     11.5 Use of Proceeds. Proceeds from the sale of Common Stock under this
          ---------------
Plan shall be added to the general funds of the Company.
 
     11.6 No Right to Options and Stock Appreciation Rights. The adoption of
          -------------------------------------------------
this Plan shall not be deemed to give any Employee any right to be granted an
Option or Stock Appreciation Right, except to the extent and upon such terms and
conditions as may be determined by the Committee in its sole discretion.
 
     11.7 Withholding. The Company shall not issue or transfer shares of Common
          -----------
Stock to an Optionee, Grantee, or Beneficiary upon the exercise of an Option or
Stock Appreciation Right until the Optionee, Grantee, or Beneficiary pays the
Company, either in cash, or in such other consideration as the Committee deems
appropriate, the amount necessary to satisfy the Company's obligation to
withhold federal, state or local income or other taxes incurred with respect to
the exercise of such Option or Stock Appreciation Right. Such other
consideration may include, but not limited to, (a) Common Stock already owned by
the Optionee, Grantee or Beneficiary or (b) a combination of cash and Common
Stock. The Company shall determine the amount of such withholding liability and
its decision shall be final, binding and conclusive upon the parties. The
Company shall be entitled to withhold from any compensation or other payments
then or thereafter due to an Employee such amounts as may be necessary to
satisfy any tax withholding requirements.
 
     11.8 Nontransferability. Options and Stock Appreciation Rights granted
          ------------------
under the Plan shall not be assigned, sold, transferred, exchanged, encumbered,
pledged or otherwise hypothecated or disposed of other than by will or by the
laws of descent and distribution;
 
provided, however, that the designation of a Beneficiary pursuant to Article 8
shall not constitute a transfer. No such Options or Stock Appreciation Rights
shall be subject to execution, attachment or similar legal process, including,
without limitation, seizure for the payment of an Optionee's or Grantee's debts,
judgments, alimony, or separate maintenance. Any attempt to sell, exchange,
transfer, assign, pledge, encumber or otherwise dispose of or hypothecate in any
way any such Options or Stock Appreciation Rights or the levy of any execution,
attachment or similar legal process thereon, contrary to the terms of this Plan,
shall be null and void and without legal force or effect. During the lifetime of
the Optionee or Grantee, an Option or Stock Appreciation Right shall be
exercisable only by such Optionee or Grantee.
 
     11.9 Investment Representation. Each Option Agreement and Stock
          -------------------------
Appreciation Right Agreement shall provide that, upon demand by the Committee,
the Optionee or Grantee (or his Beneficiary) shall deliver to the Committee at
the time an Option or Stock Appreciation Right, or any portion of an Option or
Stock Appreciation Right, is exercised, a written representation that the shares
of Common Stock to be acquired upon such exercise are to be acquired for
investment and not with a view to the distribution thereof and/or that the
Optionee or Grantee will comply with such restrictions as may be necessary to
satisfy the requirements of the federal or state securities laws. Delivery of
the representation required by this section shall be a condition precedent to
the right of the Optionee, Grantee, or Beneficiary to purchase any shares of
Common Stock under this Plan.
 
     11.10 No Right, Title, or Interest in Company's Assets. An Optionee or
           ------------------------------------------------
Grantee shall have no right, title, or interest whatsoever in or to any
investments which the Company may make to aid it in meeting its obligations
under the Plan. Nothing contained in the Plan, and no action taken pursuant to
its provisions, shall create or be construed to create a trust of any kind,
 
 
or a fiduciary relationship between the Company and any Optionee, Grantee, or
any other person. To the extent that any person acquires a right to receive
payments from the Company under this Plan, such right shall be no greater than
the right of an unsecured general creditor of the Company. All payments to be
made hereunder shall be paid from the general funds of the Company and no
special or separate fund shall be established and no segregation of assets shall
be made to assure payment of such amounts.
 
     11.11 Headings. Any headings preceding the text of the articles and
           --------
sections of this Plan are inserted for convenience of reference only, and shall
neither constitute a part of this Plan nor affect its meaning, construction, or
effect.
 
     11.12 Governing Law. All rights under this Plan shall be governed by and
           -------------
construed in accordance with the laws of New York without regard to the
principles of conflict of laws thereof.
 
     11.13 Pronouns. The use of the masculine gender shall be extended to
           --------
include the feminine gender wherever appropriate.