QUADRAMED CORP, S-8, 1997-09-19

QUADRAMED CORP
S-8, 1997-09-19
COMPUTER PROGRAMMING SERVICES

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<PAGE> 1
As filed with the Securities and Exchange Commission on September 19, 1997
Registration No. 333-_________
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

-----------------------
FORM S-8
REGISTRATION STATEMENT
Under
The Securities Act of 1933

-----------------------
QUADRAMED CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 68-0316252
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)

80 EAST SIR FRANCIS DRAKE BOULEVARD, STE. 2A
LARKSPUR, CALIFORNIA 94939
(Address of principal executive offices) (Zip Code)

-----------------------

QUADRAMED CORPORATION 1996 STOCK INCENTIVE PLAN

INTERMED HEALTHCARE SYSTEMS, INC.
1995 STOCK INCENTIVE PLAN
(Full title of the Plans)

-----------------------
JAMES D. DURHAM
CHIEF EXECUTIVE OFFICER
QUADRAMED CORPORATION
80 EAST SIR FRANCIS DRAKE BOULEVARD, STE. 2A
LARKSPUR, CALIFORNIA 94939
(415) 461-7725

(Name and address, including zip code, and telephone number, including area
code, of agent for service)

CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered(1) per Share(2) Price(2) Fee
---------- ---------- --------- ----- ---
<S> <C> <C> <C> <C>
QuadraMed Corporation
1996 Stock Incentive Plan

Options to purchase Common Stock 90,165 shares N/A N/A N/A

Common Stock, $0.01 par value 90,165 shares $18.4375 $1,662,418.00 $504.00

InterMed Healthcare Systems, Inc.
1995 Stock Incentive Plan

Options to purchase Common Stock 12,100 shares N/A N/A N/A

Common Stock issuable upon 12,100 shares $2.63 $31,823 $10.00
exercise of options
</TABLE>
Aggregate Filing Fee: $514.00
================================================================================

(1) This Registration Statement shall also cover any additional shares of
Common Stock which become issuable under the QuadraMed Corporation
1996 Stock Incentive Plan and the InterMed Healthcare Systems, Inc.
1995 Stock Incentive Plan by reason of any stock dividend, stock
split, recapitalization or other similar transaction effected without
the receipt of consideration which results in an increase in the
number of the outstanding shares of Common Stock of QuadraMed
Corporation

(2) Calculated solely for purposes of this offering under Rule 457(h) of
the Securities Act of 1933, as amended, on the basis of the average of
the high and low selling prices per share of Common Stock of QuadraMed
Corporation on September 15, 1997, as reported by the Nasdaq
National Market.

(3) Calculated solely for purposes of this offering under Rule 457(h)of
the Securities Act of 1933, as amended, on the basis of the average
weighted exercise price of the options outstanding under the InterMed
Healthcare Systems, Inc. 1995 Stock Incentive Plan.
<PAGE> 2
PART II

INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

Item 3. Incorporation of Documents by Reference

QuadraMed Corporation (the "Registrant") hereby incorporates by
reference into this Registration Statement the following documents previously
filed with the Securities and Exchange Commission (the "SEC"):

(a) The Registrant's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1996 filed with the SEC on April 18,
1997, as amended;

(b) The Registrant's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1997 and June 30, 1997, as amended;

(d) The Registrant's Registration Statement No. 00-021031 on Form
8-A filed with the SEC on July 17, 1996 pursuant to Section 12
of the Securities Exchange Act of 1934, as amended (the "1934
Act"), in which there is described the terms, rights and
provisions applicable to the Registrant's outstanding Common
Stock.

All reports and definitive proxy or information statements filed
pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act after the date of
this Registration Statement and prior to the filing of a post-effective
amendment which indicates that all securities offered hereby have been sold or
which deregisters all securities then remaining unsold shall be deemed to be
incorporated by reference into this Registration Statement and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Registration Statement
to the extent that a statement contained herein or in any subsequently filed
document which also is deemed to be incorporated by reference herein modifies
or supersedes such statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Registration Statement.

Item 4. Description of Securities

Not Applicable.

Item 5. Interests of Named Experts and Counsel

Not Applicable.

Item 6. Indemnification of Directors and Officers

The Registrant's Certificate of Incorporation provides that its
directors will not be liable to the Registrant or its stockholders for monetary
damages for breaches of fiduciary duty to the fullest extent permitted by
Delaware law. This provision is intended to allow the Registrant's directors
the benefit of Delaware General Corporation Law, which provides that directors
of Delaware corporations may be relieved of monetary liability for breaches of
their fiduciary duty of care except under certain circumstances, including
breach of the duty of loyalty, acts or omissions not in good faith or involving
intentional misconduct or known violation of law, or any transaction from which
the director derived an improper personal benefit.

The Registrant will enter into separate indemnification agreements
with each of the directors and executive officers whereby the Registrant will
agree, among other things, to indemnify them against certain liabilities that
may arise by reason of their status or service as directors or executive
officers to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified.

<PAGE> 3
Item 7. Exemption from Registration Claimed

Not Applicable.

Item 8. Exhibits

<TABLE>
<CAPTION>
Number Exhibit
------ -------
<S> <C>
4.0 Instruments Defining Rights of Stockholders. Reference is
made to Registrant's Registration Statement No. 00-021031
on Form 8-A which is incorporated herein by reference
pursuant to Item 3(c).
5.0 Opinion and consent of Brobeck, Phleger & Harrison LLP.
23.1 Consent of Arthur Andersen LLP, Independent Accountants.
23.2 Consent of Brobeck, Phleger & Harrison LLP is contained in
Exhibit 5.
24.0 Power of Attorney. Reference is made to page II-4 of this
Registration Statement.
99.1 QuadraMed Corporation 1996 Stock Incentive Plan.
99.2* Form of Notice of Grant of Stock Option.
99.3* Form of Stock Option Agreement.
99.4* Form of Addendum to Stock Option Agreement. (Limited Stock
Appreciation Right).
99.5* Form of Addendum to Stock Option Agreement. (Involuntary
Termination Following Change in Control).
99.6* Form of Addendum to Stock Option Agreement. (Involuntary
Termination Following Corporate Transaction).
99.7* Form of Notice of Grant of Automatic Stock Option (Initial
Grant).
99.8* Form of Notice of Grant of Automatic Stock Option (Annual
Grant).
99.9* Form of Automatic Stock Option Agreement.
99.10* Form of Stock Issuance Agreement.
99.11* Form of Addendum to Stock Issuance Agreement. (Involuntary
Termination Following Change in Control).
99.12* Form of Addendum to Stock Issuance Agreement.
(Involuntary Termination Following Corporate Transaction).
99.13 InterMed Healthcare Systems, Inc. 1995 Stock Incentive
Plan.
99.14 Form of Incentive Stock Option Agreement under the
InterMed Healthcare Systems, Inc. 1995 Stock Incentive
Plan.

</TABLE>

*Exhibits 99.2 through 99.12 are incorporated herein by reference to
Exhibits 99.2 through 99.12, respectively, to Registrant's Registration
Statement No. 333-16385 on Form S-8, filed with the SEC on November 19,
1996.

Item 9. Undertakings

A. The undersigned Registrant hereby undertakes: (1) to
file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement (i) to include any
prospectus required by Section 10(a)(3) of the 1933 Act, (ii) to reflect in the
prospectus any facts or events arising after the effective date of this
Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement and (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in this Registration Statement or any material change to such
information in this Registration Statement; provided, however, that clauses
(1)(i) and (1)(ii) shall not apply if the information required to be included
in a post-effective amendment by those paragraphs is contained in periodic
reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the
1934 Act that are incorporated by reference into this Registration Statement;
(2) that for the purpose of determining any liability under the 1933 Act each
such post- effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; and (3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the Registrant's 1996 Stock Incentive Plan or the expiration of
the options granted under the InterMed Healthcare Systems, Inc. 1995 Stock
Incentive Plan and assumed by the Registrant.

II-2.
<PAGE> 4
B. The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the 1933 Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
1934 Act that is incorporated by reference into this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

C. Insofar as indemnification for liabilities arising under
the 1933 Act may be permitted to directors, officers, or controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the SEC, such
indemnification is against public policy as expressed in the 1933 Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any action, suit, or proceeding) is
asserted by such director, officer, or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the 1933 Act and will be governed
by the final adjudication of such issue.

II-3.
<PAGE> 5
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-8, and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Larkspur, State of
California on this 16th day of September, 1997.

QUADRAMED CORPORATION

By: /s/ James D. Durham
--------------------------------
James D. Durham
Chief Executive Officer and
Chairman of the Board

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS:

That the undersigned officers and directors of QuadraMed
Corporation, a Delaware corporation, do hereby constitute and appoint James
D. Durham and John V. Cracchiolo and each of them, the lawful attorneys-in-fact
and agents with full power and authority to do any and all acts and things and
to execute any and all instruments which said attorneys and agents, and any one
of them, determine may be necessary or advisable or required to enable said
corporation to comply with the Securities Act of 1933, as amended, and any
rules or regulations or requirements of the Securities and Exchange Commission
in connection with this Registration Statement. Without limiting the
generality of the foregoing power and authority, the powers granted include the
power and authority to sign the names of the undersigned officers and directors
in the capacities indicated below to this Registration Statement, to any and
all amendments, both pre-effective and post-effective, and supplements to this
Registration Statement, and to any and all instruments or documents filed as
part of or in conjunction with this Registration Statement or amendments or
supplements thereof, and each of the undersigned hereby ratifies and confirms
that all said attorneys and agents, or any one of them, shall do or cause to be
done by virtue hereof. This Power of Attorney may be signed in several
counterparts.

IN WITNESS WHEREOF, each of the undersigned has executed this
Power of Attorney as of the date indicated.

Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ James D. Durham Chief Executive Officer and September 16, 1997
- -------------------------------- Chairman of the Board
James D. Durham (Principal Executive Officer)

</TABLE>

II-4.
<PAGE> 6
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ John V. Cracchiolo Executive Vice President and September 16, 1997
- -------------------------------- Chief Financial Officer
John V. Cracchiolo (Principal Financial and
Accounting Officer)

/s/ John H. Austin, M.D. Director September 16, 1997
- --------------------------------
John H. Austin, M.D.

/s/ Thomas F. McNulty Director September 16, 1997
- --------------------------------
Thomas F. McNulty

/s/ Joan P. Neuscheler Director September 16, 1997
- --------------------------------
Joan P. Neuscheler

/s/ Cornelius T. Ryan Director September 16, 1997
- --------------------------------
Cornelius T. Ryan

/s/ Albert L. Greene Director September 16, 1997
- --------------------------------
Albert L. Greene

/s/ Keneth E. Jones Director September 16, 1997
- --------------------------------
Kenneth E. Jones

</TABLE>

II-5.
<PAGE> 7

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.

EXHIBITS

FORM S-8

UNDER

SECURITIES ACT OF 1933

QUADRAMED CORPORATION

<PAGE> 8
EXHIBIT INDEX

<TABLE>
<CAPTION>
Number Exhibit
------ -------
<S> <C>
4.0 Instruments Defining Rights of Stockholders. Reference is
made to Registrant's Registration Statement No. 00-021031
on Form 8-A which is incorporated herein by reference
pursuant to Item 3(c).
5.0 Opinion and consent of Brobeck, Phleger & Harrison LLP.
23.1 Consent of Arthur Andersen LLP, Independent Accountants.
23.2 Consent of Brobeck, Phleger & Harrison LLP is contained in
Exhibit 5.
24.0 Power of Attorney. Reference is made to page II-4 of this
Registration Statement.
99.1 QuadraMed Corporation 1996 Stock Incentive Plan.
99.2* Form of Notice of Grant of Stock Option.
99.3* Form of Stock Option Agreement.
99.4* Form of Addendum to Stock Option Agreement. (Limited Stock
Appreciation Right).
99.5* Form of Addendum to Stock Option Agreement. (Involuntary
Termination Following Change in Control).
99.6* Form of Addendum to Stock Option Agreement. (Involuntary
Termination Following Corporate Transaction).
99.7* Form of Notice of Grant of Automatic Stock Option (Initial
Grant).
99.8* Form of Notice of Grant of Automatic Stock Option (Annual
Grant).
99.9* Form of Automatic Stock Option Agreement.
99.10* Form of Stock Issuance Agreement.
99.11* Form of Addendum to Stock Issuance Agreement. (Involuntary
Termination Following Change in Control).
99.12* Form of Addendum to Stock Issuance Agreement. (Involuntary
Termination Following Corporate Transaction).
99.13 InterMed Healthcare Systems, Inc. 1995 Stock Incentive
Plan.
99.14 Form of Incentive Stock Option Agreement under the InterMed
Healthcare Systems, Inc. 1995 Stock Incentive Plan.
</TABLE>

*Exhibits 99.2 through 99.12 are incorporated herein by reference to
Exhibits 99.2 through 99.12 respectively to Registrant's Registration
Statement No. 333-16385 on Form S-8, filed with the SEC on November 19,
1996.

<PAGE> 1
EXHIBIT 5.0

[BROBECK PHLEGER & HARRISON LLP LETTERHEAD]

September 16, 1997

QuadraMed Corporation
80 East Sir Francis Drake Boulevard, Ste. 2A
Larkspur, CA 94939

Re: Registration Statement for Offering of
an aggregate of 102,265 Shares of Common Stock

Ladies and Gentlemen:

We refer to your Registration Statement on Form S-8 (the
"Registration Statement") under the Securities Act of 1933, as amended, of (i)
90,165 shares of the Common Stock of QuadraMed Corporation (the "Company")
under the Company's 1996 Stock Incentive Plan and (ii) 12,100 shares of Common
Stock issuable pursuant to options to purchase Common Stock under the InterMed
Healthcare Systems, Inc. 1995 Stock Incentive Plan as assumed by the Registrant
in connection with its acquisition of InterMed Healthcare Systems, Inc. in
December 1996. We advise you that, in our opinion, when such shares have been
issued and sold pursuant to the applicable provisions of the 1996 Stock
Incentive Plan and the assumed InterMed Healthcare Systems, Inc. 1995 Stock
Incentive Plan and in accordance with the Registration Statement, such shares
will be duly authorized, validly issued, fully paid and non-assessable shares
of the Company's Common Stock.

We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement.

Very truly yours,

/s/ BROBECK, PHLEGER & HARRISON LLP
BROBECK, PHLEGER & HARRISON LLP

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Form S-8 of our report dated March
5, 1997 included in QuadraMed Corporation's Form 10-KSB for the year ended
December 31, 1996 and to all references to our Firm included in this
Registration Statement.

/s/ Arthur Anderson LLP
---------------------------

ARTHUR ANDERSON LLP

San Jose, California
September 18, 1997

<PAGE> 1
EXHIBIT 99.1

QUADRAMED CORPORATION
1996 STOCK INCENTIVE PLAN

ARTICLE ONE

GENERAL PROVISIONS

I. PURPOSE OF THE PLAN

This 1996 Stock Incentive Plan is intended to promote the interests
of QuadraMed Corporation, a Delaware corporation, by providing eligible persons
with the opportunity to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Corporation as an incentive for them to
remain in the service of the Corporation.

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

II. STRUCTURE OF THE PLAN

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

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

- the Salary Investment Option Grant Program under which
eligible employees may elect to have a portion of their base salary invested
each year in special option grants,

- the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus
for services rendered the Corporation (or any Parent or Subsidiary),

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

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

<PAGE> 2

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

III. ADMINISTRATION OF THE PLAN

A. Prior to the Section 12 Registration Date, the Discretionary
Option Grant and Stock Issuance Programs shall be administered by the Board.
Beginning with the Section 12 Registration Date, the Primary Committee shall
have sole and exclusive authority to administer the Discretionary Option Grant
and Stock Issuance Programs with respect to Section 16 Insiders and shall have
sole and exclusive authority to administer the Salary Investment Option Grant
Program with respect to all eligible individuals.

B. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. The members of the
Secondary Committee may be Board members who are Employees eligible to receive
discretionary option grants or direct stock issuances under the Plan or any
other stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary).

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

D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it
may deem appropriate for proper administration of the Discretionary Option
Grant, Salary Investment Option Grant and Stock Issuance Programs and to make
such determinations under, and issue such interpretations of, the provisions of
such programs and any outstanding options or stock issuances thereunder as it
may deem necessary or advisable. Decisions of the Plan Administrator within the
scope of its administrative functions under the Plan shall be final and binding
on all parties who have an interest in the Discretionary Option Grant, Salary
Investment Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.

E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under
the Plan.

<PAGE> 3

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

IV. ELIGIBILITY

A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:

(i) Employees,

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

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

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

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

D. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or
to effect stock issuances in accordance with the Stock Issuance Program.

E. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals
serving as non-employee Board members on the Underwriting Date who have not
previously received a stock option grant from the Corporation, (ii) those
individuals who first become non-employee Board members after the Underwriting
Date, whether through appointment by the Board or election by the Corporation's
stockholders, and (iii) those individuals who continue to serve as non-employee
Board members at one or more Annual Stockholders Meetings held after the
Underwriting Date. A non-employee

<PAGE> 4

Board member who has previously been in the employ of the Corporation (or any
Parent or Subsidiary) shall not be eligible to receive an option grant under
the Automatic Option Grant Program at the time he or she first becomes a
non-employee Board member, but shall be eligible to receive periodic option
grants under the Automatic Option Grant Program while he or she continues to
serve as a non-employee Board member.

F. All non-employee Board members shall be eligible to participate in
the Director Fee Option Grant Program.

V. STOCK SUBJECT TO THE PLAN

A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed
1,459,556 shares. Such authorized share reserve is comprised of (i) the number
of shares which remained available for issuance, as of the Plan Effective Date,
under the Predecessor Plan as last approved by the Corporation's stockholders,
including the shares subject to the outstanding options which were incorporated
into the Plan and the additional shares which would have been available for
future grant (1), (ii) an additional increase of 783,653 shares authorized by
the Board and approved by the stockholders prior to the Section 12 Registration
Date, and (iii) an additional increase of 90,165 shares effective as of January
2, 1997, pursuant to the annual automatic share increase provision in Section
V.B. of this Article One.

B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of each calendar
year during the term of the Plan, beginning with the 1997 calendar year, by an
amount equal to one and one-half percent (1.5%) of the shares of Common Stock
outstanding on the last trading day of the immediately preceding calendar year.
No Incentive Options may be granted on the basis of the additional shares of
Common Stock resulting from such annual increases.

C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 200,000 shares of Common Stock in the aggregate per calendar year,
beginning with the 1996 calendar year.

D. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent those options
expire or terminate for any reason prior to exercise in full. Unvested shares
issued under the Plan and subsequently cancelled or repurchased by the
Corporation, at the original issue price paid per share, pursuant to the
Corporation's repurchase rights under the Plan shall be added back to the
number of shares of Common Stock reserved for

- --------------------
(1) Estimated to be 585,738 shares of Common Stock as of June 28, 1996.

<PAGE> 5

issuance under the Plan and shall accordingly be available for reissuance
through one or more subsequent option grants or direct stock issuances under
the Plan. However, should the exercise price of an option under the Plan be
paid with shares of Common Stock or should shares of Common Stock otherwise
issuable under the Plan be withheld by the Corporation in satisfaction of the
withholding taxes incurred in connection with the exercise of an option or the
vesting of a stock issuance under the Plan, then the number of shares of Common
Stock available for issuance under the Plan shall be reduced by the gross
number of shares for which the option is exercised or which vest under the
stock issuance, and not by the net number of shares of Common Stock issued to
the holder of such option or stock issuance.

E. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the number and/or class of securities for which any one
person may be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances under this Plan per calendar year, (iii) the
number and/or class of securities for which grants are subsequently to be made
under the Automatic Option Grant Program to new and continuing non-employee
Board members, (iv) the number and/or class of securities and the exercise
price per share in effect under each outstanding option under the Plan and (v)
the number and/or class of securities and price per share in effect under each
outstanding option incorporated into this Plan from the Predecessor Plan. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.

<PAGE> 6

ARTICLE TWO

DISCRETIONARY OPTION GRANT PROGRAM

I. OPTION TERMS

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

A. EXERCISE PRICE.

1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.

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

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

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

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

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

B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall
be determined by the

<PAGE> 7

Plan Administrator and set forth in the documents evidencing the option.
However, no option shall have a term in excess of ten (10) years measured from
the option grant date.

C. EFFECT OF TERMINATION OF SERVICE.

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

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

(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently 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.

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

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

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

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

<PAGE> 8

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

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

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

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

II. INCENTIVE OPTIONS

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

A. ELIGIBILITY. Incentive Options may only be granted to Employees.

B. EXERCISE PRICE. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.

<PAGE> 9

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

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

III. CORPORATE TRANSACTION/CHANGE IN CONTROL

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

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

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

<PAGE> 10

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

E. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those options are assumed or replaced and do not
otherwise accelerate. Any options so accelerated shall remain exercisable for
fully-vested shares until the earlier of (i) the expiration of the option term
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination. In addition, the Plan Administrator may
provide that one or more of the Corporation's outstanding repurchase rights
with respect to shares held by the Optionee at the time of such Involuntary
Termination shall immediately terminate, and the shares subject to those
terminated repurchase rights shall accordingly vest in full.

F. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control. Each option so accelerated shall remain exercisable for
fully-vested shares until the earlier of (i) the expiration of the option term
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination. In addition, the Plan Administrator may
provide that one or more of the Corporation's outstanding repurchase rights
with respect to shares held by the Optionee at the time of such Involuntary
Termination shall immediately terminate, and the shares subject to those
terminated repurchase rights shall accordingly vest in full.

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

10.

<PAGE> 11

H. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital
or business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.

IV. CANCELLATION AND REGRANT OF OPTIONS

The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Discretionary
Option Grant Program (including outstanding options incorporated from the
Predecessor Plan) and to grant in substitution new options covering the same or
different number of shares of Common Stock but with an exercise price per share
based on the Fair Market Value per share of Common Stock on the new grant date.

V. STOCK APPRECIATION RIGHTS

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

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

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

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

(iii) If the surrender of an option is not approved by
the Plan Administrator, then the Optionee shall retain whatever rights
the Optionee had under the surrendered option (or surrendered portion
thereof) on the option surrender date and may exercise such rights at
any time prior to the later of (a) five (5) business days after the
receipt of the rejection notice or (b) the last day on which the
option is otherwise exercisable in accordance with the terms of the

11.
<PAGE> 12

documents evidencing such option, but in no event may such rights be
exercised more than ten (10) years after the option grant date.

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

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

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

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

(iv) The balance of the option (if any) shall remain
outstanding and exercisable in accordance with the documents evidencing
such option.

12.

<PAGE> 13

ARTICLE THREE

SALARY INVESTMENT OPTION GRANT PROGRAM

I. OPTION GRANTS

The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for those calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). The Primary Committee shall have complete
discretion to determine whether to approve the filed authorization in whole or
in part. To the extent the Primary Committee approves the authorization, the
individual who filed that authorization shall be granted an option under the
Salary Investment Grant Program on or before the last trading day in January
for the calendar year for which the salary reduction is to be in effect. All
grants under the Salary Investment Option Grant Program shall be at the sole
discretion of the Primary Committee.

II. OPTION TERMS

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

A. EXERCISE PRICE.

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

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

B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):

13.

<PAGE> 14

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

X is the number of option shares,

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

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

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

D. EFFECT OF TERMINATION OF SERVICE. Should the Optionee cease
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant
to the Optionee's will or in accordance with the laws of descent and
distribution. Such right of exercise shall lapse, and the option shall
terminate, upon the earlier of (i) the expiration of the ten (10)-year option
term or (ii) the three (3)- year period measured from the date of the
Optionee's cessation of Service. However, the option shall, immediately upon
the Optionee's cessation of Service for any reason, terminate and cease to
remain outstanding with respect to any and all shares of Common Stock for which
the option is not otherwise at that time exercisable.

III. CORPORATE TRANSACTION/CHANGE IN CONTROL

A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common
Stock. Each such outstanding option shall be assumed by the successor
corporation (or parent thereof) in the Corporate

14.

<PAGE> 15

Transaction and shall remain exercisable for the fully-vested shares until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Service.

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

C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Salary Investment Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. No approval or consent of the Board or any Plan
Administrator shall be required in connection with such option surrender and
cash distribution.

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

III. REMAINING TERMS

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

15.

<PAGE> 16

ARTICLE FOUR

STOCK ISSUANCE PROGRAM

I. STOCK ISSUANCE TERMS

Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.

A. PURCHASE PRICE.

1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the issuance date.

2. Subject to the provisions of Section I of Article Seven, shares
of Common Stock may be issued under the Stock Issuance Program for any of the
following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:

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

(ii) past services rendered to the Corporation (or any Parent
or Subsidiary).

B. VESTING PROVISIONS.

1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:

(i) the Service period to be completed by the Participant or
the performance objectives to be attained,

(ii) the number of installments in which the shares are to
vest,

(iii) the interval or intervals (if any) which are to lapse
between installments, and

16.

<PAGE> 17

(iv) the effect which death, Permanent Disability or other
event designated by the Plan Administrator is to have upon the vesting
schedule,

shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.

2. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock
and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.

3. The Participant shall have full stockholder rights with respect
to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.

4. Should the Participant cease to remain in Service while holding
one or more unvested shares of Common Stock issued under the Stock Issuance
Program or should the performance objectives not be attained with respect to
one or more such unvested shares of Common Stock, then those shares shall be
immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.

5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.

II. CORPORATE TRANSACTION/CHANGE IN CONTROL

A. All of the Corporation's outstanding repurchase/cancellation
rights under the Stock Issuance Program shall terminate automatically, and all
the shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Corporate

17.

<PAGE> 18

Transaction, except to the extent (i) those repurchase/cancellation rights are
to be assigned to the successor corporation (or parent thereof) in connection
with such Corporate Transaction or (ii) such accelerated vesting is precluded
by other limitations imposed in the Stock Issuance Agreement.

B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's
Service should subsequently terminate by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Corporate Transaction in which those
repurchase/cancellation rights are assigned to the successor corporation (or
parent thereof).

C. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's
Service should subsequently terminate by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Change in Control.

III. SHARE ESCROW/LEGENDS

Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.

18.

<PAGE> 19

ARTICLE FIVE

AUTOMATIC OPTION GRANT PROGRAM

I. OPTION TERMS

A. GRANT DATES. Option grants shall be made on the dates specified
below:

1. Each individual serving as a non-employee Board member on
the Underwriting Date shall automatically be granted at that time a
Non-Statutory Option to purchase 10,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary and has not previously received a stock option grant from
the Corporation.

2. Each individual who is first elected or appointed as a non-
employee Board member at any time after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment,
a Non-Statutory Option to purchase 10,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.

3. On the date of each Annual Stockholders Meeting held after the
Underwriting Date, each individual who is to continue to serve as an Eligible
Director, whether or not that individual is standing for re-election to the
Board at that particular Annual Meeting, shall automatically be granted a
Non-Statutory Option to purchase 4,000 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 4,000- share option
grants any one Eligible Director may receive over his or her period of Board
service, and non-employee Board members who have previously been in the employ
of the Corporation (or any Parent or Subsidiary) or who have otherwise received
a stock option grant from the Corporation prior to the Underwriting Date shall
be eligible to receive one or more such annual option grants over their period
of continued Board service.

B. EXERCISE PRICE.

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

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

C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.

19.

<PAGE> 20

D. EXERCISE AND VESTING OF OPTIONS. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each initial 10,000-share grant shall vest,
and the Corporation's repurchase right shall lapse, as follows: (i) one-third
of the option shares shall vest upon the Optionee's completion of one (1) year
of Board service measured from the option grant date and (ii) the balance of
the option shares shall vest in a series of twenty-four (24) successive equal
monthly installments upon the Optionee's completion of each additional month of
Board service over the twenty-four (24)-month period measured from the first
anniversary of such grant date. Each annual 4,000-share grant shall vest, and
the Corporation's repurchase right shall lapse, in a series of 12 successive
equal monthly installments over the optionee's period of Board service measured
from the grant date.

E. TERMINATION OF BOARD SERVICE. The following provisions shall
govern the exercise of any options held by the Optionee at the time the
Optionee ceases to serve as a Board member:

(i) The Optionee (or, in the event of Optionee's
death, the personal representative of the Optionee's estate or the
person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and
distribution) shall have a twelve (12)-month period following the date
of such cessation of Board service in which to exercise each such
option.

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

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

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

20.

<PAGE> 21

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

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

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

C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. No approval or
consent of the Board or any Plan Administrator shall be required in connection
with such option surrender and cash distribution.

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

21.

<PAGE> 22

III. REMAINING TERMS

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

22.

<PAGE> 23

ARTICLE SIX

DIRECTOR FEE OPTION GRANT PROGRAM

I. OPTION GRANTS

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

II. OPTION TERMS

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

A. EXERCISE PRICE.

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

B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):

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

X is the number of option shares,

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

23.

<PAGE> 24

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

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

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

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

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

24.

<PAGE> 25

III. CORPORATE TRANSACTION/CHANGE IN CONTROL

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

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

C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Director Fee Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to each surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. No approval or consent of the Board or any Plan
Administrator shall be required in connection with such option surrender and
cash distribution.

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

IV. REMAINING TERMS

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

25.

<PAGE> 26

ARTICLE SEVEN

MISCELLANEOUS

I. FINANCING

The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering
a full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.

II. TAX WITHHOLDING

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

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

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

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

26.

<PAGE> 27

III. EFFECTIVE DATE AND TERM OF THE PLAN

A. The Plan shall become effective immediately upon the Plan
Effective Date. However, the Salary Investment Option Grant Program shall not
be implemented until such time as the Primary Committee may deem appropriate.
Options may be granted under the Discretionary Option Grant or Automatic Option
Grant Program at any time on or after the Plan Effective Date. However, no
options granted under the Plan may be exercised, and no shares shall be issued
under the Plan, until the Plan is approved by the Corporation's stockholders.
If such stockholder approval is not obtained within twelve (12) months after
the Plan Effective Date, then all options previously granted under this Plan
shall terminate and cease to be outstanding, and no further options shall be
granted and no shares shall be issued under the Plan.

B. The Plan shall serve as the successor to the Predecessor Plan, and
no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Section 12 Registration Date. All options
outstanding under the Predecessor Plan on the Section 12 Registration Date
shall be incorporated into the Plan at that time and shall be treated as
outstanding options under the Plan. However, each outstanding option so
incorporated shall continue to be governed solely by the terms of the documents
evidencing such option, and no provision of the Plan shall be deemed to affect
or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of Common
Stock.

C. One or more provisions of the Plan, including (without limitation)
the option/vesting acceleration provisions of Article Two relating to Corporate
Transactions and Changes in Control, may, in the Plan Administrator's
discretion, be extended to one or more options incorporated from the
Predecessor Plan which do not otherwise contain such provisions.

D. The Plan shall terminate upon the earliest to occur of (i) May 25,
2006, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Upon such plan
termination, all outstanding option grants and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants or issuances.

IV. AMENDMENT OF THE PLAN

A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.

27.

<PAGE> 28

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

V. USE OF PROCEEDS

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

VI. REGULATORY APPROVALS

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

B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing
requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which Common Stock is then listed for trading.

VII. NO EMPLOYMENT/SERVICE RIGHTS

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

28.

<PAGE> 29

APPENDIX

The following definitions shall be in effect under the Plan:

A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under the Plan.

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

C. CHANGE IN CONTROL shall mean a change in ownership or control of
the Corporation effected through either of the following transactions:

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

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

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

E. COMMON STOCK shall mean the Corporation's common stock.

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

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

A-1.

<PAGE> 30

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

G. CORPORATION shall mean QuadraMed Corporation, a Delaware
corporation, and its successors.

H. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock
option grant in effect for non-employee Board members under Article Six of the
Plan.

I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under the Plan.

J. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible
to participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.

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

L. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.

M. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:

(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question, as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market or any successor
system. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.

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

A-2.

<PAGE> 31

(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal
to the price per share at which the Common Stock is to be sold in the
initial public offering pursuant to the Underwriting Agreement.

(iv) For purposes of any option grants made prior to
the Underwriting Date, the Fair Market Value shall be determined by
the Plan Administrator, after taking into account such factors as it
deems appropriate.

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

O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.

P. INVOLUNTARY TERMINATION shall mean the termination of the Service
of any individual which occurs by reason of:

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

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

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

A-3.

<PAGE> 32

R. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.

S. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.

T. OPTIONEE shall mean any person to whom an option is granted under
the Discretionary Option Grant, Salary Investment Option Grant, Automatic
Option Grant or Director Fee Option Grant Program.

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

V. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.

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

X. PLAN shall mean the Corporation's 1996 Stock Incentive Plan, as
set forth in this document.

Y. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant, Salary Investment Option Grant and
Stock Issuance Programs with respect to one or more classes of eligible
persons, to the extent such entity is carrying out its administrative functions
under those programs with respect to the persons under its jurisdiction.

Z. PLAN EFFECTIVE DATE shall mean June 26, 1996, the date on which
the Plan was adopted by the Board.

AA. PREDECESSOR PLAN shall mean the Corporation's pre-existing Stock
Option Plan in effect immediately prior to the Plan Effective Date hereunder.

A-4.

<PAGE> 33

AB. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program with
respect to all eligible individuals.

AC. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary
investment option grant program in effect under the Plan.

AD. SECONDARY COMMITTEE shall mean a committee of two (2) or more
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.

AE. SECTION 12 REGISTRATION DATE shall mean the date on which the
Common Stock is first registered under Section 12(g) of Section 16 of the 1934
Act.

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

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

AH. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.

AI. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.

AJ. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.

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

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

A-5.

<PAGE> 34

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

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

AO. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.

AP. UNDERWRITING DATE shall mean the date on which the Underwriting
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.

A-6.

<PAGE> 1
EXHIBIT 99.13

INTERMED HEALTHCARE SYSTEMS INC.
1995 STOCK INCENTIVE PLAN
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1 - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . 1

SECTION 2 - THE STOCK INCENTIVE PLAN . . . . . . . . . . . . . . . . . . . 4
2.1 The Purpose of the Plan . . . . . . . . . . . . . . . . . 4
2.2 Stock Subject to the Plan . . . . . . . . . . . . . . . . 4
2.3 Administration of the Plan . . . . . . . . . . . . . . . . 4
2.4 Eligibility and Limits . . . . . . . . . . . . . . . . . . 5

SECTION 3 - TERMS OF STOCK INCENTIVES . . . . . . . . . . . . . . . . . . . 5
3.1 Terms and Conditions of All Stock Incentives . . . . . . . 5
3.2 Terms and Conditions of Options . . . . . . . . . . . . . 6
3.3 Terms and Conditions of Stock Appreciation Rights . . . . 7
3.4 Terms and Conditions of Restricted Stock Awards . . . . . 8

SECTION 4 - RESTRICTIONS ON STOCK . . . . . . . . . . . . . . . . . . . . . 8
4.1 Escrow of Shares . . . . . . . . . . . . . . . . . . . . . 8
4.2 Forfeiture of Shares . . . . . . . . . . . . . . . . . . . 8
4.3 Repurchase by the Company . . . . . . . . . . . . . . . . 9
4.4 Restrictions on Transfer . . . . . . . . . . . . . . . . . 9
4.5 Extension Termination of Restrictions on Transfer . . . . 9
4.6 Pledging of Stock . . . . . . . . . . . . . . . . . . . . 10
4.7 Stockholder Agreement . . . . . . . . . . . . . . . . . . 10

SECTION 5 - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 10
5.1 Withholding . . . . . . . . . . . . . . . . . . . . . . . 10
5.2 Changes in Capitalization; Merger; Liquidation . . . . . . 10
5.3 Cash Awards . . . . . . . . . . . . . . . . . . . . . . . 11
5.4 Compliance with Code . . . . . . . . . . . . . . . . . . . 11
5.5 Right to Terminate Employment . . . . . . . . . . . . . . 12
5.6 Restrictions on Delivery and Sale of Shares; Legends . . . 12
5.7 Termination and Amendment of the Plan . . . . . . . . . . 12
5.8 Shareholder Approval . . . . . . . . . . . . . . . . . . . 12
5.9 Effective Date of Plan . . . . . . . . . . . . . . . . . . 13
</TABLE>

i
<PAGE> 3
INTERMED HEALTHCARE SYSTEMS INC.
1995 STOCK INCENTIVE PLAN

SECTION 1 - DEFINITIONS

1.1 Definitions. Whenever used herein, the masculine
pronoun shall be deemed to include the feminine, and the singular to include
the plural, unless the context clearly indicates otherwise, and the following
capitalized words and phrases are used herein with the meaning thereafter
ascribed:

(a) "Board of Directors" means the board of
directors of the Company.

(b) "Cause" has the same meaning as provided in
the employment agreement between the Participant and the Company on the date of
Termination of Employment, or if no such definition or employment agreement
exists, as provided in the shareholders' agreement to which the Participant is
a party on the date of Termination of Employment, or if no such definition or
shareholders' agreement exists, "Cause" means conduct amounting to (1) fraud or
dishonesty against the Company, (2) Participant's willful misconduct, repeated
refusal to follow the reasonable directions of the Board of Directors, or
knowing violation of law in the course of performance of the duties of
Participant's employment with the Company, (3) repeated absences from work
without a reasonable excuse, (4) repeated intoxication with alcohol or drugs
while on the Company's premises during regular business hours, (5) a conviction
or plea of guilty or nolo contendere to a felony or a crime involving
dishonesty, or (6) a breach or violation of the terms of any employment or
other agreement to which a Participant and the Company are a party.

(c) "Change in Control" means the consummation of
a (1) dissolution or liquidation of the Company, (2) merger of the Company into
another corporation, or any consolidation, share exchange, combination,
reorganization, or like transaction, in which the Company is not the survivor,
(3) sale or transfer (other than as security for the Company's obligations) of
at least a majority of the assets of the Company, or (4) sale or transfer of
50% or more of the issued and outstanding Stock by the holders thereof in a
single transaction or in a series of related transactions.

(d) "Code" means the Internal Revenue Code of
1986, as amended.

(e) "Committee" means the committee appointed by
the Board of Directors to administer the Plan or, in the absence of appointment
of such committee, the Board of Directors.

(f) "Company" means InterMed Healthcare Systems
Inc., a Delaware corporation.

1.
<PAGE> 4
(g) "Disability" has the same meaning as provided
in the employment agreement between the Participant and the Company on the date
the Participant ceases active work due to a disability, or if no such
definition or employment agreement exists, as provided in the shareholders'
agreement to which the Participant is a party on the date the Participant
ceases active work due to a disability, or if no such definition or
shareholders' agreement exists, "Disability" means (1) the inability of
Participant to perform the duties of Participant's employment due to physical
or emotional incapacity or illness, where such inability is expected to be of
long-continued and indefinite duration or (2) Participant shall be entitled to
(i) disability retirement benefits under the federal Social Security Act or
(ii) recover benefits under any long-term disability plan or policy maintained
by the Company. In the event of a dispute, the determination of Disability
shall be made by the Committee and shall be supported by advice of a physician
competent in the area to which such Disability relates.

(h) "Disposition" means any conveyance, sale,
transfer, assignment, pledge or hypothecation whether outright or as security,
inter vivos or testamentary, with or without consideration, voluntary or
involuntary.

(i) "Fair Market Value" means fair market value
of a share of Stock (on a fully diluted basis) as determined by the Committee.
In making such determination, the Committee may take into account factors that
it, in good faith, deems relevant to such valuation, including the absence of a
trading market, the minority status of the Stock, and such other facts and
circumstances deemed by the Committee to be material to the value of the Stock
in the hands of Participant; provided, however, for purposes of determining the
Option price per share for an Incentive Stock Option, Fair Market Value shall
be determined by the Committee without regard to any restriction other than a
restriction which, by its terms, will never lapse. The Fair Market Value as
determined by the Committee shall be final, binding, and conclusive on each
Participant.

(j) "Incentive Stock Option" means an incentive
stock option, as defined in Code Section 422 awarded under the Plan.

(k) "Non-Qualified Stock Option" means a stock
option awarded under the Plan not qualifying as an Incentive Stock Option.

(l) "Option" means a Non-Qualified Stock Option
or an Incentive Stock Option.

(m) "Over 10% Owner" means an individual who at
the time an Incentive Stock Option is granted owns Stock possessing more than
10% of the total combined voting power of the Company or one of its Parents or
Subsidiaries, determined by applying the attribution rules of Code Section
424(d).

2.
<PAGE> 5
(n) "Parent" means any corporation (other than
the Company) in an unbroken chain of corporations ending with the Company if
(with respect to Incentive Stock Options, at the time of granting of the
Option), each of the corporations other than the Company owns stock possessing
50% or more of the total combined voting power of all classes of stock in one
of the other corporations in the chain.

(o) "Participant" means an individual who
receives a Stock Incentive hereunder.

(p) "Plan" means this stock incentive plan.

(q) "Restricted Stock Award" means a restricted
stock award under the Plan.

(r) "Stock" means the Company's common stock,
$.001 par value per share.

(s) "Stock Appreciation Right" means a stock
appreciation right awarded under the Plan.

(t) "Stock Incentive Agreement" means an
agreement between the Company and a recipient evidencing an award of Stock
Incentive.

(u) "Stock Incentives" means Incentive Stock
Options, Non-Qualified Stock Options, Restricted Stock Awards, and Stock
Appreciation Rights.

(v) "Subsidiary" means any corporation (other
than the Company) in an unbroken chain of corporations beginning with the
Company if (with respect to Incentive Stock Options, at the time of granting of
the Option), each of the corporations other than the last corporation in the
unbroken chain owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in the chain.

(w) "Termination of Employment" means the
termination of the employee-employer relationship between a Participant and the
Company (and its Parents and Subsidiaries), regardless of the fact that
severance or similar payments are made to the Participant, for any reason,
including, but not by way of limitation, a termination by resignation,
discharge, death, Disability or retirement. The Committee shall, in its
absolute discretion, determine the effect of all matters and questions relating
to Termination of Employment, including, but not by way of limitation, the
question of whether a leave of absence constitutes a Termination of Employment,
or whether Termination of Employment is for Cause.

3.
<PAGE> 6
SECTION 2 - THE STOCK INCENTIVE PLAN

2.1 The Purpose of the Plan. The Plan is intended to
provide an opportunity for directors, officers, key employees, and consultants
of the Company to acquire shares of Stock, or to receive compensation which is
based upon appreciation in the value of Stock. The Plan provides for the grant
of Incentive Stock Options, Non- Qualified Stock Options, Restricted Stock
Awards and Stock Appreciation Rights to aid the Company in retaining and
obtaining key personnel of outstanding ability.

2.2 Stock Subject to the Plan. Subject to adjustment in
accordance with Section 5.2, 10,000 shares of Stock (the "Maximum Plan Shares")
are hereby reserved exclusively for issuance pursuant to Stock Incentives. At
no time shall the Company have outstanding Stock Incentives and shares of Stock
issued in respect of Stock Incentives in excess of the Maximum Plan Shares
minus shares of Stock acquired by the Company pursuant to Sections 4.2 and 4.3.
These shares of Stock issued under the Plan may be either authorized and
unissued Stock or Stock held in the treasury of the Company, as shall be
determined by the Committee. If an Option or Stock Appreciation Right expires
or terminates for any reason without being exercised in full, or shares of
Stock issued under a Restricted Stock Award are transferred back to the Company
pursuant to the restrictions thereon other than pursuant to the Company's call
right pursuant to Section 4.2 or the Company's right of first refusal pursuant
to Section 4.3, the unpurchased shares subject to such Option or Stock
Appreciation Right, or the shares transferred back to the Company shall again
be available for purposes of the Plan.

After the first registration of an equity security under
Section 12 of the Securities Exchange Act of 1934, as amended ("SEC
Registration"), the Maximum Plan Shares shall also be reduced by any Stock
Incentive in which the holder receives one or more "benefits of ownership" (as
defined in applicable authority issued by the Securities and Exchange
Commission) prior to the cancellation, termination, expiration or lapse of such
Stock Incentive.

2.3 Administration of the Plan. The Plan shall be
administered by the Committee. The Committee shall have full authority in its
discretion to determine the directors, officers, key employees, and consultants
of the Company to whom Stock Incentives shall be granted and the terms and
provisions of Stock Incentives, subject to the Plan. Subject to the provisions
of the Plan, the Committee shall have full and conclusive authority to
interpret the Plan; to prescribe, amend and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of the respective
Stock Incentive Agreements and to make all other determinations necessary or
advisable for the proper administration of the Plan. The Committee's
determinations under the Plan need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, awards under
the Plan (whether or not such persons are similarly situated). The Committee's
decisions shall be final and binding on all Participants.

4.
<PAGE> 7
After the first SEC Registration, the Committee shall consist
of two or more directors, each of whom is (i) an "outside director" as that
term is used in Code Section 162(m) and (ii) a "disinterested person," as such
term is defined in Rule 16b-3 promulgated under Section 16 of the Securities
Exchange Act of 1934, as amended.

2.4 Eligibility and Limits. Stock Incentives may be
granted only to directors, officers, key employees, and consultants of the
Company, or of a Parent of Subsidiary of the Company; provided, however, that
an Incentive Stock Option may only be granted to an employee of any such
entity. In the case of Incentive Stock Options, the aggregate Fair Market
Value (determined as of the time an Incentive Stock Option is granted) of stock
with respect to which stock options intended to meet the requirements of Code
Section 422 become exercisable for the first time by an individual during any
calendar year under all plans of the Company and its Parents and Subsidiaries
shall not exceed $100,000.

SECTION 3 - TERMS OF STOCK INCENTIVES

3.1 Terms and Conditions of All Stock Incentives.

(a) The number of shares of Stock as to which a
Stock Incentive shall be granted shall be determined by the Committee in its
sole discretion, subject to the provisions of Section 2.2 as to the total
number of shares available for grants under the Plan.

(b) Each Stock Incentive shall be evidenced by a
Stock Incentive Agreement executed by the Company and the Participant, which
shall be in such form and contain such terms and conditions as the Committee in
its discretion may, subject to the provisions of the Plan, from time to time
determine.

(c) The date a Stock Incentive is granted shall
be the date on which the Committee has approved the terms and condition of the
Stock Incentive Agreement and has determined the recipient of the Stock
Incentive and the number of shares covered by the Stock Incentive and has taken
all such other action necessary to complete the grant of the Stock Incentive.

(d) Notwithstanding any vesting provisions
established pursuant to Sections 3.2, 3.3, or 3.4 of the Plan, the Committee
may provide that any unexpired Option may be exercised upon a Change in Control
of that any Stock Appreciation Right may become payable upon a Change in
Control as to the full number of shares of Stock covered by the Option or Stock
Appreciation Right without regard to the date of grant of the Option or Stock
Appreciation Right or that any Restricted Stock Award which has not been
previously forfeited shall be fully vested upon a Change in Control.

5.
<PAGE> 8
3.2 Terms and Conditions of Options. At the time any
Option is granted, the Committee shall determine whether the Option is to be an
Incentive Stock Option or a Non-Qualified Stock Option, and the Option shall be
clearly identified as to its status as an Incentive Stock Option or a
Non-Qualified Stock Option. At the time any Incentive Stock Option is
exercised, the Company shall be entitled to place a legend on the certificates
representing the shares of Stock purchased pursuant to the Option to clearly
identify them as shares of Stock purchased upon exercise of an Incentive Stock
Option. An Incentive Stock Option may only be granted within ten (10) years
from the earlier of the date the Plan is adopted or approved by the Company's
shareholders.

(a) Option Price. Subject to adjustment in
accordance with Section 5.2 and the other provisions of this Section 3.2, the
exercise price (the "Exercise Price") per share of Stock purchasable under any
Option shall be as set forth in the applicable Stock Incentive Agreement. With
respect to each grant of an Incentive Stock Option to a Participant who is not
an Over 10% Owner, the Option price per share shall not be less than the Fair
Market Value on the date the Option is granted. With respect to each grant of
an Incentive Stock Option to a Participant who is an Over 10% Owner, the Option
price per share shall not be less than 110% of the Fair Market Value on the
date the Option is granted.

(b) Option Term. Any Incentive Stock Option
granted to a Participant who is not an Over 10% Owner shall not be exercisable
after the expiration of ten (10) years after the date the option is granted.
Any Incentive Stock Option granted to an Over 10% Owner shall not be
exercisable after the expiration of five (5) years after the date the Option is
granted.

(c) Payment. Payment for all shares of Stock
purchased pursuant to exercise of an option shall be made in cash or, if the
Stock Incentive Agreement provides, by delivery to the Company of a number of
shares of Stock which have been owned by the holder for at least six (6) months
prior to the date of exercise having an aggregate Fair Market Value of not less
than the product of the Exercise Price multiplied by the number of shares the
Participant intends to purchase upon exercise of the Option on the date of
delivery. In addition, the Stock Incentive Agreement may provide for cashless
exercise through a brokerage transaction following registration of the
Company's equity securities under Section 12 of the Securities Exchange Act of
1934. Except as provided in subparagraph (g) below, payment shall be made at
the time that the Option or any part thereof is exercised, and no shares shall
be issued or delivered upon exercise of an option until full payment has been
made by the Participant. The holder of an Option, as such, shall have none of
the rights of a stockholder.

(d) Conditions to Exercise of an Option. Each
Option granted under the Plan shall be exercisable at such time or times, or
upon the occurrence of such event or events, and in such amounts, as the
Committee shall specify in the Stock Incentive Agreement; provided, however,
that subsequent to the grant of an Option, the Committee, at any time before
complete termination of such Option, may accelerate the time or times at which
such Option may be exercised in whole or in part.

6.
<PAGE> 9
(e) Nontransferability of Options. Except as
provided in subparagraph (g) below, an Option shall not be transferable or
assignable except by will or by the laws of descent and distribution and shall
be exercisable, during the Participant's lifetime, only by the Participant, or
in the event of the Disability of the Participant, by the legal representative
of the Participant.

(f) Termination of Incentive Stock Option. With
respect to an Incentive Stock Option, in the event of Termination of Employment
of a Participant, the Option or portion thereof held by the Participant which
is unexercised shall expire, terminate, and become unexercisable no later than
the expiration of three (3) months after the date of Termination of Employment;
provided, however, that in the case of a holder whose Termination of Employment
is due to death or Disability, one year shall be substituted for such three (3)
month period. For purposes of this subparagraph (f), Termination of Employment
of the Participant shall not be deemed to have occurred if the Participant is
employed by the Parent or Subsidiary or by another corporation (or Parent or
Subsidiary corporation of such other corporation) which has assumed the
Incentive Stock Option of the Participant in a transaction to which Code
Section 424(a) is applicable.

(g) Special Provisions for Certain Substitute
Options. Notwithstanding anything to the contrary in this Section 3.2, any
Option in substitution for a Stock Option previously issued by another entity,
which substitution occurs in connection with a transaction to which Code
Section 424(a) is applicable, may provide for an exercise price computed in
accordance with such Code Section and the regulations thereunder and may
contain such other terms and conditions as the Committee may prescribe to cause
such substitute Option to contain as nearly as possible the same terms and
conditions (including the applicable vesting and termination provisions) as
those contained in the previously issued Option being replaced thereby.

3.3 Terms and Conditions of Stock Appreciation Rights. A
Stock Appreciation Right may be granted in connection with all or any portion
of a previously or contemporaneously granted Option or not in connection with
an Option. A Stock Appreciation Right shall entitle the Participant to receive
upon exercise or payment the excess of (1) the Fair Market Value of a specified
number of shares of the Stock at the time of exercise over (2) a specified
price which shall be not less than the Option exercise price for that number of
shares in the case of a Stock Appreciation Right granted in connection with a
previously or contemporaneously granted Option, or in the case of any other
Stock Appreciation Right not less than one hundred percent (100%) of the Fair
Market Value of that number of shares of Stock at the time the Stock
Appreciation Right was granted. A Stock Appreciation Right granted in
connection with an Option may only be exercised to the extent that the related
Option has not been exercised. The exercise of a Stock Appreciation Right
shall result in a pro rata surrender of the related Option to the extent the
Stock Appreciation Right has been exercised.

7.
<PAGE> 10
(a) Payment. Upon exercise or payment of a Stock
Appreciation Right, the Company shall pay to the Participant the appreciation
in cash or shares of Stock (at the aggregate Fair Market Value on the date of
payment or exercise) as provided in the Stock Incentive Agreement or, in the
absence of such provision, as the Committee may determine.

(b) Conditions to Exercise. Each Stock
Appreciation Agreement granted under the Plan shall be exercisable at such time
or times, or upon the occurrence of such event or events, and in such amounts,
as the Committee shall specify in the SAR Agreement; provided, however, that
subsequent to the grant of a Stock Appreciation Right, the Committee, at any
time before complete termination of such Stock Appreciation Right, may
accelerate the time or times at which such Stock Appreciation Right may be
exercised in whole or in part.

(c) Nontransferability of Stock Appreciation
Right. A Stock Appreciation Right shall not be transferable or assignable
except by will or by the laws of descent and distribution and shall be
exercisable, during the Participant's lifetime, only by the Participant, or in
the event of the Disability of the Participant, by the legal representative of
the Participant.

3.4 Terms and Conditions of Restricted Stock Awards.
Shares awarded pursuant to Restricted Stock Awards shall be subject to
restrictions for periods determined by the Committee. The Committee shall have
the power to permit, in its discretion, an acceleration of the expiration of
the applicable restriction period with respect to any part or all of the shares
awarded to a Participant. The Committee may require a cash payment from the
Participant in an amount no greater than the aggregate Fair Market Value of the
shares of Stock awarded determined at the date of grant in exchange for the
grant of a Restricted Stock Award or may grant a Restricted Stock Award without
the requirement of a cash payment.

SECTION 4 - RESTRICTIONS ON STOCK

4.1 Escrow of Shares. Any certificates representing the
shares of Stock issued under the Plan shall be issued in the Participant's
name, but shall be held by a custodian designated by the Committee (the
"Custodian"). Each Stock Incentive Agreement shall appoint the Custodian as
the attorney-in-fact for the Participant for a term specified in the Stock
Incentive Agreement, with full power and authority in the Participant's name,
place and stead to transfer, assign, and convey to the Company any shares of
Stock held by the Custodian for such Participant, if the Participant forfeits
the shares or the Company repurchases the shares pursuant to its call right
pursuant to a Stock Incentive Agreement. During the period that the Custodian
holds the shares subject to this paragraph, the Participant shall be entitled
to all rights, except as provided in the Stock Incentive Agreement, applicable
to shares of Stock not so held.

4.2 Forfeiture of Shares. Notwithstanding any vesting
schedule set forth in any Stock Incentive Agreement, in the event that the
Participant violates a noncompetition agreement as set forth in the Stock
Incentive Agreement, all Stock Incentives and shares of Stock issued to the
holder pursuant to the Plan shall be forfeited; provided, however, that the
Company shall return to the holder the lesser of any consideration paid by the
Participant in exchange for Stock issued to the Participant pursuant to the
Plan or the then Fair Market Value of the Stock forfeited hereunder.

8.
<PAGE> 11
4.3 Repurchase by the Company. Except as provided in
Section 4.5, in the event of the Termination of Employment of the Participant,
the Company shall have the option to repurchase as provided in the Stock
Incentive Agreement the vested shares of Stock issued pursuant to the Plan.

4.4 Restrictions on Transfer.

(a) Limitations on Transfer. The Participant
shall not have the right to make or permit to exist any Disposition of the
share of Stock issued pursuant to the Plan except as provided in the Plan or
the Stock Incentive Agreement. Any Disposition of the shares of Stock issued
under the Plan by the Participant not made in accordance with the Plan or the
Stock Incentive Agreement shall be void. The Company shall not recognize, or
have the duty to recognize, any Disposition not made in accordance with the
Plan and the Stock Incentive Agreement, and the shares so transferred shall
continue to be bound by the Plan and the Stock Incentive Agreement.

(b) Right of First Refusal. Except as provided
in Section 4.5, at any time after the one (1) year period commencing on the
effective date of Termination of Employment, the Participant may make a
Disposition of shares issued pursuant to the Plan provided that the Participant
first shall afford the Company a right of first refusal with regard to such
shares as provided in the Stock Incentive Agreement.

4.5 Extension Termination of Restrictions on Transfer.

(a) Extension. If the Company is or becomes a
party to an agreement which prohibits the Company from exercising the right of
repurchase in Section 4.3 or the right of first refusal in Section 4.4(b), or,
if the exercise of such rights would cause the Company to breach any financial
or other covenants in any agreement in which the Company is a party, the period
for exercising those rights set forth in those paragraphs shall be extended
until the first anniversary of the date the Company is no longer subject to, or
obtains a waiver of, such prohibition or covenant.

(b) Early Termination. The restrictions
contained in Sections 4.3 and 4.4 shall terminate on the effective date of the
first Public Offering, as hereinafter defined. "Public Offering" shall mean
the offering for sale by the Company of securities of the same class as the
shares of Stock pursuant to a registration statement filed in accordance with
the Securities Act of 1933, as amended, or any comparable law then in effect,
and the effective date of any such Public Offering shall be the first day on
which the securities covered thereby may lawfully be offered and sold pursuant
to such registration statement.

9.
<PAGE> 12
4.6 Pledging of Stock. The Company may require a
Participant to pledge for the benefit of lenders of the Company any Stock
issued pursuant to the Plan if all other shareholders of the Company have
either pledged their shares of Stock or have been asked to pledge their shares
of Stock.

4.7 Stockholder Agreement. The Company may, as a
condition precedent to the issuance of any shares of Stock hereunder, require a
Participant to execute a stockholder, voting or similar agreement if all other
shareholders of the Company have either executed or been asked to execute such
an agreement.

SECTION 5 - GENERAL PROVISIONS

5.1 Withholding. Whenever the Company proposes or is
required to issue or transfer share of Stock under the Plan or upon the vesting
of any Restricted Stock Award, the Company shall have the right to require the
recipient to remit to the Company an amount sufficient to satisfy any federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such shares or the vesting of such Restricted
Stock Award. A Participant may pay the withholding tax in cash, or he may
elect to have the number of shares of Stock he is to receive reduced by, or
with respect to a Restricted Stock Award, tender back to the Company, the
smallest number of whole shares of Stock which, when multiplied by the fair
market value of the Shares determined as of the Tax Date (defined below), is
sufficient to satisfy federal, state, and local, if any, withholding taxes
arising from exercise of the Option (a "Withholding Election"). A Participant
may make a Withholding Election only if both of the following conditions are
met:

(a) The Withholding Election must be made on or
prior to the date on which the amount of tax required to be withheld is
determined (the "Tax Date") by executing and delivering to the Company a
properly completed notice of Withholding Election as prescribed by the
Committee; and

(b) Any Withholding Election made will be
irrevocable; however, the Committee may in its sole discretion disapprove and
give no effect to the Withholding Election.

5.2 Changes in Capitalization; Merger; Liquidation.

(a) The number of shares of Stock reserved for
the grant of Options, Stock Appreciation Rights and Restricted Stock Awards and
the number of shares of Stock reserved for issuance upon the exercise of each
outstanding Option, upon the exercise or payment of each Stock Appreciation
Right, and upon vesting of each outstanding Restricted Stock Award, and the
Exercise Price of each outstanding Option and the specified number of shares of
Stock to which each outstanding Stock Appreciation Right pertains shall be
proportionately adjusted by the Committee for any increase or decrease in the
number of issued shares of Stock (without any change in the aggregate price to
be paid for such shares) resulting from a change in par value, split-up, stock
split, reverse stock split, reclassification, distribution of common stock
dividend

10.
<PAGE> 13
or other similar capital adjustment or other increase or decrease in the number
of shares of Stock outstanding effected without receipt of consideration by the
Company. Any adjustment pursuant to this Subsection (a) may provide, in the
Committee's discretion, for the elimination of any fractional shares that might
otherwise become subject to any Stock Incentive without payment therefor.

(b) If the Company shall not be the surviving
corporation of any merger, consolidation or similar reorganization, the rights
related to each Stock Incentive outstanding immediately prior to the effective
time of such transaction shall be determined by and in accordance with the
agreement governing such merger, consolidation or similar reorganization.

(c) In the event of a Change in Control,
provision shall be made to cause each outstanding Option and Stock Appreciation
Right to become exercisable prior to a Change in Control and to terminate upon
the consummation of any Change in Control.

(d) Except as expressly provided in this Section
5.2, the holder of an Option or Stock Appreciation Right shall have no rights
by reason of any subdivision or combination of shares of Stock of any class or
the payment of any stock dividend or any other increase or decrease in the
number of shares of Stock of any class or by reason of any Change in Control or
distribution to the Company's shareholders of assets or stock of another
corporation. Except as expressly provided herein and except for any
distributions or adjustments made with respect to shares of Stock issued under
the Plan in connection with a distribution or adjustment made with respect to
all other outstanding shares of Stock, any issue by the Company of shares of
stock of any class, or securities convertible into shares of stock of any
class, shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Stock subject to any Stock
Incentive. The existence of the Plan and the Stock Incentives granted pursuant
to the Plan shall not affect in any way the right or power of the Company to
make or authorize any adjustment reclassification, reorganization or other
change in its capital or business structure, any merger or consolidation of the
Company, any issue of debt or equity securities having preferences or
priorities as to the Stock or the rights thereof, the dissolution or
liquidation of the Company, any sale or transfer of all or any part of its
business or assets, or any other corporate act or proceeding.

5.3 Cash Awards. The Committee may, at any time and in
its discretion, grant to any holder of a Stock Incentive the right to receive,
at such times and in such amounts as determined by the Committee in its
discretion, a cash amount which is intended to reimburse such person for all or
a portion of the federal, state and local income taxes imposed upon such person
as a consequence of the receipt of the Stock Incentive or the exercise of
rights thereunder.

5.4 Compliance with Code. All Incentive Stock Options to
be granted hereunder are intended to comply with Code Section 422, and all
provisions of the Plan and all Incentive Stock Options granted hereunder shall
be construed in such manner as to effectuate that intent.

11.
<PAGE> 14
5.5 Right to Terminate Employment. Nothing in the Plan
or in any Stock Incentive shall confer upon any Participant the right to
continue as an employee of the Company or any of its Parents or Subsidiaries or
affect the right of the Company or any of its Parents or Subsidiaries to
terminate the Participant's employment at any time.

5.6 Restrictions on Delivery and Sale of Shares; Legends.
Each Stock Incentive is subject to the condition that if at any time the
Committee, in its discretion, shall determine that the listing, registration or
qualification of the shares covered by such Stock Incentive upon any securities
exchange or under any state or federal law is necessary or desirable as a
condition of or in connection with the granting of such Stock Incentive or the
purchase or delivery of shares thereunder, the delivery of any or all shares
pursuant to such Stock Incentive may be withheld unless and until such listing,
registration or qualification shall have been effected. If a registration
statement is not in effect under the Securities Act of 1933 or any applicable
state securities laws with respect to the shares of Stock purchasable or
otherwise deliverable under Stock Incentives then outstanding, the Committee
may require, as a condition of exercise of any Option or as a condition to any
other delivery of Stock pursuant to a Stock Incentive, that the Participant or
other recipient of a Stock Incentive represent, in writing, that the shares
received pursuant to the Stock Incentive are being acquired for investment and
not with a view to distribution and agree that the shares will not be disposed
of except pursuant to an effective registration statement, unless the Company
shall have received an opinion of counsel that such disposition is exempt from
such requirement under the Securities Act of 1933 and any applicable state
securities laws. The Company may endorse on certificates representing shares
delivered pursuant to a Stock Incentive such legends referring to the foregoing
representations or restrictions or any other applicable restrictions on resale
as the Company in its discretion, shall deem appropriate.

5.7 Termination and Amendment of the Plan. The Plan may
be terminated, modified or amended either by the Board of Directors of the
Company or the Committee; provided, however, that no such termination,
modification or amendment without the consent of the holder of a Stock
Incentive shall adversely affect the rights of a Participant under such Stock
Incentive.

5.8 Shareholder Approval. The Plan shall be submitted to
the shareholders of the Company for their approval within twelve (12) months
before or after the adoption of the Plan by the Board of Directors of the
Company. If such approval is not obtained, any Stock Incentive granted
hereunder shall be void. Any subsequent amendment affecting an Incentive Stock
Option that requires shareholder approval under Code Section 422 shall be
effective only if such amendment is approved by the shareholders within twelve
(12) months before or after the adoption of such amendment. Furthermore, after
the first SEC Registration, any amendment requiring shareholder approval as
required by the insider trading rules of Section 16 of the Securities Exchange
Act of 1934, as amended, shall be approved by the shareholders pursuant to the
rules of such Section 16.

12.
<PAGE> 15
5.9 Effective Date of Plan. The Plan shall become
effective on March 4, 1995.

INTERMED HEALTHCARE SYSTEMS INC.

By:
-------------------------------
Title:
----------------------------

13.

<PAGE> 1
EXHIBIT 99.14

INCENTIVE STOCK OPTION AGREEMENT

THIS AGREEMENT is made and entered into as of this ____ day of
____________________, 199___ by and between INTERMED HEALTHCARE SYSTEMS INC.
(the "Company"), a Delaware corporation, and KEVIN H. ARNER (the "Optionee").

BACKGROUND

A. The Company has adopted the InterMed Healthcare
Systems Inc. 1995 Stock Incentive Plan (the "Plan") for the purpose of securing
and retaining the services of certain key employees of the Company, by
providing incentive to those who are primarily responsible for the operations
of the Company and for shaping and carrying out the long-range plans of the
Company and aiding in its continued growth and financial success.

B. A Committee of the Board of Directors of the Company
(the "Committee") has authorized the grant to Optionee of an incentive stock
option (as defined in Section 422 of the Internal Revenue Code of 1986, as
amended) under Plan Sections 3.1 and 3.2 to purchase shares of the common
stock, $.001 par value, of the Company ("Common Stock").

C. The Company and Optionee wish to confirm herein the
terms, conditions, and restrictions of the option.

For and in consideration of the premises, the mutual covenants
contained herein, and other good and valuable consideration, the parties hereto
agree:

SECTION 1
GRANT AND EXERCISE OF OPTION

1.1 Grant of Option. Subject to the terms, restrictions,
limitations, and conditions stated herein and in the Plan, the Company hereby
grants to Optionee an option (the "Option") to purchase
_________________________________ (________) shares of Common Stock (the
"Option Shares"). The Option herein granted is intended to be an incentive
stock option as defined in Section 422 of the Internal Revenue Code of 1986, as
amended. The date on which this Option was granted by the Board of Directors
of the Company pursuant to the Plan is ______________________, 199___ (the
"Grant Date").

1.2 Exercise of Option.

(a) The Option shall be exercisable during the
Option Period (as defined in Section 1.4) only to the extent of the number of
Vested Shares, determined pursuant to the vesting schedule attached hereto as
Schedule I (the "Vesting Schedule"), unless the Committee waives the Vesting
Schedule in which case all Option Shares shall become fully vested.
<PAGE> 2
(b) The Option may be exercised with respect to
all or any portion of the Vested Shares at any time during the Option Period by
the delivery to the Company, at its principal place of business, of (i) a
written notice of exercise, in substantially the form attached hereto as
Exhibit A, which shall be delivered to the Company no earlier than thirty (30)
days and no later than ten (10) days prior to the date upon which Optionee
desires to exercise all or any portion of the Option (the "Exercise Date"),
(ii) a certified check payable to the Company in the amount of the Exercise
Price multiplied by the number of Option Shares being purchased (the "Purchase
Price") or, at the discretion of the Committee, by delivery of a number of
shares of Common Stock, which have been held by Optionee for at least six
months, having a fair market value, as determined by the Committee, at least
equal to the Purchase Price, and (iii) a certified check payable to the Company
in the amount of all withholding tax obligations (whether federal, state or
local), imposed on the Company by reason of the exercise of the Option, or the
Withholding Election described in Section 1.2(c). Upon acceptance of such
notice, receipt of payment in full, and receipt of payment of all withholding
tax obligations, the Company shall cause a certificate representing the shares
of Common Stock purchased to be issued and delivered to the Share Custodian
pursuant to the instructions of Optionee as provided in Section 1.5.

(c) In lieu of paying the withholding tax
obligation in cash, as described in Section 1.2(b)(iii), Optionee may elect to
have the actual number of shares issuable upon exercise of the Option reduced
by the smallest number of whole shares of Common Stock which, when multiplied
by the fair market value of the Common Stock as of the date the Option is
exercised, is sufficient to satisfy the amount of the withholding tax
obligations imposed on the Company by reason of the exercise hereof (the
"Withholding Election"). Optionee may make a Withholding Election only if all
of the following conditions are met:

(i) the Withholding Election must be
made on or prior to the date on which the amount of tax required to be withheld
is determined (the "Tax Date") by executing and delivering to the Company a
properly completed Notice of Withholding Election, in substantially the form of
Exhibit B attached hereto;

(ii) any Withholding Election made will
be irrevocable; however, the Committee may, in its sole discretion, disapprove
and give no effect to any Withholding Election; and

(iii) if Optionee is required to file
beneficial ownership reports pursuant to Subsection (a) of Section 16 of the
Securities Exchange Act of 1934, at any time during the period in which the
Option is exercisable, then the Withholding Election must be made either (A) at
least six months prior to the Tax Date applicable to the exercise of the
Option, or (B) prior to the Tax Date and in any ten-day period beginning on the
third day following the release of the Company's quarterly or annual summary
statement of sales and earnings.

2.
<PAGE> 3
1.3 Exercise Price. The price for each share of Common
Stock for which the Option is exercised shall be $________ (the "Exercise
Price"), and the Company has determined in good faith that such Exercise Price
per share is not less than 110% of the fair market value per share of the
Company.

1.4 Term and Termination of Option. Except as otherwise
provided herein, the term of the Option (the "Option Period") shall commence on
the Grant Date and terminate at 5:00 p.m. Eastern Time on the date of the first
to occur of the following events:

(a) the 5th anniversary of the Grant Date;

(b) the Effective Date of Termination (as defined
below), unless the termination of employment is due to (i) termination by the
Company without Cause (as defined in Section 3.14(b)), (ii) termination by the
Company for Cause after five (5) years following the Grant Date, (iii) death or
(iv) Disability (as defined in Section 3.14(c)). In the event that termination
is due to (i) or (ii) above, the Option Period shall be extended until thirty
(30) days following such event. In the event the termination is due to (iii)
or (iv) above, the Option Period shall be extended until the first anniversary
of Optionee's date of death or Disability. Unless otherwise determined by the
Committee, the effective date of Termination of Employment (the "Effective Date
of Termination") shall be the effective date of such termination stated in any
notice of termination given by the Company or Optionee or in the event no such
notice of termination is given by either the Company or Optionee, then the date
on which Optionee last performs the duties of Optionee's employment or position
with the Company.

(c) The day immediately preceding the
consummation of a (i) dissolution or liquidation of the Company, (ii) merger of
the Company into another corporation, or any consolidation, share exchange,
combination, reorganization, or like transaction in which the Company is not
the survivor, (iii) sale or transfer (other than a security for the Company's
obligations) of at least a majority of the assets of the Company, or (iv) sale
or transfer of 50% or more of the issued and outstanding Common Stock by the
holders thereof in a single transaction or in a series of related transactions.
The Company will provide written notice to Optionee of such dissolution,
liquidation, merger, consolidation, acquisition, separation, reorganization or
sale, at least thirty (30) days prior to the closing of such transaction to
permit Optionee to exercise the Option to the extent it is then exercisable.

For purposes of this Section, an "affiliate" means a person or
entity that directly or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such specified
person.

Upon the expiration of the Option Period, this Option, and all unexercised
rights granted to Optionee hereunder shall terminate, and thereafter be null
and void.

3.
<PAGE> 4
1.5 Option Shares Held by the Share Custodian. Optionee
hereby authorizes and directs the Company to deliver any share certificate
issued by the Company upon exercise of this Option to the Secretary of the
Company or such other officer of the Company as may be designated by the
Committee (the "Share Custodian") to be held by the Share Custodian until the
first to occur of (i) the closing of a transaction described in Section 1.4(c);
(ii) a Public Offering (as defined in Section 3.14(e)); or (iii) the exercise,
waiver or termination of the right of the Company to repurchase the Option
Shares upon the cessation of Optionee's employment by the Company pursuant to
Section 2.3. The Share Custodian shall deliver the certificates evidencing the
Option Shares to:

(a) Optionee, immediately prior to the closing of
(i) a Public Offering or (ii) one of the transactions described in Section
1.4(c);

(b) Optionee, if the Company does not purchase
the Option Shares pursuant to Section 2.3 hereof, promptly after the waiver,
expiration or termination of the Company's rights under Section 2.3;

Optionee hereby irrevocably appoints the Share Custodian, and any successor
thereto, as the true and lawful attorney-in-fact of Optionee with full power
and authority to execute any stock transfer power or other instrument necessary
to transfer the Option Shares to the Company pursuant to Section 2.3, in the
name, place, and stead of Optionee. The term of such appointment shall
commence on the Grant Date and shall continue until the first to occur of the
events described in clauses (a), (b), or (c) above. During the period that the
Share Custodian holds the shares of Common Stock subject to this Section 1.5,
Optionee shall be entitled to all rights applicable to shares of Common Stock
not so held, provided, however, in the event the number of shares of Common
Stock is increased or reduced by changing par value, split-up, reverse stock
split, reclassification, merger, reorganization, consolidation, or otherwise,
and in the event of any distribution of Common Stock or other securities of the
Company in respect of such shares of Common Stock, Optionee agrees that any
certificate representing shares of Common Stock or other securities of the
Company issued as a result of any of the foregoing shall be delivered to the
Share Custodian and shall be subject to all of the provisions of this Agreement
as if initially purchased thereunder.

1.6 Rights as Stockholder. Optionee, or, if applicable,
the Transferee (as defined in Section 3.14(g)) shall have no rights as a
stockholder with respect to any shares covered by the Option until a stock
certificate for the shares is issued in Optionee's name. No adjustment to the
Option shall be made pursuant to Section 3.1 hereof for dividends paid or
declared on or with respect to Common Stock in cash, securities other than
Common Stock, or other property, for which the record date is prior to the date
of exercise hereof.

4.
<PAGE> 5
SECTION 2
RESTRICTION ON OPTION AND OPTION SHARES

2.1 Restrictions on Transfer of Option. The Option
evidenced hereby is nontransferable other than by will or the laws of descent
and distribution, and shall be exercisable during the lifetime of Optionee only
by Optionee (or the Transferee, if one has been appointed in the event of
Optionee's Disability).

2.2 Restrictions on Transfer of Option Shares. Any
Option Shares acquired upon exercise of the Option shall be subject to the
following restrictions:

(a) Except for transfers made in compliance with
Section 2.2(b) below, or as otherwise required or permitted hereunder, none of
the Option Shares may be conveyed, pledged, assigned, transferred,
hypothecated, encumbered, or otherwise disposed of by Optionee, or in the case
of exercise of an Option by a Transferee, by such Transferee. The foregoing
notwithstanding, the Committee may, but shall not be obligated to, approve the
transfer of such Option Shares upon the condition that the transferee thereof
execute and deliver to the Company such documents and agreements as the Company
shall reasonably require to evidence the fact that the Option Shares to be
owned, either directly or beneficially, by such transferee shall continue to be
subject to all the restrictions set forth in this Section 2.2 and all
applicable rights in favor of the Company set forth elsewhere herein, and that
such transferee is subject to and bound by such restrictions and provisions.
Any Option Shares transferred by bequest or by operation of the laws of descent
and distribution shall remain subject to the restrictions set forth in this
Section 2.2 and all applicable rights in favor of the Company set forth
elsewhere herein in the hands of any transferee thereof. Nothing contained
herein, however, shall be deemed to impose any requirement that any transferee
be an officer, director, or employee of or consultant to the Company.

(b) Except as provided pursuant to any pledge
pursuant to Section 2.6, the Option Shares may be transferred by Optionee:

(i) to a Transferee upon the death or
Disability of Optionee, provided that all such Option Shares shall remain
subject to the restrictions set forth in this Section 2.2 and all applicable
rights in favor of the Company set forth elsewhere herein in the hands of the
Transferee and of any subsequent transferee of the Transferee:

(ii) In a transaction described in
Section 1.4(c);

(iii) after the expiration of the Holding
Period (as defined in Section 3.14(d)), if Optionee (or, if the Option Shares
are owned or held by a Transferee, such Transferee) shall have complied with
the right of first refusal described in subsection (iv) below.

5.
<PAGE> 6
(iv) If Optionee (or, if the Option
Shares are owned or held by a Transferee, such Transferee) shall receive, after
the Holding Period, a bona fide offer from a third party for such third party
to purchase any Option Shares acquired upon exercise of this Option, which
offer Optionee or such Transferee intends to accept, Optionee or such
Transferee, as the case may be, before consummating the sale to such third
party, shall notify the Company in writing of such offer, which notice shall
state the number of Option Shares subject to such offer and the price and terms
of payment offered by such third party. The Company shall have thirty (30)
days after receipt by it of such notice within which to notify Optionee or such
Transferee, as the case may be, in writing, of its election to purchase all the
Option Shares which are the subject of such third party offer at the same price
and upon the same terms of payment and conditions as are contained in such
third party offer. Failure by the Company to give such written notice within
such thirty (30) day period shall constitute a rejection of such offer by the
Company. If the Company shall reject such offer or shall fail timely to accept
such offer, or if after timely accepting such offer the Company shall fail
timely to consummate the purchase of the Option Shares which are the subject of
that offer, then Optionee or such Transferee, as the case may be, shall be free
to sell the Option Shares which are the subject of such third party offer to
the third party at the price and upon the same terms and conditions as are set
forth in the third party offer, provided, however, if Optionee or such
Transferee, as the case may be, does not consummate such sale to the third
party within sixty (60) days after rejection by the Company of such offer or,
if such offer is timely accepted by the Company, after failure of the Company
timely to consummate such purchase, the Option Shares which were the subject of
such third party offer or agreement shall once again become subject to the
provisions of this Section 2.2(b), and any subsequent disposition of such
Option Shares shall be made only after compliance with the terms of this
Section 2.2(b). If the Company timely accepts such offer, the consummation by
the Company of the purchase of the Option Shares which are the subject of that
offer shall be held at the offices of the Company not later than thirty (30)
days following the date the Company gives written notice of its acceptance of
such offer.

2.3 Company's Right to Purchase. During the Holding
Period, the Company shall have the right, but not the obligation, to purchase
from Optionee (or in the case where Option Shares are owned or held by a
Transferee, such Transferee) all or any portion of the Option Shares acquired
by Optionee or such Transferee upon exercise of this Option. Upon the death or
Disability of Optionee, the Company shall be obligated to purchase from
Optionee (or if held by a Transferee, such Transferee) all Option Shares
acquired by Optionee upon exercise of this Option. The purchase price shall be
the Call Price (determined in accordance with Section 2.4), multiplied by the
number of Option Shares the Company is repurchasing. The Company shall
exercise its right to repurchase pursuant to this Section 2.3 by giving written
notice thereof to Optionee or such Transferee, as the case may be, which notice
shall specify the Effective Date of Termination, and the number of Option
Shares held by Optionee or such Transferee as to which the Company is
exercising its repurchase right. The repurchase by the Company, and the sale
by Optionee or such Transferee, as the case may be, of such Option Shares shall
be consummated at a closing to be held at the offices of the Company not later
than thirty (30) days following the date the Company gives written notice of
its exercise of such repurchase right or one hundred twenty (120) days
following the Effective Date of Termination

6.
<PAGE> 7
for any Termination of Employment as a result of the death or Disability of
Optionee. If the purchase price for the Option Shares is less than or equal to
$100,000, the purchase price shall be paid in cash or by the Company's
certified check against delivery of the Option Shares being repurchased at
closing. If the purchase price for the Option Shares is greater than $100,000,
the first $100,000 payable by the Company shall be paid in cash or by certified
check, and the balance due shall be paid by delivery of a promissory note
payable quarterly in substantially equal installments over a period of five (5)
years, bearing interest at the rate of interest announced publicly by Nations
Bank of Atlanta in Atlanta, Georgia, from time to time, as its "Prime Rate",
plus one (1%) percent, which promissory note shall be secured by a pledge of
the Option Shares being purchased.

2.4 Determination of Call Price. If Optionee's
employment with the Company is terminated for Cause within five (5) years of
the Grant Date, the Call Price shall be the lesser of the Exercise Price or the
Fair Market Value. In all other circumstances, the Call Price shall equal the
Fair Market Value. As used herein, "Fair Market Value" of any Option Share
means the fair market value of a share of Common Stock (on a fully diluted
basis) as of the last day of the most recent fiscal quarter for which financial
information is available, as determined in good faith by the Committee. In
making such determination, the Committee may take into account factors that it,
in good faith, deems relevant to such valuation, including the absence of a
trading market, the minority status of the Option Shares, and such other facts
and circumstances deemed material to the value of the Option Shares in the
hands of Optionee. Optionee may confer with the independent auditors retained
by the Company with respect to the reasonableness of the Call Price as
determined by the Committee.

2.5 Noncompetition. As a condition to preserving the
benefits provided by this Agreement, the Optionee agrees to refrain from either
directly or indirectly, on the Optionee's own behalf or in the service or on
behalf of others as a principal, partner, officer, director, manager,
supervisor, administrator, consultant or employee engaged in any Business
Competing with the business of the Company (as defined in Section 3.14(a))
while an employee of the Company and for a period ending one year from
termination of employment for Cause, and for a period ending one year from
termination of employment for Cause, and for a period ending nine (9) months
following the Effective Date of Termination for any reason other than for
Cause. In the event that the Committee determines in good faith that the
Optionee has violated the provisions of this Section, then notwithstanding any
other provisions contained in this Agreement, (i) the Optionee (or his heir,
legatee or Transferee) shall forfeit any further right to exercise any
unexercised portion of the Option; and (ii) any Option Shares previously
exercised shall be immediately canceled, and the Company shall refund the
lesser of the Purchase Price paid by the Optionee, without interest, or the
then Fair Market Value of the Option Shares.

2.6 Pledging of Option Shares. If the Company incurs
indebtedness and in connection therewith, at the time the Optionee exercises
his Option, all other shareholders of the Company have either pledged their
shares of Common Stock, or have been asked to pledge their shares of Common
Stock for the benefit of certain lenders of the Company, the Optionee, if so
reasonably requested by the Company, shall pledge any exercised Option Shares
on the same

7.
<PAGE> 8
terms and conditions as the other shareholders of the Company and shall take
such actions as may be required to accomplish the pledge as may be reasonably
requested by the Company.

2.7 Termination of Restrictions. The restrictions
contained in this Section 2 shall continue in effect, notwithstanding the
earlier termination or expiration of this Agreement, until the first to occur
of (i) a Public Offering or (ii) ten (10) years after the Effective Date of
Termination.

2.8 Delivery of Certificate. At any closing of a
purchase by the Company of Option Shares pursuant to Sections 2.2 or 2.3
hereof, a certificate representing the Option Shares purchased by the Company,
duly endorsed for transfer to the Company, shall be delivered by the Share
Custodian to the Company at the Closing, and upon receipt of the certificate,
the Company shall pay the consideration for the Option Shares; provided that if
the certificate representing the Option Shares purchased by the Company is not
delivered, duly endorsed, to the Company at the Closing, the Company shall have
the right to cancel such shares upon payment therefor by the Company.

2.9 Stockholder Agreement. The Company may, as a
condition precedent to the issuance of any certificate evidencing Option
Shares, require Optionee to execute a stockholder voting, or similar agreement
if all other shareholders of the Company have either executed or been asked to
execute such an agreement.

SECTION 3
GENERAL PROVISIONS

3.1 Change in Capitalization. If the number of
outstanding shares of the Common Stock shall be increased or decreased by a
change in par value, split-up, stock split, reverse stock split,
reclassification, distribution of common stock dividend, or other similar
capital adjustment, an appropriate adjustment shall be made by the Committee in
the manner set forth in the Plan. All adjustments made by the Committee under
this Section shall be final, binding, and conclusive.

3.2 Legends. Each certificate representing the Option
Shares purchased upon exercise of this Option shall be endorsed with the
following legend and Optionee shall not make any transfer of the Option Shares
without first complying with the restrictions on transfer described in such
legend:

TRANSFER IS RESTRICTED

THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF
FIRST REFUSAL AND OTHER RESTRICTIONS ON TRANSFER SET FORTH IN AN
INCENTIVE STOCK OPTION AGREEMENT DATED MARCH 4, 1995, A COPY OF WHICH
IS AVAILABLE FROM THE COMPANY.

8.
<PAGE> 9
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, OR HYPOTHECATED UNLESS (1) THERE IS AN
EFFECTIVE REGISTRATION UNDER SUCH ACT COVERING SUCH SECURITIES, (2)
THE TRANSFER IS MADE IN COMPLIANCE WITH RULE 144 PROMULGATED UNDER
SUCH ACT, OR (3) THE ISSUER RECEIVES AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT.

Optionee agrees that the Company may also endorse any other
legends required by applicable federal or state securities laws.

The Company need not register a transfer of the Option Shares,
and may also instruct its transfer agent, if any, not to register the transfer
of the Option Shares unless the conditions specified in the foregoing legends
are satisfied.

3.3 Removal of Legend and Transfer Restrictions.

(a) Any legend endorsed on a certificate pursuant
to Section 3.2 hereof and the stop transfer instructions with respect to the
Option shares shall be removed and the Company shall issue a certificate
without such legend to the holder thereof if such Option Shares are registered
under the Securities Act of 1933 and a prospectus meeting the requirements of
Section 10 of the Securities Act of 1933 is available.

(b) The restrictions described in the second
sentence of the legend set forth in Section 3.2 hereof may be removed at such
time as permitted by Rule 144(k) promulgated under the Securities Act of 1933.

3.4 Governing Laws. This Agreement shall be construed,
administered and enforced according to the laws of the State of Georgia,
provided, however, no option may be exercised except, in the reasonable
judgment of the Committee, in compliance with exemptions under applicable state
securities laws of the state in which Optionee resides, and/or any other
applicable securities laws.

3.5 Successors. This Agreement shall be binding upon and
inure to the benefit of the heirs, legal representatives, successors, and
permitted assigns of the parties.

3.6 Notice. Except as otherwise specified herein, all
notices and other communications under this Agreement shall be in writing and
shall be deemed to have been given if personally delivered, if mailed by
overnight delivery or if sent by registered or certified United States mail,
return receipt requested, postage prepaid, addressed to the proposed recipient
at the last known address of the recipient. In each case, each notice or other
communication shall be

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<PAGE> 10
deemed to have been received on the earlier of the date of actual receipt or
the date that is three (3) days after the date on which such notice or other
communication was mailed or sent. Any party may designate any other address to
which notices shall be sent by giving notice of the address to the other
parties in the same manner as provided herein.

3.7 Severability. In the event that any one or more of
the provisions or portion thereof contained in this Agreement shall for any
reason be held to be invalid, illegal, or unenforceable in any respect, the
same shall not invalidate or otherwise affect any other provisions of this
Agreement, and this Agreement shall be construed as if the invalid, illegal or
unenforceable provision or portion thereof had never been contained herein.

3.8 Entire Agreement. Subject to the terms and
conditions of the Plan, this Agreement expresses the entire understanding and
agreement of the parties with respect to the subject matter hereof. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original but all of which shall constitute one and the same
instrument.

3.9 Violation. Any transfer, pledge, sale, assignment,
or hypothecation of the Option or any portion thereof shall be violation of the
terms of this Agreement and shall be void and without effect.

3.10 Headings. Paragraph headings used herein are for
convenience of reference only and shall not be considered in construing this
Agreement.

3.11 Specific Performance. In the event of any actual or
threatened default in, or breach of, any of the terms, conditions and
provisions of this Agreement, the party or parties who are thereby aggrieved
shall have the right to specific performance and injunction in addition to any
and all other rights and remedies at law or in equity, and all such rights and
remedies at law or in equity, and all such rights and remedies shall be
cumulative.

3.12 No Employment Rights Created. Neither the
establishment of the Plan nor the grant of the Option hereunder shall be
construed as giving Optionee the right to continued employment with the
Company.

3.13 Special Limitation on Exercise. Notwithstanding
anything contained herein to the contrary, no purported exercise of the Option
shall be effective without the written approval of the Company, which approval
may be withheld if the exercise of this Option, together with the exercise of
other previously exercised stock options and/or offers and sales pursuant to
any prior or contemplated offering of securities, would, in the sole and
absolute judgment of the Company, require the filing of a registration
statement with the United States Securities and Exchange Commission, or with
the securities commission of any state. The Company shall avail itself of any
exemptions from registration contained in applicable federal and state
securities laws which are reasonably available to the Company on terms which,
in its sole and absolute discretion, it deems reasonable and not unduly
burdensome or costly. If the Option cannot be exercised at the time it would
otherwise expire due to the restrictions contained in this

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<PAGE> 11
Section 3.13, the exercise period may, upon request of Optionee, be extended
for successive one-year periods until it can be exercised in accordance with
this Section 3.13. Any attempt by the Optionee to exercise the Option that is
not effective due to the restrictions contained in this Section 3.13 shall be
deemed to be a request for a one-year extension period under the preceding
sentence. Optionee shall deliver to the Company, prior to the exercise of the
Option, such information representations, and warranties as the Company may
reasonably request in order for the Company to be able to satisfy itself that
the Option is being acquired in accordance with the terms of an applicable
exemption from the securities registration requirements of applicable federal
and state securities laws.

3.14 Certain Definitions. The capitalized terms listed
below are used herein with the meaning thereafter ascribed:

(a) "Business Competing with the Business of the
Company" means the business of research and development of healthcare
information systems.

(b) "Cause" shall have the same meaning as
provided in the employment agreement between Optionee and the Company on the
date of Termination of Employment, or if no such definition or employment
agreement exist, as provided in the shareholders' agreement to which Optionee
is a party on the date of Termination of Employment, or if no such definition
or shareholders' agreement exists, "Cause" means conduct amounting to (i) fraud
or dishonesty against the Company, (ii) Optionee's willful misconduct, repeated
refusal to follow the reasonable directions of the Board of Directors of the
Company, or knowing violation of law in the course of performance of the duties
of Optionee's employment with the Company, (iii) repeated absences from work
without a reasonable excuse, (iv) repeated intoxication with alcohol or drugs
while on the Company's premises during regular business hours, (v) a conviction
or plea of guilty or nolo contendere to a felony or a crime involving
dishonesty against the Company, or (vi) a breach or violation of the terms of
any employment or other agreement to which Optionee and the Company are party.

(c) "Disability" shall have the same meaning as
provided in the employment agreement between Optionee and the Company on the
date the Optionee ceases active work due to a disability, or if no such
definition or employment agreement exist, as provided in the shareholders'
agreement to which Optionee is a party on the date the Optionee ceases active
work due to a disability, or if no such definition or shareholders' agreement
exist, "Disability" means (i) the inability of Optionee to perform the duties
of Optionee's employment due to physical or emotional incapacity or illness,
where such inability is expected to be of long-continued and indefinite
duration or (ii) Optionee shall be entitled to (x) disability retirement
benefits under the federal Social Security Act or (y) recover benefits under
any long-term disability plan or policy maintained by the Company. In the
event of a dispute, the determination of Disability shall be made by the
Committee and shall be supported by advice of a physician competent in the area
to which such Disability relates.

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<PAGE> 12
(d) "Holding Period" means a one hundred eighty
day period which commences on the Effective Date of Termination.

(e) "Public Offering" means the offering for sale
by the Company of securities of the same class as the Option Shares pursuant to
a Registration Statement filed in accordance with the Securities Act of 1933,
as amended, or any comparable law then in effect, and the effective date of any
such Public Offering shall be the first day on which the securities covered
thereby may lawfully be offered and sold pursuant to such Registration
Statement.

(f) "Termination of Employment" means the
termination of the employee-employer relationship between Optionee and the
Company (and its parents and subsidiaries) for any reason, including, without
limitation, a termination by resignation, discharge, death, Disability, or
retirement, notwithstanding that severance or similar payments are made to
Optionee. The Committee shall, in good faith and in its absolute discretion,
determine the effect of all matters and questions relating to Termination of
Employment, including whether a leave of absence constitutes a Termination of
Employment, or whether a Termination of Employment is for Cause.

(g) "Transferee" means the estate, or the
executor or administrator of the estate of a deceased Optionee, or the personal
representative of an Optionee suffering a Disability, if such a personal
representative has been appointed.

IN WITNESS WHEREOF, the parties have executed and sealed this
Agreement on the day and year first set forth above.

INTERMED HEALTHCARE SYSTEMS,
INC.

By:
------------------------

ATTEST:

- ----------------------

[CORPORATE SEAL] KEVIN H. ARNER

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12.