Exhibit 10.6

                         CITADEL SECURITY SOFTWARE INC.
                            2002 STOCK INCENTIVE PLAN

     SECTION 1. General Purpose of Plan; Definitions.

     The name of this plan is the Citadel Security Software Inc. 2002 Stock
Incentive Plan (the "Plan"). The purpose of the Plan is to enable Citadel
Security Software Inc. (the "Company") and its Subsidiaries to attract and
retain selected directors, officers, employees and consultants who contribute to
the Company's success by their ability, ingenuity and industry, and to enable
these directors, officers, employees and consultants to participate in the
long-term success and growth of the Company through an equity interest in the
Company.

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

     "16b-3 Non-Employee Director" means a "non-employee director" as defined in
Rule 16b-3 of the Exchange Act.

     "Affiliate" means (i) any corporation (other than a Subsidiary),
partnership, joint venture or any other entity in which the Company owns,
directly or indirectly, at least a 10 percent beneficial ownership interest.

     "Annual Bonus" or "Bonus" means the annual cash bonus, if any, payable by
the Company to an Eligible Executive for services to the Company or any of its
affiliates, as such amount may be determined from year to year.

     "Annual Compensation" means the annual cash retainer and meeting fees, if
any, payable by the Company to a Non-Employee Director for services as a
director (and, if applicable, as the member or chairman of a committee of the
Board) of the Company, as such amount may be changed from time to time. The
Company has not historically paid such compensation to Non-Employee Directors
and may or may not pay such compensation in the future.

     "Beneficiary" means any person or persons designated by a Participant, in
accordance with procedures established by the Committee or Plan Administrator,
to receive benefits hereunder in the event of the Participant's death. If any
Participant shall fail to designate a Beneficiary or shall designate a
Beneficiary who shall fail to survive the Participant, the Beneficiary shall be
the Participant's surviving spouse, or, if none, the Participant's surviving
descendants (who shall take per stirpes) and if there are no surviving
descendants, the Beneficiary shall be the Participant's estate.

     "Board" means the Board of Directors of the Company.

     "Bonus Election Date" means the date established by the Plan Committee as
the date by which a Participant must submit a valid Election Form for Bonus to
the Plan Administrator in order to defer Annual Bonus under the Plan for a
calendar year. For each calendar year, the Bonus Deferral Election Date is
December 31 of the calendar year prior to which the Bonus is to be earned.

     "Business Day" means a day on which the Over the Counter Bulletin Board or
any national securities exchange or electronic or over-the-counter market on
which the Stock is traded is open for business.

     "Cause" means a Participant's willful misconduct or dishonesty, any of
which is directly and materially harmful to the business or reputation of the
Company or any Subsidiary or Affiliate.

     "Change in Control" means any of the following through a transaction or
series of transactions that occur(s) after the registration of the Company's
Stock registered pursuant to the Exchange Act:



          (i)   when any "person", as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company or a Subsidiary or any Company
employee benefit plan), is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of the Company's
then outstanding securities;

          (ii)  the occurrence of any transaction or event relating to the
Company that is required to be described pursuant to the requirements of Item
6(e) of Schedule 14A of Regulation 14A of the Securities and Exchange Commission
under the Exchange Act;

          (iii) when, during any period of two consecutive years during the
existence of the Plan, the individuals who, at the beginning of such period,
constitute the Board, cease for any reason other than death, Disability or
Retirement to constitute at least a majority of the Board, unless each director
who was not a director at the beginning of such period was elected by, or on the
recommendation of, at least two-thirds of the directors at the beginning of such
period;

          (iv)  the Company is combined (through merger, share exchange,
consolidation or otherwise) and, as a result of such transaction, less than 50%
of the combined voting power of the outstanding securities of the surviving or
resulting corporation are owned in the aggregate by the former stockholders of
the Company;

          (v)   the Company sells, leases or otherwise transfers all or
substantially all of its properties or assets to another person or entity; or

          (vi)  a dissolution or liquidation of the Company or a partial
liquidation involving 50% or more of the assets of the Company occurs.

     "Change of Control Price" is defined in Section 14(d) of the Plan.

     "Code" means the Internal Revenue Code of 1986, as amended, or any
successor to the Internal Revenue Code of 1986.

     "Commission" means the Securities and Exchange Commission.

     "Committee" means the special committee approved by the Board solely for
the purpose of administering the Plan and other similar acts which will be
composed of at least two directors and all members of this special committee
will be composed of only "outside directors" within the meaning of Section
162(m) of the Code that are also 16b-3 Non-Employee Directors. If at any time no
Committee shall be in office, then the functions of the Committee specified in
the Plan shall be exercised by the Board.

     "Company" means Citadel Security Software Inc., a corporation organized
under the laws of the State of Delaware (or any successor corporation).

     "Covered Employee" means an individual who the Committee determines is, or
is expected to be as of the relevant date for determining the Company's tax
deduction, a covered employee as defined in Section 162(m)(3) of the Code with
respect to the Company.

     "Deferral Period" is defined in Section 9(a) of the Plan.

     "Deferred Stock" means an award made pursuant to Section 9 below of the
right to receive Stock at the

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end of a specified deferral period.

     "Director Stock Option" means any option to purchase shares of Stock
granted to members of the Board under Section 6 or 10.


     "Disability" means total and permanent disability as determined under the
Company's long-term disability program, whether or not the Optionee is covered
under such program. If no such program is in effect, the Disability of a
Participant shall be determined in good faith by the Board (excluding the
Participant, if applicable).

     "Elective Deferral" period is defined in Section 9(b) of the Plan.

     "Eligible Executive" means an executive officer of the Company, a
Subsidiary or an Affiliate, as such officers may be selected by the Chairman of
the Board of Directors or the Committee or its designee from year to year, to be
eligible for Executive Compensation Stock Options pursuant to Section 10 below.

     "Election Form for Annual Compensation" means a form, substantially in the
form attached hereto as Exhibit C, pursuant to which a Non-Employee Director
elects to convert Annual Compensation to Options under Section 10 of the Plan.

     "Election Form for Bonus" means a form, substantially in the form attached
hereto as Exhibit B, pursuant to which an Eligible Executive elects to convert
Bonus to Options under Section 10 of the Plan.

     "Election Form for Salary" means a form, substantially in the form attached
hereto as Exhibit A, pursuant to which an Eligible Executive elects to convert
Salary to Options under Section 10 of the Plan.

     "Exchange Act" means the Securities Exchange Act of 1934, as amended, and
any successor thereto.

     "Fair Market Value" means, as of any given date, (i) the closing price per
share of the Stock on the Over the Counter Bulletin Board or, (ii) if the Stock
is not then traded on the Over the Counter Bulletin Board, then the closing
price per share of the Stock on any national securities exchange or electronic
or over-the-counter market on which the Stock is then traded or, (iii) if the
Stock is not then traded on the Over the Counter Bulletin Board or any national
securities exchange or electronic or over-the-counter market, then the fair
market value of the Stock as determined by a formula or method determined by the
Committee.

     "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.

     "Non-Employee Director" means a director of the Company who is not an
employee or officer of the Company, or any Subsidiary or Affiliate (as
determined by the Committee).

     "Non-Employee Director Election Date" means the date by which a
Non-Employee Director must submit a valid Election Form for Annual Compensation
to the Plan Administrator in order to participate under Section 10 of the Plan
for a calendar year. For each calendar year, the Election Date is December 31 of
the preceding calendar year; provided, however, that the Non-Employee Director
Election Date for a newly eligible Non-Employee Director shall be the 30th day
following the date on which such individual becomes a Non-Employee Director.

     "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.

     "Normal Retirement" means retirement from active employment with the
Company, any Subsidiary

                                       3



and any Affiliate on or after the normal retirement date specified in the
applicable tax-qualified company pension plan, and, if no such pension plan
exists, then retirement from active employment with the Company, any Subsidiary
and any Affiliate on or after the attainment of age 65 by the Participant.

     "Option Grant Date" means the date upon which a Stock Option is granted to
a Participant pursuant to Article 5 or, for purposes of Section 10, the dates
specified in Section 10.

     "Optionee" means a consultant, officer or key employee to whom a Stock
Option has been granted or, in the event of such individual's death prior to the
expiration of a Stock Option, such individual's Beneficiary.

     "Participant" means any director, consultant, officer or key employee who
has been awarded a Stock Option, Director Stock Option, Restricted Stock, Stock
Appreciation Right or Deferred Stock Right under the Plan.

     "Plan" means this 2002 Stock Incentive Plan.

     "Plan Administrator" means the Committee or any agent to whom the Committee
delegates administrative duties under the Plan, as the case may be.

     "Potential Change of Control" is defined in Section 14(c) of the Plan.

     "Restricted Stock" means an award of shares of Stock that are subject to
restrictions under Section 8.

     "Restricted Stock Award Agreement" is defined in Section 8(b) of the Plan.

     "Restriction Period" is defined in Section 8(c) of the Plan.

     "Salary" means the salary payable by the Company to an Eligible Executive
for services to the Company, a Subsidiary or any Affiliate, as such amount may
be changed from time to time.

     "Salary Election Date" means the date established by the Plan as the date
by which a Participant must submit a valid Election Form for Salary to the Plan
Administrator in order to convert Salary to Options under Section 10 of the Plan
for a calendar year. For each calendar year, the Salary Election Date is
December 31 of the preceding calendar year.

     "Stock Option Award Notice" means a written award notice to an Eligible
Executive or a Non-Employee Director from the Company evidencing an Option.

     "Stock" means the common stock of the Company, par value $0.01 per share.

     "Stock Appreciation Right" means a right granted under Section 7 below to
surrender to the Company all or a portion of a Stock Option in exchange for an
amount equal to the difference between (i) the Fair Market Value, as of the date
such Stock Option or such portion of such Stock Option is surrendered, of the
shares of Stock covered by such Stock Option or such portion of such Stock
Option, and (ii) the aggregate exercise price of such Stock Option or such
portion of such Stock Option.

     "Stock Option" or "Option" means any option to purchase shares of Stock
granted pursuant to Section 5, 6 or 10 or the Plan.

     "Subsidiary" means any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company if each of the corporations
(other than the last corporation in the unbroken chain)

                                       4



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.

     SECTION 2. Administration.

     The Plan shall be administered by the Committee which shall at all times
comply with the requirements of Rule 16b-3 of the Exchange Act. All members of
the Committee shall also be "outside directors" within the meaning of Section
162(m) of the Code.

     The Committee shall have the power and authority to grant to eligible
individuals, pursuant to the terms of the Plan: (i) Stock Options; (ii) Stock
Appreciation Rights; (iii) Restricted Stock or (iv) Deferred Stock.

     In particular, the Committee shall have the authority (except where the
Plan expressly grants such authority to the Board):

          (i)   to select the consultants, directors, officers and other key
employees of the Company, its Subsidiaries and its Affiliates to whom Stock
Options, Stock Appreciation Rights, Restricted Stock or Deferred Stock awards or
a combination of the foregoing from time to time will be granted under the Plan;

          (ii)  to determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock or
Deferred Stock, or a combination of the foregoing, are to be granted under the
Plan;

          (iii) to determine the number of shares of Stock to be covered by each
such award granted under the Plan;

          (iv)  to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder, including, but not limited
to, any restriction on any Stock Option or other award and/or the shares of
Stock relating thereto based on performance and/or such other factors as the
Committee may determine, in its sole discretion, any vesting acceleration
features based on performance and/or such other factors as the Committee may
determine, in its sole discretion, reload features, transferability features and
other features not inconsistent with the Plan; and

          (v)   to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to an award under
this Plan shall be deferred either automatically or at the election of a
participant, including providing for and determining the amount (if any) of
deemed earnings on any deferred amount during any deferral period.

     The Committee shall have the discretionary authority to adopt, alter and
repeal such administrative rules, guidelines and practices governing the Plan as
it, from time to time, deems advisable; to construe and interpret the terms and
provisions of the Plan and any award issued under the Plan (and any agreements
relating thereto); and to otherwise supervise the administration of the Plan.

     The Committee may delegate administrative duties under the Plan to one or
more agents as it shall deem necessary or advisable. No member of the Committee
or the Board or the Plan Administrator shall be personally liable for any action
or determination made in good faith with respect to the Plan or any Option or to
any settlement of any dispute between a Participant and the Company.

     All decisions made by the Committee (or the Board in the case of Stock
Options granted under Section 6) pursuant to the provisions of the Plan shall be
final and binding on all persons, including the Company and Participants.

                                       5



     SECTION 3. Stock Subject to Plan.

     The total number of shares of Stock reserved and available for issuance and
distribution under the Plan shall be 1,500,000, which may consist, in whole or
in part, of authorized and unissued shares or treasury shares. To the extent
that shares subject to an outstanding Option are not issued or delivered by
reason of the expiration, termination, cancellation or forfeiture of such Option
or by reason of the delivery of shares to pay all or a portion of the exercise
price of such Option, then such shares shall again be available under the Plan.

     In the event of any sale of assets, merger, reorganization, consolidation,
recapitalization, Stock dividend, or other change in corporate structure
affecting the Stock, an equitable substitution or adjustment shall be made in
(i) the aggregate number of shares reserved for issuance under the Plan, (ii)
the number and option price of shares subject to outstanding Stock Options
granted under the Plan, (iii) the number of shares subject to Restricted Stock
or Deferred Stock awards granted under the Plan and (iv) the aggregate number of
shares available for issuance to any director, officer, employee or consultant
pursuant to Section 4(a), as may be determined to be appropriate by the
Committee, in its sole discretion, provided that the number of shares subject to
any award shall always be a whole number. Such adjusted option price shall also
be used to determine the amount payable by the Company upon the exercise of any
Stock Appreciation Right associated with any Stock Option.

     SECTION 4. Eligibility.

     (a) Eligible Officers, Employees and Consultants. Officers, other key
employees and consultants of the Company, its Subsidiaries or its Affiliates
(but, except as provided in Sections 6 and 10, excluding members of the
Committee and, any person who serves only as a director) who are responsible for
or contribute to the management, growth and/or profitability of the business of
the Company, its Subsidiaries or its Affiliates are eligible to be granted Stock
Options, Stock Appreciation Rights, Restricted Stock or Deferred Stock awards.

     Except as provided in Section 6, the optionees and participants under the
Plan shall be selected from time to time by the Committee, in its sole
discretion, from among those eligible, and the Committee shall determine, in its
sole discretion, the number of shares covered by each award or grant; provided,
however, that no person shall be granted Stock Options or Stock Appreciation
Rights on more than 500,000 shares of stock in any calendar year, including
shares related to Stock Options which, for any reason, are cancelled, expire,
terminate, lapse or are forfeited.

     (b) Eligible Directors. Non-Employee Directors are eligible to participate
under Sections 6 and 10 of the Plan.

     (c) Eligible Consultants. Consultants who provide services to the Company
or an Affiliate are eligible to receive Non-Qualified Stock Options pursuant to
Section 5 of the Plan.

     SECTION 5. Stock Options.

     Stock Options may be granted either alone or in addition to other awards
granted under the Plan. Any Stock Option granted under the Plan shall be in such
form as the Committee may from time to time approve, and the provisions of Stock
Option awards need not be the same with respect to each Optionee.

     The Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Non-Qualified Stock Options.

                                        6



     The Committee shall have the authority to grant any Optionee Incentive
Stock Options, Non-Qualified Stock Options or both types of Stock Options (in
each case with or without Stock Appreciation Rights) except that Incentive Stock
Options shall only be granted to employees of the Company or a Subsidiary. To
the extent that any Stock Option does not qualify as an Incentive Stock Option,
it shall constitute a separate Non-Qualified Stock Option.

     Except as provided in Section 5(1), no term of the Plan relating to
Incentive Stock Options shall be interpreted, amended or altered, nor shall any
discretion or authority granted under the Plan be so exercised, so as to
disqualify either the Plan or any Incentive Stock Option under Section 422 of
the Code. Notwithstanding the foregoing, in the event an Optionee voluntarily
disqualifies an option as an Incentive Stock Option within the meaning of
Section 422 of the Code, the Committee may, but shall not be obligated to, make
such additional grants, awards or bonuses as the Committee shall deem
appropriate, to reflect the tax savings to the Company which results from such
disqualification.

     Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:

     (a) Option Price. The option price per share of Stock purchasable under a
Stock Option shall be determined by the Committee at the time of grant but shall
be not less than 100% of the Fair Market Value of the Stock on the date of the
grant of the Stock Option.

     (b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date such Incentive Stock Option is granted.

     (c) Exercisability. Subject to Section 5(l) with respect to Incentive Stock
Options, Stock Options shall be exercisable at such time or times and subject to
such terms and conditions as shall be determined by the Committee, provided,
however, that, except as provided in Section 5(f), 5(g), 5(h) or 14, no Stock
Option shall be exercisable prior to six months from the date of the granting of
the Option. Notwithstanding the limitations set forth in the preceding sentence,
the Committee may accelerate the exercisability of any Stock Option, at any
time, in whole or in part, based on performance and/or such other factors as the
Committee may determine in its sole discretion.

     (d) Method of Exercise. Stock Options, to the extent exercisable under
Section 5(c) above, may be exercised in whole or in part at any time during the
option period, by giving written notice of exercise to the Company specifying
the number of shares to be purchased, accompanied by payment in full of the
purchase price, in cash, by check or such other instrument as may be acceptable
to the Committee (including instruments providing for "cashless exercise"). As
determined by the Committee, in its sole discretion, at or after grant, payment
in full or in part may also be made in the form of unrestricted Stock already
owned by the Optionee or, in the case of the exercise of a Non-Qualified Stock
Option, Restricted Stock or Deferred Stock subject to an award under this Plan
(based, in each case, on the Fair Market Value of the Stock on the date the
option is exercised, as determined by the Committee). If payment of the option
exercise price of a Non-Qualified Stock Option is made in whole or in part in
the form of Restricted Stock or Deferred Stock, the shares received upon the
exercise of such Stock Option shall be restricted or deferred, as the case may
be, in accordance with the original term of the Restricted Stock award or
Deferred Stock award in question, except that the Committee may direct that such
restrictions or deferral provisions shall apply to only the number of such
shares equal to the number of shares of Restricted Stock or Deferred Stock
surrendered upon the exercise of such option. No shares of unrestricted Stock
shall be issued until full payment for the unrestricted Stock has been made. An
Optionee shall have the rights to dividends or other rights of a stockholder
with respect to shares subject to the Option when the Optionee has given written
notice of exercise and has paid in full for such shares.

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     (e) Transferability of Options. Incentive Stock Options under this Plan may
not be transferred other than by will or the laws of descent and distribution
and each Incentive Stock Option may be exercised during the Participant's
lifetime only by the Participant or the Participant's guardian or legal
representative. Participants may transfer Non-Qualified Stock Options only as
provided by the Committee.

     (f) Termination by Death. Unless otherwise determined by the Committee, if
an Optionee's employment with or retention by the Company, any Subsidiary and
any Affiliate terminates by reason of death (or if an Optionee dies following
termination of employment by reason of Disability or Normal Retirement), any
Stock Option held by that Optionee immediately prior to the Optionee's death
shall become immediately exercisable and may thereafter be exercised by the
legal representative of the estate or by the legatee of the Optionee under the
will of the Optionee, during the period ending on the expiration of the stated
term of such Stock Option or the first anniversary of the Optionee's death,
whichever is later.

     (g) Termination by Reason of Normal Retirement. Unless otherwise determined
by the Committee, if an Optionee's employment with the Company, any Subsidiary
and any Affiliate terminates by reason of Normal Retirement, any Stock Option
held by such Optionee shall become immediately exercisable. A Stock Option held
by an Optionee whose employment has terminated by reason of Normal Retirement
shall expire at the end of the stated term of such Stock Option, unless
otherwise determined by the Committee.

     In the event of termination of employment by reason of Normal Retirement,
if an Incentive Stock Option is exercised after the exercise periods that apply
for purposes of Section 422 of the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option.

     (h) Termination for Cause. If the Optionee's employment or consulting
relationship with the Company, any Subsidiary and any Affiliate is terminated
for Cause, or the Committee determines that the Optionee has engaged in conduct
that would be grounds for termination with Cause, the Stock Option shall
immediately be forfeited to the Company upon the giving of notice of termination
of employment or on the event constituting Cause.

     (i) Committee Discretion. Notwithstanding the other provisions of this
Section 5 to the contrary, upon the request of an Optionee whose employment has
terminated or is expected to terminate in the near future, the Committee may, in
its sole and absolute discretion, agree to allow the Optionee's Stock Option to
terminate on a date following the date that it would otherwise terminate
pursuant to the provisions of this Section 5.

     (j) Other Termination. If the Optionee's employment or consulting
relationship with the Company, any Subsidiary and any Affiliate is terminated
for any reason other than what is specified in Section 5(f), 5(g) or 5(h)
(including, without limitation, early retirement, voluntary termination,
termination without Cause or for any other reason), the Stock Option shall
immediately be forfeited to the Company upon such termination of employment.

     (k) Termination upon Change of Control. Notwithstanding the provisions of
Section 5(j) or the stated term of the Stock Option and subject to Section 14 of
the Plan, if the Optionee's employment with the Company, any Subsidiary and any
Affiliate is involuntarily terminated by the Optionee's employer without Cause
by reason of or within three months after a merger or other business combination
resulting in a Change of Control, the Stock Option shall terminate upon the
later of six months and one day after such merger or business combination or ten
business days following the expiration of the period during which publication of
financial results covering at least thirty days of post-merger combined
operations has occurred.

     (l) Limit on Value of Incentive Stock Option First Exercisable Annually.
The aggregate Fair Market Value (determined at the time of grant) of the Stock
for which "incentive stock options" within the

                                        8



meaning of Section 422 of the Code are exercisable for the first time by an
Optionee during any calendar year under the Plan (and/or any other stock option
plans of the Company, any Subsidiary and any Affiliate) shall not exceed
$100,000. Notwithstanding the preceding sentence, the exercisability of such
Stock Options may be accelerated by the Committee and shall be accelerated as
provided in Sections 5(f), 5(g) and 14, in which case Stock Options which exceed
such $100,000 limit shall be treated as Non-Qualified Stock Options. For this
purpose, options granted earliest shall be applied first to the $100,000 limit.
In the event that only a portion of the options granted at the same time can be
applied to the $100,000 limit, the Company shall issue separate share
certificates for such number of shares as does not exceed the $100,000 limit,
and shall designate such shares as "incentive stock option" stock in its share
transfer records.

     SECTION 6. Non-Employee Director Stock Options.

     Non-Employee Director Stock Options granted under the Plan shall be
Non-Qualified Stock Options. Such Non-Employee Director Stock Options may, in
the sole discretion of the entire Board, be granted as to such number of shares
of Stock and upon such terms and conditions as shall be determined by the Board.

     Non-Employee Director Stock Options granted under the Plan shall be
evidenced by a written agreement in such form as the Committee shall from time
to time approve, which agreements shall comply with and be subject to the
following terms and conditions:

     (a) Non-Formula Based Options. Within its sole discretion, the entire Board
may award Non-Employee Director Stock Options on a non-formula basis to all or
such individual Non-Employee Directors as it shall select. Such Non-Employee
Stock Options may be awarded at such times and for such number of shares as the
Board in its sole discretion determines. The price of such Non-Employee Stock
Options may be fixed by the Board at a discount not to exceed 25% of the fair
market value of the Stock on the date of grant or may be the fair market value
of the Stock on the grant date. Such Stock Options shall become first
exercisable and have an option term as determined by the Board in its
discretion; provided however, that except as described in Section 14 and in
paragraph (d) of this section, no such Option shall be first exercisable until
six months from the date of grant. All other terms and conditions of such Stock
Options shall be as established by the Board in its sole discretion.

     (b) Method of Exercise. Any Stock Option granted to a Non-Employee Director
pursuant to the Plan may be exercised in accordance with the exercise schedule
established by the Board in whole or in part at any time during the option
period, by giving written notice of exercise to the Company specifying the
number of shares to be purchased, accompanied by payment in full of the purchase
price, in cash, by check or such other instrument as may be acceptable to the
Committee (including instruments providing for "cashless exercise"). Payment in
full or in part may also be made in the form of unrestricted Stock already owned
by the Optionee (based on the Fair Market Value of the Stock on the date the
option is exercised). No shares of unrestricted Stock shall be issued until full
payment therefor has been made. An Optionee shall have the rights to dividends
or other rights of a stockholder with respect to shares subject to the Option
when the Optionee has given written notice of exercise and has paid in full for
such shares.

     (c) Transferability of Options. Participants may transfer Stock Options
granted under this Section 6 only as provided by the Committee.

     (d) Termination of Service. Upon an Optionee's termination of status as a
Non-Employee Director with the Company for any reason, any Director Stock
Options held by such Optionee shall become immediately exercisable and may
thereafter be exercised during the period ending on the expiration of the stated
term of such Director Stock Options or the first anniversary of the Optionee's
death, whichever is later. Notwithstanding the foregoing sentence, if the
Optionee's status as an Non-Employee Director terminates by reason of or within
three months after a merger or other business combination resulting in a "Change
of

                                        9



Control" as defined in Section 1 of this Plan, the Stock Option shall terminate
upon the latest of (i) six months and one day after the merger or business
combination, (ii) ten business days following the expiration of the period
during which publication of financial results covering at least thirty days of
post-merger combined operations has occurred and (iii) the expiration of the
stated term of such Director Stock Option.

     (e) Compensation Stock Options. Non-Employee Directors are also eligible to
elect Stock Options pursuant to Section 10 below.

     SECTION 7. Stock Appreciation Rights.

     (a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of the grant of such Non-Qualified Stock Option. In the case of
an Incentive Stock Option, such rights may be granted only at the time of the
grant of such Incentive Stock Option.

     A Stock Appreciation Right or applicable portion of a Stock Appreciation
Right granted with respect to a given Stock Option shall terminate and no longer
be exercisable upon the termination or exercise of the related Stock Option,
except that, unless otherwise provided by the Committee (or the Board in the
case of a Stock Option granted under Section 6), at the time of grant, a Stock
Appreciation Right granted with respect to less than the full number of shares
covered by a related Stock Option shall only be reduced if and to the extent
that the number of shares covered by the exercise or termination of the related
Stock Option exceeds the number of shares not covered by the Stock Appreciation
Right.

     A Stock Appreciation Right may be exercised by an Optionee, in accordance
with paragraph (b) of this Section 7, by surrendering the applicable portion of
the related Stock Option. Upon such exercise and surrender, the Optionee shall
be entitled to receive an amount determined in the manner prescribed in
paragraph (b) of this Section 7. Stock Options which have been so surrendered,
in whole or in part, shall no longer be exercisable to the extent the related
Stock Appreciation Rights have been exercised.

     (b) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee (or the Board in the case
of a Stock Option granted under Section 6), including the following:

         (i)   Stock Appreciation Rights shall be exercisable only at such time
or times and to the extent that the Stock Options to which they relate shall be
exercisable in accordance with the provisions of Section 5 and Section 6 of the
Plan; provided, however, that any Stock Appreciation Right granted subsequent to
the grant of the related Stock Option shall not be exercisable during the first
six months of the term of the Stock Appreciation Right, except that this
additional limitation shall not apply in the event of death of the Optionee
prior to the expiration of the six-month period.

         (ii)  Upon the exercise of a Stock Appreciation Right, an Optionee
shall be entitled to receive up to, but not more than, an amount in cash or
shares of Stock equal in value to the excess of the Fair Market Value on the
date of exercise of the Stock Appreciation Right of one share of Stock over the
option price per share specified in the related Stock Option multiplied by the
number of shares in respect of which the Stock Appreciation Right shall have
been exercised, with the Committee (or the Board in the case of a stock Option
granted under Section 6), having the right to determine the form of payment.

         (iii) Stock Appreciation Rights shall be transferable only when and to
the extent that the underlying Stock Option would be transferable under the
Plan.

         (iv)  Upon the exercise of a Stock Appreciation Right, the Stock

                                       10



Option or part of the Stock Option to which such Stock Appreciation Right is
related shall be deemed to have been exercised for the purpose of the limitation
set forth in Section 3 of the Plan on the number of shares of Stock to be issued
under the Plan.

         (v)   A Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the market price of the
Stock subject to the Incentive Stock Option exceeds the exercise price of such
Stock Option.

         (vi)  In its sole discretion, the Committee (or the Board in the case
of a Stock Option granted under Section 6) may provide, at the time of grant of
a Stock Appreciation Right under this Section 7, that such Stock Appreciation
Right can be exercised only in the event of a "Change of Control" and/or a
"Potential Change of Control" (as defined in Section 14 below).

         (vii) The Committee (or the Board in the case of a Stock Option granted
under Section 6), in its sole discretion, may also provide that in the event of
a "Change of Control" and/or a "Potential Change of Control" (as defined in
Section 14 below) the amount to be paid upon the exercise of a Stock
Appreciation Right shall be based on the "Change of Control Price" (as defined
in Section 14 below).

     SECTION 8. Restricted Stock.

     (a) Administration. Shares of Restricted Stock may be issued either alone
or in addition to other awards granted under the Plan. The Committee shall
determine the officers and key employees of the Company and its Subsidiaries and
Affiliates to whom, and the time or times at which, grants of Restricted Stock
will be made, the number of shares to be awarded, the price, if any, to be paid
by the recipient of Restricted Stock (subject to Section 8(b) of the Plan), the
time or times within which such awards may be subject to forfeiture and all
other conditions of the awards. The Committee may also condition the grant
and/or vesting of Restricted Stock upon the attainment of specified performance
goals, or such other criteria as the Committee may determine, in its sole
discretion. The provisions of Restricted Stock awards need not be the same with
respect to each recipient.

     (b) Awards and Certificates. The prospective recipient of an award of
shares of Restricted Stock shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
(a "Restricted Stock Award Agreement"), has delivered a fully executed copy
thereof to the Company and has otherwise complied with the then applicable terms
and conditions. Awards of Restricted Stock must be accepted within a period of
60 days (or such shorter period as the Committee may specify) after the award
date by executing a Restricted Stock Award Agreement and paying the price
specified in the Restricted Stock Award Agreement. Each Participant who is
awarded Restricted Stock shall be issued a stock certificate registered in the
name of the Participant in respect of such shares of Restricted Stock. The
Committee shall specify that the certificate shall bear a legend, as provided in
clause (i) below, and/or be held in custody by the Company, as provided in
clause (ii) below.

         (i)   The certificate shall bear an appropriate legend referring to the
terms, conditions and restrictions applicable to such award, substantially in
the following form:

     "The transferability of this certificate and the shares of stock
     represented hereby are subject to the terms and conditions (including
     forfeiture) of the Citadel Security Software Inc. 2002 Stock Incentive Plan
     and a Restricted Stock Award Agreement entered into between the registered
     owner and Citadel Security Software Inc. Copies of such Plan and Agreement
     are on file in the offices of Citadel Security Software Inc., 3811 Turtle
     Creek Boulevard, Suite 770, Dallas, Texas 75219."

                                       11



         (ii)  The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until the restrictions
thereon shall have lapsed, and that, as a condition of any Restricted Stock
award, the Participant shall have delivered a stock power, endorsed in blank,
relating to the Stock covered by such award.

     (c) Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to this Section 8 shall be subject to the following restrictions and
conditions:

         (i)   Subject to the provisions of this Plan and the Restricted Stock
Award Agreements, during such period as may be set by the Committee commencing
on the grant date (the "Restriction Period"), the Participant shall not be
permitted to sell, transfer, pledge or assign shares of Restricted Stock awarded
under the Plan. The Committee may, in its sole discretion, provide for the lapse
of such restrictions in installments and may accelerate or waive such
restrictions, in whole or in part, before or after the Participant's termination
of employment, based on performance and/or such other factors as the Committee
may determine, in its sole discretion.

         (ii)  Except as provided in paragraph (c)(i) of this Section 8, the
Participant shall have, with respect to the shares of Restricted Stock, all of
the rights of a stockholder of the Company, including the right to receive any
dividends. Dividends paid in stock of the Company or stock received in
connection with a stock split with respect to Restricted Stock shall be subject
to the same restrictions as on such Restricted Stock. Certificates for shares of
unrestricted Stock shall be delivered to the participant promptly after, and
only after, the period of forfeiture shall expire without forfeiture in respect
of such shares of Restricted Stock.

         (iii) Subject to the provisions of the Restricted Stock Award Agreement
and this Section 8, upon termination of employment for any reason other than
Normal Retirement, Disability or death during the Restriction Period, all shares
still subject to restriction shall be forfeited by the Participant, and the
Participant shall only receive the amount, if any, Paid by the participant for
such forfeited Restricted Stock.

     SECTION 9. Deferred Stock Awards.

     (a) Administration. Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the officers, key employees and consultants of the Company, its Subsidiaries and
Affiliates to whom, and the time or times at which, Deferred Stock shall be
awarded, the number of shares of Deferred Stock to be awarded to any
participant, the duration of the period (the "Deferral Period") during which,
and the conditions under which, receipt of the Stock will be deferred, and the
terms and conditions of the award in addition to those set forth in paragraph
(b) of this Section 9. The Committee may also condition the grant and/or vesting
of Deferred Stock upon the attainment of specified performance goals, or such
other criteria as the Committee shall determine, in its sole discretion. The
provisions of Deferred Stock awards need not be the same with respect to each
recipient.

     (b) Terms and Conditions. The shares of Deferred Stock awarded pursuant to
this Section 9 shall be subject to the following terms and conditions:

         (i)   Subject to the provisions of this Plan and the award agreement,
Deferred Stock awards may not be sold, assigned, transferred, pledged or
otherwise encumbered during the Deferral Period. At the expiration of the
Deferral Period (or Elective Deferral Period, (as defined below) where
applicable), share certificates shall be delivered to the participant, or his
legal representative, in a number equal to the shares covered by the Deferred
Stock award.

         (ii)  At the time of the award, the Committee may, in its sole
discretion, determine that amounts equal to any dividends declared during the
Deferral Period (or Elective Deferral Period) with respect

                                       12



to the number of shares covered by a Deferred Stock award will be: (a) paid to
the participant currently; (b) deferred and deemed to be reinvested or (c) that
such participant has no rights with respect to such dividends.

         (iii) Subject to the provisions of the award agreement and this Section
8, upon termination of employment with or retention by the Company for any
reason during the Deferral Period for a given award, the Deferred Stock in
question shall be forfeited by the Participant.

         (iv)  Based on performance and/or such other criteria as the Committee
may determine, the Committee may, at or after grant (including after the
Participant's termination of employment), accelerate the vesting of all or any
part of any Deferred Stock award and/or waive the deferral limitations for all
or any part of such award.

         (v)   A Participant may elect to defer further receipt of the award for
a specified period or until a specified event (the "Elective Deferral Period"),
subject in each case to the Committee's approval and to such terms as are
determined by the Committee, all in its sole discretion. Subject to any
exceptions adopted by the Committee, such election must generally be made no
later than December 31 of the year prior to completion of the Deferral Period
for a Deferred Stock award (or for an installment of such an award).

         (vi)  Each award shall be confirmed by, and subject to the terms of, a
Deferred Stock award agreement executed by the Company and the participant.

     SECTION 10. Executive and Non-Employee Director Compensation Conversion
Stock Options.

     (a) Election to Participate. The Chairman of the Board or the Committee or
its designee shall designate each year those executives who shall be Eligible
Executives for the coming year. An Eligible Executive may participate under this
Section 10 by delivering to the Plan Administrator a properly completed and
signed (i) Election Form for Salary on or before the Salary Election Date,
and/or (ii) Election Form for Bonus on or before the Bonus Election Date. In
addition, each Non-Employee Director is automatically eligible to participate
under this Section 10 of the Plan. A Non-Employee Director may participate under
this Section 10 of the Plan by delivering a properly completed and signed
Election Form for Annual Compensation to the Plan Administrator on or before the
Non-Employee Director Election Date. The Non-Employee Director's participation
in the Plan will be effective as of the first day of the calendar year beginning
after the Plan Administrator receives the Non-Employee Director's Election Form
for Annual Compensation , or, in the case of a newly eligible Non-Employee
Director, on the first day of the calendar month beginning after the Plan
Administrator receives such Non-Employee Director's Election Form for Annual
Compensation. An Eligible Executive's participation in the Plan will be
effective (i) as of the first day of the calendar year beginning after the Plan
Administrator receives the Eligible Executive's Election Form for Salary, or
(ii) as of the first day of the year for which an Annual Bonus is earned, in the
case of an Eligible Executive's Election Form for Bonus. A Participant shall not
be entitled to any benefit under this Section 10 unless such Participant has
properly completed an election form and not revoked such form pursuant to
Section 10(b).

     (b) Irrevocable Election. A Participant may not revoke or change his or her
election form; provided, however, that any such Participant's participation may
be withdrawn or election form changed at any time prior to the Participant's
participation being effective.

     (c) [Reserved]

     (d) Converted Annual Bonus or Salary. An Eligible Executive may elect to
convert up to 100% (in increments of 10% or $10,000) of his or her Annual Bonus
and/or Salary to Stock Options in accordance with the terms of the Plan. A
Non-Employee Director may elect to convert up to 100% of his or her Annual
Compensation (in 10% increments but not less than 50%) to Stock Options in
accordance with the terms of the

                                       13



Plan.

     (e) Time of Election. An Eligible Executive who wishes to convert Salary
for a calendar year must irrevocably elect to do so on or prior to the Salary
Election Date for such calendar year, by delivering a valid Election Form for
Salary to the Plan Administrator. The Election Form for Salary shall indicate
the percentage or amount of Salary to be converted. An Eligible Executive who
wishes to convert Annual Bonus for a calendar year must irrevocably elect to do
so on or prior to the Bonus Election Date for such calendar year, by delivering
a valid Election Form for Bonus to the Plan Administrator. The Election Form for
Bonus shall indicate the percentage or amount of Annual Bonus to be converted. A
Non-Employee Director who wishes to convert Annual Compensation for a calendar
year must irrevocably elect to do so on or prior to the Non-Employee Director
Election Date for such calendar year, by delivering a valid Election Form for
Annual Compensation to the Plan Administrator. The Election Form for Annual
Compensation shall indicate the percentage or amount of Annual Compensation to
be converted.

     (f) Accounts. The Plan Administrator shall keep a record of the amount of
Salary, Annual Bonus or Annual Compensation to be converted to stock options for
each calendar year for each participant. To the extent required for bookkeeping
purposes, amounts so recorded by the Plan Administrator will be segregated in
the Plan Administrator's books to reflect compensation on a year-by-year basis
and on the basis of the type of compensation to be converted. Within a
reasonable time after the end of each calendar year, the Plan Administrator
shall report in writing to each Participant the amount which will be converted
to Stock Options for such Participant.

     (g) Responsibility for Investment Choices. Each Participant is solely
responsible for any decision to convert Annual Bonus and/or Salary or Annual
Compensation to Stock Options under the Plan and accepts all investment risks
entailed by such decision, including the risk of loss and a decrease in the
value of the amounts he or she elects to convert.

     (h) Election to Receive Stock Options.

     Each Eligible Executive or Non-Employee Director shall be granted Stock
Options subject to the following terms and conditions:

         (i)   Stock Options Converted from Salary. On the last day of any
calendar year for which a Participant has elected to convert Salary to Stock
Options (the "Option Grant Date"), the entire amount of Salary elected by the
Participant on the Participant's Election Form for Salary to be converted to
Stock Options shall be converted.

         (ii)  Stock Options Converted from Bonus. On the last day of any
calendar year for which a Participant has elected to convert Annual Bonus to
Stock Options (the "Option Grant Date"), the entire amount of Annual Bonus
elected by the Participant on the Participant's Election Form for Bonus to be
converted to Stock Options shall be converted.

         (iii) Stock Options Converted from Annual Compensation. On the last day
of any calendar year for which a Participant has elected to convert Annual
Compensation to Stock Options (the "Option Grant Date"), the entire amount of
Annual Compensation elected by the Participant on the Participant's Election
Form for Annual Compensation to be converted to Stock Options shall be
converted.

         (iv)  Exercise Price of Stock Options. The exercise price per share of
Stock under each Stock Option granted pursuant to this Section 10 shall, at the
election of the Optionee as indicated on the Optionee's Election Form for
Salary, Election Form for Bonus or Election Form for Annual Compensation, be
either 100% of the Fair Market Value per share of Stock on the Option Grant
Date, or a lesser percentage (but



not less than 75%) of the Fair Market Value per share of Stock on the Option
Grant Date, such lesser percentage to be determined by the Committee from time
to time. Such election forms shall indicate the percentage of such Stock Options
to be granted at each Exercise Price, which choice may affect the number of
Stock Options to be received pursuant to this Section 10(h).

     (i) Number and Terms of Options. The number of shares of Stock subject to a
Stock Option granted pursuant to this Section 10 shall be the number of whole
shares equal to A divided by B, where:

         A = the total dollar amount which the Eligible Executive or Non-
Employee Director has elected pursuant to Section 10(h) to convert to Stock
Options; and

         B = the per share value of a Stock Option on the Option Grant Date, as
determined by the Committee using any recognized option valuation model
selected by the Committee in its discretion (such value to be expressed as a
percentage of the Fair Market Value per share of the Stock on the Option Grant
Date).

     In determining the number of shares subject to a Stock Option, (i) the
Committee may designate the assumptions to be used in the selected option
valuation model and (ii) any fraction of a share will be rounded up to the next
whole number of shares.

     (j) Exercise of Stock Options. Each Stock Option shall be first
exercisable, cumulatively, as to 10% commencing on the each of the first through
tenth anniversaries of the Option Grant Date; provided, however, that any Stock
Option held by a Covered Employee shall not be exercisable before the first day
of the calendar year immediately following the year in which the Optionee ceased
to be a Covered Employee. An Optionee's death or other termination of employment
or directorship shall not shorten the term of any outstanding Stock Option
obtained under this Section 10. In no event shall the period of time over which
the Stock Option obtained in this Section 10 may be exercised exceed the longer
of (i) eleven years from the Option Grant Date, or (ii) the thirtieth (30th) day
of the calendar year immediately following the year in which an Optionee ceased
to be a Covered Employee. A Stock Option obtained under this Section 10, or
portion thereof, may be exercised, in whole or in part, only with respect to
whole shares. Shares shall be issued to the Optionee pursuant to the exercise of
a Stock Option obtained under this Section 10 only upon receipt by the Company
from the Optionee of payment in full in cash of the aggregate purchase price for
the shares subject to the Stock Option or portion thereof being exercised.

     (k) Accelerated Vesting. Notwithstanding the normal vesting schedule set
forth in Section 10(j) of this Plan, any and all outstanding Options obtained
under this Section 10 shall become immediately exercisable upon the first to
occur of (i) the death of the Optionee, (ii) the Normal Retirement of the
Optionee, (iii) the occurrence of a Change in Control or (iv) the unanimous
determination by the Committee that a particular Stock Option or Options shall
become fully exercisable. Upon acceleration, an Option will remain exercisable
for the remainder of its original term.

     (l) Stock Option Award Notice. Each Stock Option granted under this Section
10 shall be evidenced by a Stock Option Award Notice which shall be executed by
an authorized officer of the Company. Such Award Notice shall contain provisions
regarding (a) the number of shares of Stock that may be issued upon exercise of
the Stock Option, (b) the exercise price per share of Stock of the Option and
the means of payment therefor, (c) the term of the Stock Option and (d) such
other terms and conditions not inconsistent with the Plan as may be determined
from time to time by the Committee.

     (m) Transferability of Options. Participants may transfer Stock Options
granted under this Section 10 only as provided by the Committee.

                                       15



     SECTION 11. Loan Provisions.

     With the consent of the Committee, the Company may make, or arrange for, a
loan or loans to a Participant with respect to the exercise of any Stock Option
granted under the Plan and/or with respect to the payment of the purchase price,
if any, of any Restricted Stock awarded under this Plan. The Committee shall
have full authority to decide whether to make a loan or loans under this Plan
and to determine the amount, term and provisions of any such loan or loans,
including the interest rate to be charged in respect of any such loan or loans,
whether the loan or loans are to be with or without recourse against the
borrower, the terms on which the loan is to be repaid and the conditions, if
any, under which the loan or loans may be forgiven.

     SECTION 12. Amendments and Termination.

     The Board may amend, alter or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made which would impair the right of an
Optionee or Participant under a Stock Option, Director Stock Option, Stock
Appreciation Right, Restricted Stock or Deferred Stock award granted before such
amendment, alteration or discontinuation, without the Optionee's or
Participant's consent.

     Amendments may be made without stockholder approval except as required to
satisfy Rule 16b-3 under the Exchange Act, Sections 162(m) and 422 of the Code,
stock exchange listing requirements or other regulatory requirements.

     The Committee may amend the terms of any award or option granted before
such amendment, prospectively or retroactively, but no such amendment shall
impair the rights of any holder without his or her consent. The Committee may
also substitute new Stock Options for previously granted Stock Options including
options granted under the Prior Plan applicable to a Participant and previously
granted Stock Options having higher exercise prices.

     SECTION 13. Unfunded Status of the Plan.

     The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
Participant or Optionee by the Company, nothing set forth in this Plan shall
give any such Participant or Optionee any rights that are greater than those of
a general creditor of the Company. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Stock or payments in lieu of or with respect
to awards under the Plan, provided, however, that the existence of such trusts
or other arrangements is consistent with the unfunded status of the Plan.

     SECTION 14. Change of Control.

     The following acceleration and valuation provisions shall apply in the
event of a "Change of Control" or "Potential Change of Control," as defined in
this Section:

     (a) In the event of a "Change of Control," unless otherwise determined by
the Committee in writing at or after grant, but prior to the occurrence of such
Change of Control, or, if and to the extent so determined by the Committee in
writing at or after grant (subject to any right of approval expressly reserved
by the Committee at the time of such determination) in the event of a "Potential
Change of Control," as defined in paragraph (c) of this Section:

         (i) any Stock Appreciation Rights and any Stock Options awarded under
the Plan not previously exercisable and vested shall become fully exercisable
and vested;



         (ii)  the restrictions and deferral limitations applicable to any
Restricted Stock and Deferred Stock awards under the Plan shall lapse and such
shares and awards shall be deemed fully vested; and

         (iii) the value of all outstanding Stock Options, Director Stock
Options, Stock Appreciation Rights, Restricted Stock and Deferred Stock Awards,
shall, to the extent determined by the Committee at or after grant, be settled
on the basis of the "Change of Control Price" (as defined in paragraph (d) of
this Section) as of the date the Change of Control occurs or Potential Change of
Control is determined to have occurred, or such other date as the Committee may
determine prior to the Change of Control or Potential Change of Control. In the
sole discretion of the Committee, such settlements may be made in cash or in
stock, as shall be necessary to effect the desired accounting treatment for the
transaction resulting in the Change of Control. In addition, any Stock Option,
Director Stock Option and Stock Appreciation Right which has been outstanding
for less than six months shall be settled solely in stock.

     (b) [Reserved]

     (c) For purposes of paragraph (a) of this Section 14, a "Potential Change
of Control" means the happening of any of the following:

         (i)   the entering into an agreement by the Company, the consummation
of which would result in a Change of Control of the Company as defined in
Section 1 of the Plan; or

         (ii)  the acquisition of beneficial ownership, directly or indirectly,
by any entity, person or group (other than the Company or a Subsidiary or any
Company employee benefit plan) of securities of the Company representing 5
percent or more of the combined voting power of the Company's outstanding
securities and the adoption by the Board of a resolution to the effect that a
Potential Change of Control of the Company has occurred for purposes of this
Plan.

     (d) For purposes of this Section, "Change of Control Price" means the
highest price per share paid in any transaction reported on the Over the Counter
Bulletin Board, or paid or offered in any transaction related to a potential or
actual Change of Control of the Company at any time during the preceding sixty
day period as determined by the Committee, except that (i) in the case of
Incentive Stock Options and Stock Appreciation Rights relating to Incentive
Stock Options, such price shall be based only on transactions reported for the
date on which the Committee decides to "cash out" such options and (ii) in the
case of Director Stock Options, the sixty day period shall be the period
immediately prior to the Change of Control.

     SECTION 15. Limitations on Payments.

     (a) Notwithstanding Section 14 above or any other provision of this Plan or
any other agreement, arrangement or plan, in no event shall the Company pay or
be obligated to pay any Plan participant an amount which would be an Excess
Parachute Payment except as provided in Section 15(f) below and except as the
Committee specifically provides otherwise in the Participant's grant agreement.
For purposes of this Agreement, the term "Excess Parachute Payment" shall mean
any payment or any portion thereof which would be an "excess parachute payment"
within the meaning of Section 280G(b)(1) of the Code, and would result in the
imposition of an excise tax under Section 4999 of the Code, in the opinion of
tax counsel selected by the Company ("Tax Counsel"). In the event it is
determined that an Excess Parachute Payment would result if the full
acceleration of vesting and exercisability provided in Section 14 above were
made (when added to any other payments or benefits contingent on a change of
control under any other agreement, arrangement or plan), the payments due under
Section 15(a) shall be reduced to the minimum extent necessary to prevent an
Excess Parachute Payment; then, if necessary to prevent an Excess Parachute
Payment, benefits or payments under any other plan, agreement or arrangement
shall be reduced. If it is established pursuant to a final determination of a
court or an Internal Revenue Service administrative appeals proceeding that,
notwithstanding the good faith of

                                       17



the participant and the Company in applying the terms of this Section 14(a), a
payment (or portion thereof) made is an Excess Parachute Payment, then, the
Company shall pay to the participant an additional amount in cash (a "Gross-Up
Payment") equal to the amount necessary to cause the amount of the aggregate
after-tax compensation and benefits received by the participant hereunder (after
payment of the excise tax under Section 4999 of the Code with respect to any
Excess Parachute Payment, and any state and federal income taxes with respect to
the Gross-Up Payment) to be equal to the aggregate after-tax compensation and
benefits he would have received as if Sections 280G and 4999 of the Code had not
been enacted.

     (b) Subject to the provisions of Section 15(c) below, the amount of any
Gross-Up Payment and the assumptions to be utilized in arriving at such amount,
shall be determined by a nationally recognized certified public accounting firm
designated by the Company (the "Accounting Firm"). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to Section 15(a), shall be paid by the Company to the
Participant within five days after the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and participant.

     (c) Participant shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by
Company of a Gross-Up Payment. Such notification shall be given no later than
ten business days after Participant is informed in writing of such claim and
shall apprise the Company of the nature of the claim and the date of requested
payment. Participant shall not pay the claim prior to the expiration of the
thirty day period following the date on which it gives notice to the Company. If
the Company notifies Participant in writing prior to the expiration of the
period that it desires to contest such claim, Participant shall:

         (i)   give the Company any information reasonably requested by the
Company relating to such claim;

         (ii)  take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney selected by the Company and reasonably acceptable to Participant;

         (iii) cooperate with the Company in good faith in order to effectively
contest such claim; and

         (iv)  permit the Company to participate in any proceedings relating to
such claim.

     Without limitation on the foregoing provisions of this Section 15(c), the
Company shall control all proceedings taken in connection with such contest and,
at its sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct Participant to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner, and
Participant agrees to prosecute such contest to a determination before any
administration tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that the
Company shall bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall
indemnify and hold participant harmless, on an after-tax basis, for any Excise
Tax or income tax (including interest and penalties with respect thereto)
imposed as a result of the contest; provided, further, that if the Company
directs participant to pay any claim and sue for a refund, the Company shall
advance the amount of the payment to Participant, on an interest-free basis, and
shall indemnify and hold participant harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to the advance or with respect to any imputed income with
respect to the advance.

                                       18



     (d) In the event that the Company exhausts its remedies pursuant to Section
15(c) and Participant thereafter is required to make a payment of any Excise
Tax, the Accounting Firm shall determine the amount of the Gross-Up Payment
required and such payment shall be promptly paid by the Company to or for the
benefit of participant.

     (e) If, after the receipt of Participant of an amount advanced by the
Company pursuant to Section 15(c), Participant becomes entitled to receive any
refund with respect to such claim, Participant shall promptly after receiving
such refund pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by Participant of an amount advanced by the Company pursuant to Section
15(c), a determination is made that Participant shall not be entitled to any
refund with respect to such claim and the Company does not notify Participant in
writing of its intent to contest such denial of refund prior to the expiration
of thirty days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.

     (f) Notwithstanding the foregoing, the limitation set forth in Section
15(a) shall not apply to a Participant if in the opinion of Tax Counsel or the
Accounting Firm (i) the total amounts payable to the Participant hereunder and
under any other agreement, arrangement or plan as a result of a change of
control (calculated without regard to the limitation of Section 15(a)), reduced
by the amount of excise tax imposed on the participant under Code Section 4999
with respect to all such amounts and reduced by the state and federal income
taxes on amounts paid in excess of the limitation set forth in Section 15(a),
would exceed (ii) such total amounts payable after application of the limitation
of Section 15(a). No Gross-Up Payment shall be made in such case.

     SECTION 16. General Provisions.

     (a) All certificates for shares of Stock delivered under the Plan shall be
subject to such stop transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations and other requirements of the
Commission, any stock exchange upon which the Stock is then listed, and any
applicable Federal or state securities law, and the Committee may cause a legend
or legends to be put on any such certificates to make appropriate reference to
such restrictions.

     (b) Nothing set forth in the Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases. The adoption of the Plan shall
not confer upon any director, officer, consultant or employee of the Company,
any Subsidiary or any Affiliate, any right to continued employment (or, in the
case of a consultant or director, continued retention as a consultant or
director) with the Company, a Subsidiary or an Affiliate, as the case may be,
nor shall it interfere in any way with the right of the Company, a Subsidiary or
an Affiliate to terminate the employment of any of its employees at any time.

     (c) Each Participant shall, no later than the date as of which the value of
an award first becomes includible in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Committee, in its sole discretion, regarding payment of, any
Federal, FICA, state or local taxes of any kind required by law to be withheld
with respect to the award. The obligations of the Company under the Plan shall
be conditional on such payment or arrangements.

     The Committee may permit or require, in its sole discretion, Participants
to elect to satisfy their Federal, and where applicable, FICA, state and local
tax withholding obligations with respect to all awards other than Stock Options
which have related Stock Appreciation Rights by the reduction, in an amount
necessary to pay all said withholding tax obligations, of the number of shares
of Stock or amount of cash

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otherwise issuable or payable to said Participants in respect of an award. The
Company and, where applicable, its Subsidiaries and Affiliates shall, to the
extent permitted by law, have the right to deduct any such taxes owed hereunder
by a participant from any payment of any kind otherwise due to said participant.

     (d) At the time of grant or purchase, the Committee (of the Board in the
case of Stock Options granted under Section 6) may provide in connection with
any grant or purchase made under the Plan that the shares of Stock received as a
result of such grant or purchase shall be subject to a right of first refusal,
pursuant to which the Participant shall be required to offer to the Company any
shares that the Participant wishes to sell, with the price being the then Fair
Market Value of the Stock, subject to the provisions of Section 14 of this Plan
and to such other terms and conditions as the Committee may specify at the time
of grant.

     (e) No member of the Board or the Committee, nor any officer or employee of
the Company acting on behalf of the Board or the Committee, shall be personally
liable for any action, determination or interpretation taken or made in good
faith with respect to the Plan, and all members of the Board or the Committee
and each and any officer or employee of the Company acting on their behalf
shall, to the extent permitted by law, be fully indemnified and protected by the
Company in respect of any such action, determination or interpretation.

     (f) In the event that any provision of the Plan or any related Stock Option
Award Notice is held to be invalid, void or unenforceable, the same shall not
affect, in any respect whatsoever, the validity of any other provision of the
Plan or any related Stock Option Award Notice.

     (g) The rights and obligations under the Plan and any related agreements
shall inure to the benefit of, and shall be binding upon the Company, its
successors and assigns, and the Participants and their beneficiaries and
permitted assigns.

     (h) Titles are provided herein for convenience only and are not to serve as
a basis for interpretation or construction of the Plan.

     (i) The Plan shall be construed, governed and enforced in accordance with
the law of Delaware, except as such laws are preempted by applicable federal
law.

     SECTION 17. Effective Date of Plan.

     The Plan shall be effective on the date it is approved by a majority vote
of the Company's stockholders.

     SECTION 18. Term of Plan.

     The Plan will be unlimited in duration and, in the event of termination of
the Plan, will remain in effect as long as any benefits granted under the Plan
remain outstanding; provided, however, that no Incentive Stock Option may be
granted more than ten years after the date of the approval of the Plan by the
shareholders of the Company.

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