SHARPER IMAGE CORPORATION
                                STOCK OPTION PLAN
 
              (As amended and restated through September 25, 1998)
 
 
        I.      PURPOSE OF THE PLAN
 
                This Sharper Image Corporation Stock Option Plan, as amended and
restated (the "Plan") is intended to promote the interests of the Sharper Image
Corporation (the "Company") by providing eligible individuals, who are
responsible for the management, growth and financial success of the Company or
its parent or subsidiary corporations or who otherwise render valuable services
to the Company or its parent or subsidiary corporations, with the opportunity to
acquire a proprietary interest, or increase their proprietary interest, in the
Company and thereby provide them with an incentive to remain in the service of
the Company or its parent or subsidiary corporations.
 
                For purposes of the Plan, the following provisions shall be
applicable in determining the parent and subsidiary corporations of the Company:
 
                A.      Any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company shall be considered to be a PARENT
corporation of the Company, provided each such corporation in the unbroken chain
(other than the Company) owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
 
                B.      Each corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company shall be considered to be a
SUBSIDIARY of the Company, provided each such corporation (other than the last
corporation) in the unbroken chain owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
 
        II.     ADMINISTRATION OF THE PLAN
 
                A.      The Plan shall be administered by one or more committees
comprised of members of the Company's Board of Directors (the "Board"). The
primary committee (the "Primary Committee") shall be comprised of two (2) or
more Board members and shall have sole and exclusive authority to grant stock
options and stock appreciation rights to officers of the Company subject to the
short-swing profit restrictions of the Federal securities laws. Stock options
may be granted to all other eligible employees and consultants by either the
Primary Committee or a secondary committee comprised of two (2) or more Board
members (the "Secondary Committee"). The members of the Primary Committee and
the Secondary Committee shall each serve for such period of time as the Board
may determine and shall be subject to removal by the Board at any time.
 
                B.      No Board member shall be eligible to serve on the
Primary Committee if such individual has, within the twelve (12)-month period
immediately preceding the date he or 
 
 
 
<PAGE>   39
 
she is to be appointed to such Committee, received any option grant or stock
appreciation right under this Plan or any other stock plan of the Company (or
any parent or subsidiary corporation), except that non-employee Board members
may receive automatic option grants under the Company's 1994 Non-Employee
Director Stock Option Plan.
 
                C.      Subject to the limited authority provided the Secondary
Committee to effect option grants in accordance with the provisions of
subsection A of this Section II, the Primary Committee shall serve as the Plan
Administrator and shall have full power and authority (subject to the express
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for the proper administration of the Plan and to make such
determinations under the Plan and any outstanding option as it may deem
necessary or advisable. Decisions of the Plan Administrator shall be final and
binding on all parties with an interest in the Plan or any option outstanding
thereunder.
 
        III.    ELIGIBILITY FOR OPTION GRANTS
 
                The persons eligible to receive option grants under the Plan
("Optionee") are as follows:
 
                        (i)     key employees (including officers) of the
        Company (or its parent or subsidiary corporations) who are responsible
        for the management, growth and financial success of the Company (or its
        parent or subsidiary corporations); and
 
                        (ii)    those consultants who provide valuable services
        to the Company (or its parent or subsidiary corporations).
 
                The Plan Administrator shall have full authority to determine
which eligible individuals are to receive option grants under the Plan, the
number of shares to be covered by each such grant, whether the granted option is
to be an incentive stock option ("Incentive Option") which satisfies the
requirements of Section 422 of the Internal Revenue Code or a non-statutory
option not intended to meet such requirements, the time or times at which each
such option is to become exercisable, and the maximum term for which the option
is to remain outstanding.
 
        IV.     STOCK SUBJECT TO THE PLAN
 
                A.      The stock issuable under the Plan shall consist of
shares of the Company's authorized but unissued or reacquired common stock
("Common Stock"). The maximum number of issuable shares shall not exceed
3,155,000(1), subject to adjustment as provided in subsection C. In no event,
however, shall any one participant in the Plan be granted stock options or
separately exercisable stock appreciation rights for more than 300,000 shares in
any fiscal year, starting with the fiscal year beginning February 1, 1994,
except that for the fiscal year in which an individual receives his or her
initial stock option grant under the Option Plan, 
 
- --------
 
        (1) This figure includes a 750,000-share increase approved by the Board
on September 25, 1998 and is subject to shareholder approval at the 1999 Annual
Stockholders Meeting.
 
 
 
                                       2.
<PAGE>   40
 
the limit will be increased to 400,000 shares. Such share limitation shall also
be subject to adjustment as provided in subsection C.
 
                B.      Shares of Common Stock subject to the unexercised
portion of any outstanding options under the Plan which expire or terminate
prior to exercise in full or which are otherwise cancelled in accordance with
the cancellation-regrant provisions of Section VIII shall be available for
subsequent option grants under the Plan. Shares subject to any option cancelled
or surrendered in accordance with the provisions of Section VII or Section X
shall not be available for subsequent option grants under the Plan. Shares
issued under the Plan, whether or not such shares are subsequently repurchased
by the Company, shall reduce on a share-for-share basis the number of shares of
Common Stock available for subsequent option grants under the Plan. In addition,
should the option price of an outstanding option under the Plan be paid with
shares of Common Stock, then the number of shares of Common Stock available for
issuance under the Plan shall be reduced by the gross number of shares for which
the option is exercised, and not by the net number of shares of Common Stock
actually issued to the option holder.
 
                C.      In the event any change is made to the Common Stock
issuable under the Plan by reason of any stock dividend, stock split,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without receipt of consideration, then
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which stock options and separately exercisable stock appreciation
rights may be granted per participant in any fiscal year and (iii) the aggregate
number and/or class of securities and the option price per share in effect under
each outstanding option in order to prevent the dilution or enlargement of
benefits thereunder. The adjustments determined by the Plan Administrator shall
be final, binding and conclusive.
 
                D.      Shares of Common Stock issuable upon exercise of an
option granted under the Plan may be subject to such restrictions on transfer or
other restrictions as may be determined by the Plan Administrator.
 
        V.      TERMS AND CONDITIONS OF OPTIONS
 
                Options granted pursuant to the Plan shall be authorized by
action of the Plan Administrator and may, at the Plan Administrator's
discretion, be either Incentive Options or non--statutory options. Individuals
who are not Employees (as defined in subsection C.2 below) may only be granted
non-statutory options. Each option grant shall be evidenced by one or more
instruments in the form approved by the Plan Administrator; provided, however,
that each such instrument shall comply with the terms and conditions specified
in this Section V and in Section VII. Each instrument evidencing an Incentive
Option shall, in addition, be subject to the applicable provisions of Section
VI.
 
                A.      Option Price.
 
                        1.      The option price per share shall be fixed by the
Plan Administrator. In no event, however, shall the option price per share be
less than one hundred percent (100%) of 
 
 
 
 
                                       3.
<PAGE>   41
 
the Fair Market Value of a share of Common Stock on the date of the option
grant, subject to Sections VI.A and VI.D.
 
                        2.      The option price shall become immediately due
upon exercise of the option and shall, subject to the provisions of Section XI
and the documents evidencing the option grant, be payable in one of the
following alternative forms (as determined by the Plan Administrator):
 
                        (A)     in cash or check made payable to the Company's
        order; or
 
                        (B)     in shares of Common Stock of the Company held by
        the Optionee for the requisite period necessary to avoid a charge to the
        Company's earnings for financial reporting purposes and valued at Fair
        Market Value on the date the option is exercised; or
 
                        (C)     through a broker-dealer sale and remittance
        procedure pursuant to which the Optionee shall provide irrevocable
        written instructions (I) to a Company-designated brokerage firm to
        effect the immediate sale of the purchased shares and remit to the
        Company, out of the sale proceeds available on the settlement date,
        sufficient funds to cover the aggregate option price payable for the
        purchased shares plus all applicable Federal and state income and
        employment taxes required to be withheld by the Company by reason of
        such purchase and (II) to the Company to deliver the certificates for
        the purchased shares directly to such brokerage firm in order to effect
        the sale transaction.
 
                Except to the extent such sale and remittance procedure is
utilized, payment of the option price must occur at the time the option is
exercised.
 
                        3. The Fair Market Value of a share of Common Stock on
any relevant date under the Plan shall be determined in accordance with the
following provisions:
 
                        (A)     If the Common Stock is not at the time listed or
        admitted to trading on any stock exchange but is traded on the Nasdaq
        National Market, the Fair Market Value shall be the closing selling
        price per share of Common Stock on the date in question, as such price
        is reported on the Nasdaq National Market or any successor system. If
        there is no reported closing selling price for the Common Stock on the
        date in question, then the closing selling price on the last preceding
        date for which such quotation exists shall be determinative of Fair
        Market Value.
 
                        (B)     If the Common Stock is at the time listed or
        admitted to trading on any stock exchange, then the Fair Market Value
        shall be the closing selling price per share of Common Stock on the date
        in question on the stock exchange determined by the Plan Administrator
        to be the primary market for the Common Stock, as such price is
        officially quoted in the composite tape of transactions on such
        exchange. If there is no reported sale of Common Stock on such exchange
        on the date in question, then the Fair Market Value shall be the closing
        selling price on the exchange on the last preceding date for which such
        quotation exists.
 
 
 
 
                                       4.
<PAGE>   42
 
                        B.      Term and Exercise of Options. Each option
        granted under the Plan shall be exercisable at such time or times,
        during such period, and for such number of shares as shall be determined
        by the Plan Administrator and set forth in the stock option agreement
        evidencing such option. However, no option granted under the Plan shall
        have a term in excess of ten (10) years from the grant date. During the
        lifetime of the Optionee, the option shall be exercisable only by the
        Optionee and shall not be assignable or transferable by the Optionee
        otherwise than by will or by the laws of descent and distribution
        following the Optionee's death.
 
                        C.      Termination of Service.
 
                                1.      Except to the extent otherwise provided
below, the following provisions shall govern the exercise period applicable to
any options held by the Optionee at the time of cessation of Service or death.
 
                        (A)     Should the Optionee cease to remain in Service
        for any reason other than death or permanent disability, then the period
        during which each outstanding option held by such Optionee is to remain
        exercisable shall be limited to the three (3)-month period following the
        date of such cessation of Service.
 
                        (B)     In the event such Service terminates by reason
        of permanent disability (as defined in Section 22(e)(3) of the Internal
        Revenue Code), then the period during which each outstanding option held
        by the Optionee is to remain exercisable shall be limited to the twelve
        (12)-month period following the date of such cessation of Service.
 
                        (C)     Should the Optionee die while holding one or
        more outstanding options, then the period during which each such option
        is to remain exercisable shall be limited to the twelve (12)-month
        period following the date of the Optionee's death. During such limited
        period, the option may be exercised by the personal representative of
        the Optionee's estate or by the person or persons to whom the option is
        transferred pursuant to the optionee's will or in accordance with the
        laws of descent and distribution.
 
                        (D)     During the applicable post-Service exercise
        period, the option may not be exercised in the aggregate for more than
        the number of shares (if any) which are exercisable at the time of his
        or her cessation of Service. Upon the expiration of the limited
        post-Service exercise period or (if earlier) upon the specified
        expiration date of the option term, each such option shall terminate and
        cease to be outstanding with respect to any shares for which the option
        has not otherwise been exercised. Each outstanding option shall
        immediately terminate and cease to be outstanding, at the time of the
        Optionee's cessation of Service, with respect to any shares for which
        the option is not otherwise at that time exercisable.
 
                        (E)     The Board shall have full power and authority:
 
                                (i)     to extend the period of time for which
        the option is to remain exercisable following the optionee's termination
        of Service from the normal three (3)-month (twelve (12) months in the
        case of death or permanent disability) period 
 
 
 
                                       5.
<PAGE>   43
 
        to such greater period of time as the Board shall deem appropriate under
        the circumstances; provided, that in no event shall such option be
        exercisable after the specified expiration date of the option term, or
 
                                (ii)    to establish as a provision applicable
        to the exercise of one or more options granted under the Plan that
        during the limited period of exercisability following the cessation of
        Service, the option may be exercised not only with respect to the number
        of shares for which it is exercisable at the time of the optionee's
        cessation of Service but also with respect to one or more subsequent
        installments of purchasable shares for which the option would otherwise
        have become exercisable had such cessation of Service not occurred.
 
                        2.      For all purposes under the Plan, unless
specifically provided otherwise in the option agreement evidencing the option
grant, the Optionee shall be deemed to remain in Service for so long as such
individual renders services on a periodic basis to the Company or any parent or
subsidiary corporation in the capacity of an Employee, a non-employee member of
the board of directors or a consultant. The Optionee shall be considered to be
an Employee for so long as such individual remains in the employ of the Company
or one or more of its parent or subsidiary corporations, subject to the control
and direction of the employer entity as to both the work to be performed and the
manner and method of performance.
 
                D.      Stockholder Rights. An Optionee shall have none of the
rights of a stockholder with respect to any shares covered by the option until
such Optionee shall have exercised the option and paid the option price.
 
        VI.     INCENTIVE OPTIONS
 
                The terms and conditions specified below shall be applicable to
all Incentive Options granted under the Plan. Incentive Options may only be
granted to individuals who are Employees. Options which are specifically
designated as "non--statutory" options when issued under the Plan shall not be
subject to such terms and conditions.
 
                A.      Dollar Limitation. The aggregate Fair Market Value
(determined as of the respective date or dates of grant) of the Common Stock for
which one or more options granted to any Employee under this Plan (or any other
option plan of the Company or its parent or subsidiary corporations) may for the
first time become exercisable as incentive stock options under the Federal tax
laws during any one calendar year shall not exceed the sum of One Hundred
Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more
such options which become exercisable for the first time in the same calendar
year, the foregoing limitation on the exercisability of such options as
incentive stock options under the Federal tax laws shall be applied on the basis
of the order in which such options are granted. Should the number of shares of
Common Stock for which any Incentive Option first becomes exercisable in any
calendar year exceed the applicable One Hundred Thousand Dollar ($100,000)
limitation, then that option may nevertheless be exercised in that calendar year
for the excess number of shares as a non-statutory option under the Federal tax
laws.
 
 
 
 
                                       6.
<PAGE>   44
 
                B.      10% Stockholder. If the individual to whom an Incentive
Option is granted is the owner of stock (as determined under Section 424(d) of
the Internal Revenue Code) possessing ten percent (10%) or more of the total
combined voting power of all classes of stock of the Company or any parent or
subsidiary corporation (such individual to be designated a "10% Stockholder"),
then the option price per share shall not be less than one hundred ten percent
(110%) of the Fair Market Value of a share of Common Stock on the date of the
option grant, and no option granted to a 10% Stockholder shall have a term in
excess of five (5) years from the grant date.
 
                Except as modified by the preceding provisions of this Section
VI, all provisions of the Plan shall be applicable to the Incentive Options
granted hereunder.
 
        VII.    CORPORATE TRANSACTION
 
                A.      In the event of one or more of the following
stockholder--approved transactions (a "Corporate Transaction"):
 
                                1.      a merger or consolidation in which the
        Company is not the surviving entity, except for a transaction the
        principal purpose of which is to change the state of the Company's
        incorporation;
 
                                2.      the sale, transfer or other disposition
        of all or substantially all of the assets of the Company; or
 
                                3.      any reverse merger in which the Company
        is the surviving entity,
 
then the exercisability of each option outstanding under the Plan shall
automatically accelerate so that each such option shall, immediately prior to
the specified effective date for the Corporate Transaction, become fully
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for all or any portion of such
shares. However, an outstanding option under the Plan shall not be so
accelerated if and to the extent: (i) such option is, in connection with the
Corporate Transaction, to be assumed by the successor corporation or parent
thereof or replaced with a comparable option to purchase shares of the capital
stock of the successor corporation or parent thereof or (ii) the acceleration of
such option is subject to other limitations imposed by the Plan Administrator at
the time of the option grant, including provisions which wholly preclude
acceleration of exercisability upon any specified Corporate Transaction,
provided such provisions are set forth in the agreement evidencing the option.
The determination of comparability under clause (i) above shall be made by the
Plan Administrator, and its determination shall be final, binding and
conclusive.
 
                B.      Immediately following the consummation of the Corporate
Transaction, all outstanding options under the Plan shall terminate and cease to
be outstanding, except to the extent assumed by the successor corporation or its
parent company.
 
                C.      Each outstanding option which is assumed in connection
with the Corporate Transaction or is otherwise to continue in effect shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply
and pertain to the number and class of 
 
 
 
 
                                       7.
<PAGE>   45
 
securities which would have been issued to the option holder, in consummation of
such Corporate Transaction, had such person exercised the option immediately
prior to such Corporate Transaction. Appropriate adjustments shall also be made
to the option price payable per share, provided the aggregate option price
payable for such securities shall remain the same. In addition, the class and
number of securities available for issuance under the Plan, on an aggregate and
per participant basis, shall be appropriately adjusted following the
consummation of the Corporate Transaction.
 
                D.      The grant of options under this Section VII shall in no
way affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
 
        VIII.   CANCELLATION AND REGRANT OF OPTIONS
 
                The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected Optionees, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options under the Plan covering the same or different
numbers of shares of Common Stock but having an option price per share not less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the new grant date (or in the case of an Incentive Option granted to a
10% Stockholder, not less than one hundred and ten percent (110%) of such Fair
Market Value).
 
        IX.     STOCK APPRECIATION RIGHTS
 
                A.      One or more Optionees may, upon such terms and
conditions as the Plan Administrator may establish at the time of the option
grant or at any time thereafter, be granted the right to surrender all or part
of an unexercised option in exchange for a distribution equal in amount to the
excess of (i) the Fair Market Value (on the surrender date) of the number of
option shares which are at the time exercisable under the surrendered option or
portion thereof over (ii) the aggregate option price payable for such shares. No
surrender of an option, however, shall be effective unless it is approved by the
Plan Administrator. If the surrender is so approved, then the distribution to
which the option holder shall accordingly become entitled under this subsection
IX.A may be made in shares of Common Stock valued at Fair Market Value at date
of surrender, in cash, or partly in shares and partly in cash, as the Plan
Administrator shall in its sole discretion deem appropriate.
 
                B.      If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee had
under the surrendered option (or surrendered portion thereof) on the surrender
date and may exercise such rights at any time prior to the later of (i) the
expiration of the five (5) business-day period following receipt by the option
holder of the rejection notice or (ii) the last day on which the option is
otherwise exercisable in accordance with the terms of the instrument evidencing
such option, but in no event may such rights be exercised at any time after ten
(10) years following the date of the option grant.
 
                C.      Notwithstanding the foregoing provisions of this Section
IX, one or more officers or directors of the Company subject to the short-swing
profit restrictions of the Federal 
 
 
 
 
                                       8.
<PAGE>   46
 
securities laws may, in the Plan Administrator's sole discretion, be granted
limited stock appreciation rights in tandem with their outstanding options under
this Plan. Each outstanding option with such a limited stock appreciation right
in effect for at least six (6) months shall automatically be cancelled, whether
or not the option is otherwise at the time exercisable, upon the occurrence of a
Hostile Take-Over, and the Optionee shall in return be entitled to a cash
distribution from the Company in an amount equal to the excess of (i) the
Take-Over Price of the shares under the cancelled option over (ii) the aggregate
option price payable for such shares. Such cash distribution shall be made
within five (5) days following the consummation of the Hostile Take-Over.
Neither the approval of the Plan Administrator nor the consent of the Board
shall be required in connection with such option cancellation and cash
distribution.
 
                D.      For purposes of Section IX.C above, the following
definitions shall be in effect:
 
                        A HOSTILE TAKE-OVER shall be deemed to occur in the
        event (i) any person or related group of persons (other than the Company
        or a person that directly or indirectly controls, is controlled by, or
        is under common control with, the Company) acquires ownership of
        securities possessing more than fifty percent (50%) of the total
        combined voting power of the Company's outstanding securities pursuant
        to a tender or exchange offer made directly to the Company's
        stockholders which the Board does not recommend such stockholders to
        accept and (ii) more than fifty percent (50%) of the securities so
        acquired in such tender or exchange offer are accepted from holders
        other than officers and directors of the Company subject to the
        short-swing profit restrictions of Section 16 of the 1934 Act.
 
                        The TAKE-OVER PRICE per share shall be deemed to be
        equal to the greater of (i) the Fair Market Value per share on the date
        of the option cancellation or (ii) the highest reported price per share
        paid in effecting such Hostile Take-Over.
 
                E.      The shares of Common Stock subject to any option
surrendered or cancelled for an appreciation distribution pursuant to this
Section IX shall not be available for subsequent option grants under the Plan.
 
        X.      LOANS
 
                A.      The Plan Administrator may assist any Optionee
(including an Optionee who is an officer of the Company) in the exercise of one
or more options granted to such Optionee, including the satisfaction of any
Federal and state income and employment tax obligations arising therefrom, by:
 
                        (i)     authorizing the extension of a loan from the
        Company to such Optionee, or
 
                        (ii)    permitting the Optionee to pay the option price
        for the purchased Common Stock in installments.
 
 
 
 
                                       9.
<PAGE>   47
 
                B.      The terms of any loan or installment method of payment
(including the interest rate and terms of repayment) shall be established by the
Plan Administrator in its sole discretion. Loans or installment payments may be
granted with or without security or collateral. However, any loan made to a
consultant or other non-employee advisor must be secured by property other than
the purchased shares of Common Stock. In all events the maximum credit available
to each Optionee may not exceed the sum of (i) the aggregate option price
payable for the purchased shares (less the par value) plus (ii) any Federal and
state income and employment tax liability incurred by the Optionee in connection
with such exercise.
 
                C.      The Plan Administrator may, in its absolute discretion,
determine that one or more outstanding loans under the Plan shall be subject to
forgiveness by the Company in whole or in part upon such terms and conditions as
the Plan Administrator may in its discretion deem appropriate.
 
        XI.     NO EMPLOYMENT OR SERVICE RIGHTS
 
                Nothing in the Plan shall confer upon the Optionee any right to
continue in the Service or employ of the Company (or any parent or subsidiary
corporation of the Company employing or retaining such Optionee) for any period
of specific duration or interfere with or otherwise restrict in any way the
rights of the Company (or any parent or subsidiary corporation of the Company
employing or retaining such Optionee) or of the Optionee, which rights are
hereby expressly reserved by each, to terminate the Optionee at any time for any
reason whatsoever, with or without cause.
 
        XII.    AMENDMENT OF THE PLAN AND OPTIONS
 
                A.      The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects whatsoever.
However, no such amendment or modification shall adversely affect the rights and
obligations of an Optionee with respect to options at the time outstanding under
the Plan unless the Optionee consents to such amendment. In addition, the Board
shall not, without the approval of the Company's stockholders, amend the Plan to
(i) materially increase the maximum number of shares issuable under the Plan or
the maximum number of shares for which stock options and separately exercisable
stock appreciation rights may be granted per participant during any fiscal year,
except for permissible adjustments under Section IV.C, (ii) materially increase
the benefits accruing to individuals who participate in the Plan, or (iii)
materially modify the eligibility requirements for participation in the Plan.
 
                B.      Options to purchase shares of Common Stock may be
granted under the Plan which are in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued under the Plan are held in escrow until there is obtained stockholder
approval of an amendment sufficiently increasing the number of shares of Common
Stock available for issuance under the Plan. If such stockholder approval is not
obtained within twelve (12) months after the date the excess issuances are made,
then (1) any unexercised options representing such excess shall terminate and
cease to be exercisable and (2) the Company shall promptly refund to the
Optionees the option price paid for any excess shares issued under the Plan and
held in escrow, together with interest (at the applicable Short-Term 
 
 
 
 
                                      10.
<PAGE>   48
 
Federal Rate) for the period the shares were held in escrow, and such shares
shall thereupon be automatically cancelled and cease to be outstanding.
 
        XIII.   EFFECTIVE DATE AND TERM OF PLAN
 
                A.      The Plan was initially adopted by the Board in May,
1985. In March 1987 the Plan was amended and restated by the Board to increase
the number of shares issuable thereunder to an aggregate of 1,155,000 shares
(the "1987 Restatement"). The 1987 Restatement was approved by the stockholders
in April 1987. In January, 1992 the Board approved a further restatement of the
Plan (the "1992 Restatement") to effect the following principal amendments: (1)
increase the number of shares available for issuance pursuant to the Plan by
500,000 to 1,655,000 shares in the aggregate; (2) allow consultants to receive
option grants or stock appreciation rights under the Plan; (3) conform the Plan
to recent changes in Rule 16b-3 of the Securities and Exchange Commission; and
(4) extend the term of the Plan from May 19, 1995 to January 19, 2002. The 1992
Restatement was approved by the stockholders in June 1992. On October 7, 1994,
the Board approved a further restatement of the Plan (the "1995 Restatement") to
effect the following principal adjustments: (i) increase the number of shares of
Common Stock authorized for issuance over the remaining term of the Plan by an
additional 750,000 shares to 2,405,000 shares; (ii) limit the aggregate number
of shares for which any one individual may be granted stock options and
separately exercisable stock appreciation rights to 300,000 shares per fiscal
year, starting with the fiscal year beginning February 1, 1994, except that for
the fiscal year in which an individual receives his or her initial stock option
grant under the Plan, the limit will be increased to 400,000 shares; (iii) allow
individuals in the Company's employ or service who own or are deemed to own more
than twenty-five percent (25%) of the Company's outstanding Common Stock to
receive stock options and stock appreciation rights under the Plan and (iv)
render the non-employee members of the Board ineligible to receive any further
option grants or stock appreciation rights under the Plan. The 1995 Restatement
was approved by the stockholders at the 1995 Annual Stockholders Meeting. On
September 25, 1998, the Board approved a further restatement of the Plan ("the
1999 Restatement") to effect the following principal adjustments: (I) increase
the number of shares of Common Stock authorized for issuance over the remaining
term of the Plan by an additional 750,000 shares to 3,155,000 shares and (ii) to
extend the term of the Plan through September 30, 2004.
 
                B.      The provisions of the 1987, 1992, 1995 and 1999
Restatements apply only to options granted under the Plan from and after the
respective dates such Restatements were adopted by the Board. All options which
were issued and outstanding under the Plan immediately prior to such adoption of
the such Restatements continue to be governed by the terms and conditions of the
Plan (and the instrument evidencing each such option) as in effect on the date
each such option was previously granted, and nothing in the Restatements is to
affect or otherwise modify the respective rights or obligations of the holders
of such options with respect to the acquisition of shares of Common Stock
thereunder.
 
                C.      Unless sooner terminated in accordance with Section VII,
the Plan shall terminate upon the earlier of (i) September 30, 2004 or (ii) the
date on which all shares available for issuance under the Plan shall have been
issued or cancelled pursuant to the exercise or surrender of options granted
hereunder. If the date of termination is determined under clause (i) 
 
 
 
 
                                      11.
<PAGE>   49
 
above, then options outstanding on such date shall thereafter continue to have
force and effect in accordance with the provisions of the instruments evidencing
such options.
 
        XIV.    USE OF PROCEEDS
 
                Any cash proceeds received by the Company from the issuance of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
 
        XV.     WITHHOLDING
 
                The Company's obligation to deliver shares upon the exercise of
any option or stock appreciation right or the surrender of any option granted
under the Plan shall be subject to the Optionee's satisfaction of all applicable
Federal, state and local income and employment tax withholding requirements.
 
        XVI.    REGULATORY APPROVALS
 
                The implementation of the Plan, the granting of any option or
stock appreciation right under the Plan, and the issuance of Common Stock upon
the exercise of any such option shall be subject to the Company's procurement of
all approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it, and the Common Stock issued
pursuant to it.