2005 KEY EMPLOYEE LONG TERM INCENTIVE PLAN

 

 

 

                      THE READER'S DIGEST ASSOCIATION, INC.

 

 

 

                           2005 KEY EMPLOYEE LONG TERM

                                 INCENTIVE PLAN

 

 

 

 

 

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                      THE READER'S DIGEST ASSOCIATION, INC.

 

 

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                   2005 KEY EMPLOYEE LONG TERM INCENTIVE PLAN

 

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                                    ARTICLE 1

                                     Purpose

 

         The purpose of this 2005 Key Employee Long Term Incentive Plan (the

"Plan") is to enable The Reader's Digest Association, Inc. (the "Company") to

offer key employees of the Company and Designated Subsidiaries (defined below)

performance-based stock incentives and other equity interests in the Company and

other incentive awards, thereby attracting, retaining and rewarding such key

employees, and strengthening the mutuality of interests between key employees

and the Company's stockholders.

 

 

                                                         ARTICLE 2

                                                         Definitions

 

     For purposes of this Plan,   the   following   terms shall have the   following

meanings:

 

         2.1 "Award" shall mean any award under this Plan of any Stock Option,

Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance

Shares, Performance Units or Other Stock-Based Award. All Awards shall be

granted by, confirmed by, and subject to the terms of, a written agreement

executed by the Company and the Participant.

 

     2.2   "Board" shall mean the Board of Directors of the Company.

 

 

     2.3   "Change in Control" shall have the meaning set forth in Article 13.

 

 

     2.4   "Code" shall mean the Internal Revenue Code of 1986, as amended.

 

 

     2.5 "Committee"   shall mean a committee,   as described in Article 3, of the

Board   appointed   from time to time by the Board to   administer   the Plan and to

perform the functions set forth herein.

 

     2.6 "Common Stock" means the Common Stock, $.01 par value per share, of the

Company.

 

 

     2.7   "Designated   Subsidiary"   shall mean one of such   subsidiaries   of the

Company,   80   percent   or more of the   voting   capital   stock of which is owned,

directly or indirectly,   by the Company,   which are designated from time to time

by the Board.

 

     2.8 "Disability"   shall mean, unless otherwise   determined in the terms and

conditions of the Award at the time of grant by the Committee,   Total Disability

as   defined in the   Company's   Long Term   Disability   Plan or any   successor   or

equivalent plan designated by the Company.

 

     2.9 "Effective Date" shall mean the effective date of this Plan pursuant to

Article 17.

 

 

     2.10 "Eligible   Employees"   shall mean the employees of the Company and the

Designated   Subsidiaries   who are   eligible   pursuant to Article 5 to be granted

Awards under this Plan.

 

     2.11   "Exchange   Act" shall mean the   Securities   Exchange Act of 1934,   as

amended from time to time.

 

 

     2.12 "Executive   Officer" shall have the meaning   specified for purposes of

Section 303A of the New York Stock Exchange   Listed Company Manual or such other

similar meaning as shall be specified by the Committee.

 

     2.13 "Fair   Market   Value" for   purposes   of this   Plan,   unless   otherwise

required   by any   applicable   provision   of the Code or any   regulations   issued

thereunder,   shall mean, as of any date, the mean between the high and low sales

prices on the applicable   date, or if no sales price is available for such date,

the mean between the closing bid and asked   prices for such date,   of a share of

Common Stock (i) as reported by the principal   national   securities   exchange in

the United States on which it is then traded,   or (ii) if not traded on any such

national   securities   exchange,   as   quoted   on an   automated   quotation   system

sponsored by the National   Association of Securities   Dealers,   or if the Common

Stock   shall not have been   reported   or quoted on such   date,   on the first day

prior   thereto on which the Common Stock was   reported or quoted.   If the Common

Stock is not readily tradeable on a national   securities   exchange or any system

sponsored by the National   Association   of Securities   Dealers,   its Fair Market

Value shall be set by the Board on the advice of an   investment   advisor in good

faith.

 

     2.14   "Incentive   Stock Option"   shall mean any Stock Option   awarded under

this Plan intended to be and   designated as an "Incentive   Stock Option"   within

the meaning of Section 422A of the Code.

 

     2.15   "Nonemployee   Director" shall mean a director of the Company who is a

"nonemployee   director" within the meaning of Rule 16b-3   promulgated   under the

Exchange Act.

 

     2.16 "Non-Qualified Stock Option" shall mean any Stock Option awarded under

this Plan that is not an Incentive Stock Option.

 

     2.17 "Other Stock-Based Award" shall mean an Award under Article 12 of this

Plan that   consists of, or is valued in whole or in part by reference   to, or is

payable in or otherwise based on, Common Stock.

 

     2.18   "Outside   Director"   shall mean a director   of the   Company who is an

"outside   director"   within the   meaning   of Section   162(m) of the Code and the

regulations promulgated thereunder.

 

     2.19   "Participant"   shall mean an   employee to whom an Award has been made

pursuant to this Plan.

 

         2.20 "Performance-Based Compensation" shall mean any Award that is

intended to constitute "performance-based compensation" within the meaning of

Section 162(m)(4)(C) of the Code and the regulations promulgated thereunder.

 

     2.21 "Performance-Based   Restricted Stock" shall have the meaning set forth

in Section 8.1.

 

 

     2.22   "Performance-Based   Restricted Stock Unit" shall have the meaning set

forth in Section 9.1.

 

 

     2.23 "Performance Cycle" shall have the meaning set forth in Section 11.1.

 

 

     2.24 "Performance Period" shall have the meaning set forth in Sections 8.1,

9.1 and 10.1.

 

 

     2.25 "Performance Share" shall mean an Award made pursuant to Article 10 of

this Plan of the right to receive Common Stock or cash of an equivalent value at

the end of a specified Performance Period.

 

     2.26 "Performance   Unit" shall mean an Award made pursuant to Article 11 of

this Plan of the right to   receive a fixed   dollar   amount,   payable   in cash or

Common Stock or a combination of both.

 

     2.27 "Prior Plan" shall mean The Reader's Digest Association, Inc. 2002 Key

Employee Long Term Incentive Plan.

 

     2.28   "Reference   Stock Option" shall have the meaning set forth in Section

7.1.

 

     2.29 "Restricted Stock" shall mean an Award of shares of Common Stock under

this Plan that is subject to restrictions under Article 8.

 

     2.30 "Restricted Stock Unit" shall mean an Award made pursuant to Article 9

of this Plan. Each Restricted Stock Unit shall be the right to receive one share

of   Common   Stock,   or   cash   equivalent   to the   value   (as   determined   by the

Committee) of one share of Common   Stock,   on the vesting date at the end of the

Restriction Period, subject to restrictions under Article 9.

 

     2.31 "Restriction Period" shall mean the period during which conditions are

required   to be   satisfied   for   vesting of an Award and the Award is subject to

restrictions and risk of forfeiture under Article 8 or Article 9.

 

     2.32 "Retirement" shall mean, unless otherwise   determined in the terms and

conditions of the Award at the time of grant by the   Committee,   termination   of

employment   by an   employee   who is at least   55 years of age   after at least 10

years of employment by the Company and/or a Designated Subsidiary.

 

     2.33 "Stock Appreciation Right" or "Right" shall mean the right pursuant to

an Award granted under Article 7. A Tandem Stock   Appreciation   Right shall mean

the right 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   thereof)   is

surrendered, of the shares of Common Stock covered by such Stock Option (or such

portion thereof), and (ii) the aggregate exercise price of such Stock Option (or

such portion   thereof).   A Non-Tandem   Stock   Appreciation   Right shall mean the

right to receive an amount equal to the   difference   between (x) the Fair Market

Value of a share of Common Stock as of the date such Right is exercised, and (y)

the Fair   Market   Value of a share of Common   Stock as of the date such Right is

awarded, otherwise than on surrender of a Stock Option.

 

     2.34 "Stock Option" or "Option" shall mean any option to purchase shares of

Common   Stock   (including   Restricted   Stock   and   Performance   Shares,   if   the

Committee so determines) granted pursuant to Article 6.

 

     2.35   "Termination   of Employment"   shall mean a termination of service for

reasons   other than (i)   military   or personal   leave of absence   granted by the

Company or (ii) a transfer of a   Participant   from the   Company or a   Designated

Subsidiary   to   another   Designated   Subsidiary   or to   the   Company   or to   any

affiliate as defined in Section 414 of the Code.

 

     2.36 "Transfer"   shall mean anticipate,   alienate,   attach,   sell,   assign,

pledge, encumber, charge or otherwise transfer.

 

     2.37   "Withholding   Election"   shall have the   meaning set forth in Section

16.4.

 

 

 

                                    ARTICLE 3

                                 Administration

 

     3.1 The Committee.   The Plan shall be   administered   and interpreted by the

Committee,   which shall hold   meetings at such times as may be necessary for the

proper   administration   of the Plan.   The   Committee   shall keep   minutes of its

meetings.   The   Committee   shall   consist   of at least one (1)   director   of the

Company and may consist of the entire Board; provided, however, that, (A) if the

Committee   consists   of less than the   entire   Board,   then with   respect to any

Option or Award to an   Eligible   Employee   who is   subject   to Section 16 of the

Exchange Act, the   Committee   shall consist of at least two (2) directors of the

Company   each of whom   shall be a   Nonemployee   Director   and (B) to the   extent

necessary   for any Option or Award   intended   to   qualify   as   Performance-Based

Compensation   to so qualify,   the   Committee   shall   consist of at least two (2)

directors of the Company each of whom shall be an Outside Director. For purposes

of the   preceding   sentence,   if one or more   members of the   Committee is not a

Nonemployee   Director and an Outside   Director but recuses himself or herself or

abstains from voting with respect to a particular action taken by the Committee,

then the Committee, with respect to that action, shall be deemed to consist only

of the members of the   Committee   who have not recused   themselves   or abstained

from voting. Subject to applicable law, the Committee may delegate its authority

under the Plan to any other person or persons. The Committee may delegate to one

or more   Executive   Officers   of the   Company   the   authority   to make Awards to

Participants, and to cancel Awards that have not been delivered to Participants,

other   than any of the   Company's   Executive   Officers,   provided   that   when so

delegating,   the Committee shall fix the aggregate maximum amount of such Awards

and the maximum   Award for any one   Participant   that may be awarded or canceled

pursuant to such   delegation.   Any action   pursuant to the foregoing   delegation

shall be   deemed   to be action of the   Committee   and any such   action   shall be

reported   to the   Committee   promptly,   but no later   than at its   next   regular

meeting.

 

     3.2   Awards.   The   Committee   shall have full   authority   to grant   Awards,

pursuant to the terms of this Plan, to eligible   employees.   In particular,   the

Committee shall have the authority:

 

         (a)       to select the eligible employees to whom Awards may from time

                  to time be granted hereunder;

 

         (b)       to determine whether and to what extent any Award, or any

                  combination of Awards, are to be granted hereunder to one or

                  more eligible employees;

 

         (c)       to determine the number of shares of Common Stock to be

                   covered by each such Award granted hereunder;

 

         (d)       to determine the terms and conditions, not inconsistent with

                  the terms of this Plan, of any Award granted hereunder

                  (including, but not limited to, the share price, any

                  restriction or limitation, any vesting schedule or

                  acceleration thereof, or any forfeiture restrictions or waiver

                  thereof, regarding any Stock Option or other Award and the

                   shares of Common Stock relating thereto, based on such

                  factors, if any, as the Committee shall determine, in its sole

                  discretion);

 

         (e)       to determine whether, to what extent and under what

                   circumstances grants of Options and other Awards under this

                  Plan are to operate on a tandem basis and/or in conjunction

                  with or apart from other awards made by the Company outside of

                  this Plan;

 

         (f)       to determine whether and under what circumstances a Stock

                  Option may be settled in cash, Common Stock, Performance

                  Shares, Restricted Stock or Restricted Stock Units, or any

                  combination thereof, under subsection 6.4(k);

 

         (g)       to determine whether, to what extent and under what

                  circumstances Common Stock and other amounts payable with

                  respect to an Award under this Plan shall be deferred either

                  automatically or at the election of the Participant; and

 

         (h)       generally, to exercise such powers and to perform such acts as

                  are deemed necessary or advisable to promote the best

                   interests of the Company with respect to the Plan.

 

     3.3 Guidelines.   Subject to Article 14 hereof, the Committee shall have the

authority to adopt, alter and repeal such administrative   rules,   guidelines and

practices governing this Plan and perform all acts,   including the delegation of

its   administrative   responsibilities,   as it   shall,   from   time to time,   deem

advisable;   to construe and interpret the terms and   provisions of this Plan and

any Award issued under this Plan (and any agreements   relating thereto);   and to

otherwise   supervise the   administration of this Plan. The Committee may correct

any defect,   supply any omission or reconcile any   inconsistency in this Plan or

in any agreement   relating thereto in the manner and to the extent it shall deem

necessary   to carry this Plan into effect.   Notwithstanding   the   foregoing,   no

action of the   Committee   under this   Section 3.3 shall impair the rights of any

Participant without the Participant's consent.

 

     3.4 Decisions Final. Any decision,   interpretation   or other action made or

taken in good faith by or at the   direction   of the Company,   the Board,   or the

Committee (or any of its members)   arising out of or in connection with the Plan

shall be within the absolute discretion of all and each of them, as the case may

be, and shall be final,   binding and conclusive on the Company and all employees

and   Participants   and   their   respective   heirs,    executors,    administrators,

successors and assigns.

 

     3.5   Reliance on Counsel.   The Company or the   Committee   may consult   with

legal counsel, who may be counsel for the Company or other counsel, with respect

to its   obligations   or   duties   hereunder,   or with   respect   to any   action or

proceeding   or any   question of law, and shall not be liable with respect to any

action   taken or   omitted   by it in good   faith   pursuant   to the advice of such

counsel.

 

 

 

 

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                                    ARTICLE 4

                                Share Limitation

 

     4.1 Number of Shares Under the Plan. The maximum aggregate number of shares

of Common   Stock   that may be issued   under   this Plan or with   respect to which

Non-Tandem Stock   Appreciation   Rights may be granted shall not exceed 2,900,000

shares,   plus the number of shares   authorized for issuance under the Prior Plan

but not previously   issued or subject to any   outstanding   award under the Prior

Plan on the   Effective   Date of this Plan   (subject to any   increase or decrease

pursuant to Section 4.3),   which may be either   authorized   and unissued   Common

Stock or   outstanding   Common   Stock   reacquired   by the   Company.   No more than

750,000   shares of Common   Stock shall be issued under this Plan with respect to

Awards other than Stock Options and Non-Tandem Stock Appreciation   Rights,   plus

the number of shares authorized for this purpose under the Prior Plan.

 

     4.2 Canceled, Terminated, or Forfeited Awards, etc., Under the Plan and the

Prior Plan.   If, after the Effective   Date of this Plan, any Award granted under

the Plan or any award   granted   under the Prior Plan   expires or is   terminated,

canceled or forfeited,   or is settled for cash or otherwise   settled without the

issuance   of Common   Stock,   then any   shares of Common   Stock   covered   by such

expired,   terminated,   canceled,   forfeited or settled   portion of such Award or

Prior Plan award and any such tendered shares of Common Stock shall be available

for issuance under this Plan;   provided,   however,   that,   the following   shares

shall not again   become   available   for   issuance   under this   Plan:   (a) shares

tendered in payment of the exercise   price of Options;   (b) shares   reserved for

issuance upon grant of Stock   Appreciation   Rights,   to the extent the number of

reserved   shares exceeds the number of shares   actually   issued upon exercise of

the Stock Appreciation Rights; and (c) shares withheld by, or otherwise remitted

to, the Company to satisfy a Participant's tax withholding   obligations upon the

exercise or settlement of an Award..   Any shares that become available for grant

under this   Section 4.2 with   respect to any Award made under this Plan from the

shares   authorized   for issuance   under this Plan in Section 4.1 may be used for

any type of Award, but shares related to any award   outstanding   under the Prior

Plan on the Effective Date of this Plan may be used only in respect of Awards of

a type corresponding to or substantially similar to the type of award made under

the Prior Plan (e.g.,   shares related to forfeited stock option grants under the

Prior Plan may be used to grant   Stock   Options   and Stock   Appreciation   Rights

under this Plan, and forfeited   restricted stock grants under the Prior Plan may

be used to make grants of Restricted   Stock or Restricted Stock Units under this

Plan).

 

      4.3   Changes.   In the event of any   increase or   reduction in the number of

shares of   capital   stock of the   Company,   or any   change   (including,   but not

limited to, in the case of a spin-off, dividend or other distribution in respect

of shares, a change in value) in the capital stock of the Company or exchange of

capital   stock of the Company for a different   number or kind of shares or other

securities   of the   Company   or   another   corporation   by   reason   of any   stock

dividend,     stock    split    or    reverse     stock    split,     reclassification,

recapitalization,   reorganization,   merger,   consolidation,   spin-off, split-up,

combination or exchange of shares,   distribution with respect to its outstanding

Common Stock or capital stock other than Common Stock,   reclassification   of its

capital stock, issuance of warrants, rights or debentures to purchase any Common

Stock or   securities   convertible   into   Common   Stock,   or rights   offering   to

purchase   capital   stock at a price   below fair market   value,   or any change in

corporate   structure or   otherwise;   then (i) the   aggregate   number and kind of

shares of Common   Stock or other stock or   securities   which   thereafter   may be

issued   under   this   Plan,   (ii)   the   number   and   kind of   shares   subject   to

outstanding   Options or Rights or other stock or   securities   granted under this

Plan and the purchase or exercise   price   thereof,   (iii) the number and kind of

shares of Common Stock or other stock or securities subject to other outstanding

Awards   (including   but not limited to Awards of   Restricted   Stock,   Restricted

Stock Units, Performance Units, Performance Shares and Other Stock-Based Awards)

granted   under   this   Plan   and the   purchase   or   exercise   price   thereof,   if

applicable,   (iv) the   aggregate   number   and kind of shares of Common   Stock or

other   stock or   securities   with   respect   to which   Options   and Awards may be

granted   to any   Eligible   Employee   in any   fiscal   year   period,   and   (v) the

performance   goals   under   Articles   8,   9,   10   and 11 of the   Plan,   shall   be

appropriately   adjusted   consistent   with   such   change   in such   manner   as the

Committee   may deem   equitable   in its sole   discretion   to prevent   substantial

dilution or enlargement of the rights granted to, or available for, Participants

under this Plan. Any such   adjustment   determined by the Committee in good faith

shall   be   binding   and   conclusive   on the   Company   and all   Participants   and

employees and their respective heirs, executors, administrators,   successors and

assigns.   Any 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.

 

     (a)   To the extent   possible,   any such   adjustment in the shares of Common

          Stock   or   other   stock   or   securities   (i)   subject   to   outstanding

          Incentive   Stock Options   (including   any   adjustments in the exercise

          price)   shall   be   made by the   Committee   in   such   manner   as not to

          constitute a modification as defined by Section   424(h)(3) of the Code

          and only to the extent otherwise   permitted by Sections 422 and 424 of

          the Code,   or (ii) subject to   outstanding   Options or Awards that are

          intended to qualify as Performance-Based   Compensation,   shall be made

          by the   Committee   in such a manner   as not to   adversely   affect   the

          treatment of the Options or Awards as Performance-Based Compensation.

 

     (b)   If, by reason of a change   pursuant   to this   Section,   a holder of an

          Award shall be entitled   to, or a holder shall be entitled to exercise

          an Option with   respect to, new,   additional   or   different   shares of

           stock or securities of the Company or any other corporation, such new,

          additional   or different   shares shall   thereupon be subject to all of

          the   conditions,   restrictions   and   performance   criteria   which were

          applicable to the shares   subject to the Award or Option,   as the case

          may be, prior to such change.

 

     4.3   Purchase   Price.   Notwithstanding   any   provision   of this Plan to the

contrary,   if   authorized   but   previously   unissued   shares of Common Stock are

issued under this Plan,   such shares shall be issued for a   consideration   which

shall not be less than par value.

 

     4.4   Non-U.S.   Awards.   To conform   with the   provisions   of local laws and

regulations,   or with local   compensation   practices and policies,   in countries

outside   the United   States in which the   Company or any   Designated   Subsidiary

operates,   but subject to any limitations set forth herein regarding the maximum

number   of   shares   issuable   hereunder   and the   maximum   award   to any   single

Participant,   the   Committee   may (a) modify the terms and   conditions of Awards

granted to Participants employed outside the United States ("Non-U.S.   Awards"),

(b)   establish   subplans   with   modified   exercise   procedures   and   such   other

modification   as   may   be   necessary   or   advisable    under   the    circumstances

("Subplans"),   and (c) take any action that it deems advisable to obtain, comply

with or otherwise   reflect any   necessary   governmental   regulatory   procedures,

exemptions or approvals   with respect to the Plan. The   Committee's   decision to

grant Non-U.S. Awards or to establish Subplans is entirely voluntary, and at the

complete   discretion   of the   Committee.   The   Committee   may   amend,   modify or

terminate   any   Subplans   at any   time,   and   such   amendment,   modification   or

termination may be made without prior notice to the   Participants.   The Company,

its Designated Subsidiaries and the members of the Committee shall not incur any

liability of any kind to any   Participant as a result of any change,   amendment,

modification   or termination of any Subplan at any time. The benefits and rights

provided under any Subplan or by any Non-U.S. Award (d) are wholly discretionary

and, although provided by either the Company or a Designated Subsidiary,   do not

constitute regular or periodic payments and (e) are not to be considered part of

the Participant's salary or compensation under the Participant's employment with

the   Participant's   local   employer for purposes of   calculating   any severance,

resignation,   redundancy or other end-of-service   payments,   vacation,   bonuses,

long-term service awards,   indemnification,   pension or retirement benefits,   or

any other payments,   benefits or rights of any kind. If a Subplan is terminated,

the Committee may direct the payment of Non-U.S.   Awards (or direct the deferral

of   payments   whose   amount   shall be   determined)   prior to the   dates on which

payments would otherwise have been made and, in the Committee's discretion, such

payments may be made in a lump sum or in installments.

 

                                    ARTICLE 5

                                   Eligibility

 

     5.1 Senior officers, senior management and key employees of the Company and

its Designated   Subsidiaries are eligible to be granted Options and other Awards

under   this   Plan.   Eligibility   under   this   Plan   shall be   determined   by the

Committee.

 

 

 

 

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                                    ARTICLE 6

                                  Stock Options

 

      6.1   Options.   Stock   Options may be granted   alone or in addition to other

Awards granted under this Plan.   Each Stock Option granted under this Plan shall

be one of two types: (i) an Incentive Stock Option or (ii) a Non-Qualified Stock

Option.

 

     6.2   Grants.   The   Committee   shall   have   the   authority   to   grant to any

Participant one or more Incentive Stock Options, Non-Qualified Stock Options, or

both types of Stock   Options   (in each case with or without   Stock   Appreciation

Rights);   provided,   however, that no Participant shall be granted Stock Options

or Non-Tandem   Stock   Appreciation   Rights,   or both, with respect to a total of

more than   1,500,000   shares of   Common   Stock   during   any   fiscal   year of the

Company.   To the extent that any Stock   Option does not qualify as an   Incentive

Stock Option   (whether   because of its   provisions   or the time or manner of its

exercise or otherwise),   such Stock Option or the portion thereof which does not

qualify shall constitute a separate Non-Qualified Stock Option.

 

     6.3   Incentive   Stock   Options.   Anything   in   the   Plan   to   the   contrary

notwithstanding,   no term of this 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   the Plan   under

Section 422A of the Code, or, without the consent of the Participants   affected,

to disqualify any Incentive Stock Option under such Section 422A.

 

     6.4 Terms of Options.   Options   granted under this Plan shall be subject to

the following   terms and   conditions   and shall be in such form and contain such

additional terms and conditions,   not inconsistent   with the terms of this Plan,

as the Committee shall deem desirable:

 

     (a)   Option Price.   The option price per share of Common 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 Common Stock at grant.

 

     (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   the   Option   is   granted,   and   no

          Non-Qualified   Stock Option shall be   exercisable   more than ten years

          and one day after the date the Option is granted.

 

     (c)   Exercisability.   Stock   Options shall be   exercisable   at such time or

          times and subject to such terms and   conditions as shall be determined

          by the Committee at grant; provided, however, that, except as provided

          in subsections   (f), (g) and (h) below and Article 3, unless otherwise

          determined   by the   Committee   at   grant,   no   Stock   Option   shall be

          exercisable prior to the first anniversary date of the granting of the

          Option. If the Committee provides,   in its discretion,   that any Stock

          Option is exercisable   only in   installments,   the Committee may waive

          such installment   exercise provisions at any time at or after grant in

          whole or in part,   based on such   factors,   if any,   as the   Committee

          shall determine, in its sole discretion.

 

     (d)   Method of   Exercise.   Subject to   whatever   installment   exercise   and

          waiting period   provisions   apply under   subsection   (c) above,   Stock

          Options   may be   exercised   in whole or in part at any time during the

          option   term,   by giving   written   notice of   exercise   to the Company

          specifying the number of shares to be purchased.   Such notice shall be

          accompanied   by payment in full of the purchase   price in such form as

          the   Committee   may   accept.   If and to the extent   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   Common   Stock   (other   than

          Restricted   Stock)   owned   by   the   Participant   (and   for   which   the

          Participant    has   good    title   free   and   clear   of   any   liens   and

          encumbrances)   or Restricted   Stock,   or by reduction in the number of

          shares   issuable upon such exercise   based,   in each case, on the Fair

          Market Value of the Common Stock on the payment date as   determined by

          the   Committee    (without    regard   to   any   forfeiture    restrictions

          applicable   to Restricted   Stock).   No shares of Common Stock shall be

          issued until payment,   as provided   herein,   therefor has been made. A

          Participant   shall   generally   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,   has paid for

          such   shares as provided   herein,   and,   if   requested,   has given the

          representation    described   in   Section   16.1.    Notwithstanding    the

          foregoing,   if payment in full or in part has been made in the form of

          Restricted   Stock,   an   equivalent   number of   shares of Common   Stock

          issued   on   exercise   of the   Option   shall   be   subject   to the   same

          restrictions    and   conditions,    and   during   the   remainder   of   the

          Restriction   Period,   applicable   to the   shares of   Restricted   Stock

          surrendered therefor.

 

     (e)   Transferability of Options.

 

          (1)   No   Stock   Option   shall   be     Transferable   by   the   Participant

               otherwise    than   by   will   or   by   the   laws   of    descent    and

               distribution, and all Stock Options shall be exercisable,   during

               the    Participant's     lifetime,    only    by    the    Participant.

               Notwithstanding   the foregoing,   the Committee may provide in the

               terms and   conditions   governing   any Stock   Option other than an

               Incentive Stock Option, at the time of grant or thereafter,   that

               the Stock Option may be   Transferred,   to the extent   vested,   to

               members of the   Participant's   immediate family, to trusts solely

               for   the   benefit   of   such   immediate   family   members,   and   to

                partnerships in which such immediate family members and/or trusts

               are   the   only   partners.   For   this   purpose   "immediate   family

               members"   means   the   Participant's   spouse,   parents,   children,

               stepchildren, grandchildren and other issue and legal dependents.

               Any Transfer of Stock Options made under this   provision will not

               be   effective   until   notice of such   Transfer is received by the

               Company.

 

           (2)   Notwithstanding   any   thing to the   contrary   herein,   if a Stock

               Option has been   Transferred in accordance with this Section 6.4,

               the Stock Option shall be exercisable   solely by the   Transferee.

               The Stock Option shall remain   subject to the   provisions   of the

               Plan,   including that it shall be exercisable   only to the extent

               that the   Participant   or   Participant's   estate   would have been

               entitled to exercise it if the   Participant   had not   Transferred

               the Stock   Option.   In the event of the death of the   Participant

               prior to the expiration of the right to exercise the   Transferred

               Stock   Option,   the period during which the Stock Option shall be

               exercisable   shall   terminate on the date one year   following the

               date of the Participant's death. In the event of the death of the

               Transferee   prior to the   expiration of the right to exercise the

               Stock   Option,   the period during which the Stock Option shall be

               exercisable   by   the   executors,   administrators,    legatees   and

               distributees   of the   Transferee's   estate,   as the   case may be,

               shall   terminate on the date one year   following   the date of the

               Transferee's death. In no event, however,   shall the Stock Option

               be   exercisable   after the   expiration of the Stock Option period

                set forth in the terms and   conditions of the Stock   Option.   The

               Stock   Option   shall   be   subject   to   such   other   rules   as the

               Committee shall determine.

 

     (f)   Termination   by   Death.    Subject   to   subsection   (j)   below,    if   a

          Participant's   employment   by the Company or a   Designated   Subsidiary

          terminates   by   reason   of   death,   any   Stock   Option   held   by   such

          Participant,   unless   otherwise   determined by the Committee at grant,

          shall be fully   vested and may   thereafter   be   exercised by the legal

          representative of the estate,   for a period of one year (or such other

          period as the   Committee   may   specify at grant) from the date of such

          death or until the expiration of the stated term of such Stock Option,

          whichever period is the shorter.

 

     (g)   Termination by Reason of Disability.   Subject to subsection (j) below,

          if   a   Participant's    employment   by   the   Company   or   a   Designated

          Subsidiary   terminates by reason of Disability,   any Stock Option held

          by such Participant,   unless otherwise   determined by the Committee at

          grant,   shall be fully vested and may   thereafter   be exercised by the

          Participant   for a period of three years (or such other   period as the

          Committee may specify at grant) from the date of such   termination   of

          employment   or until the   expiration   of the stated term of such Stock

          Option, whichever period is the shorter;   provided,   however, that, if

          the   Participant   dies   within such   three-year   period (or such other

          period as the Committee shall specify at grant), any unexercised Stock

           Option held by such Participant shall thereafter be exercisable to the

          extent to which it was   exercisable   at the time of death for a period

          of twelve   months from the date of such death or until the   expiration

          of the   stated   term of such   Stock   Option,   whichever   period is the

          shorter.   In the   event of   termination   of   employment   by   reason of

          Disability,   if an   Incentive   Stock   Option   is   exercised   after the

          expiration of the exercise   periods that apply for purposes of Section

          422A of the Code,   such Stock Option will   thereafter   be treated as a

          Non-Qualified Stock Option.

 

     (h)   Termination by Reason of Retirement.   Subject to subsection   (j), if a

           Participant's   employment   by the Company or a   Designated   Subsidiary

          terminates   by reason of   Retirement,   any Stock   Option   held by such

          Participant,   unless   otherwise   determined by the Committee at grant,

          shall   be   fully   vested   and   may   thereafter   be   exercised   by   the

          Participant   for a period of three years (or such other   period as the

          Committee may specify at grant) from the date of such   termination   of

          employment or the   expiration of the stated term of such Stock Option,

          whichever   period is the   shorter;   provided,   however,   that,   if the

          Participant dies within such three-year   period, any unexercised Stock

          Option held by such Participant   shall   thereafter be exercisable,   to

          the   extent to which it was   exercisable   at the time of death,   for a

          period   of   twelve   months   from the date of such   death or until   the

          expiration of the stated term of such Stock Option,   whichever   period

          is the shorter. In the event of termination of employment by reason of

          Retirement,   if an   Incentive   Stock   Option   is   exercised   after the

          expiration of the exercise   periods that apply for purposes of Section

          422A of the Code,   such Stock Option will   thereafter   be treated as a

          Non-Qualified Stock Option.

 

     (i)   Other Termination.   Unless otherwise determined by the Committee at or

          after   grant,   if a   Participant's   employment   by   the   Company   or a

          Designated   Subsidiary   terminates   for any reason   other than   death,

          Disability or Retirement,   the Stock Option shall thereupon terminate,

          except that such Stock Option may be   exercised,   to the extent it was

          exercisable immediately preceding such termination,   for the lesser of

          three   months   or the   balance   of   such   Stock   Option's   term if the

          Participant   is   involuntarily    terminated   by   the   Company   or   the

          Designated Subsidiary without cause.

 

     (j)   Incentive Stock Option   Limitations.   To the extent that the aggregate

          Fair Market Value   (determined   as of the time of grant) of the Common

          Stock with respect to which   Incentive   Stock Options are   exercisable

          for the first time by the   Participant   during any calendar year under

          the Plan   and/or any other   stock   option   plan of the   Company or any

          subsidiary or parent corporation (within the meaning of Section 425 of

          the Code) exceeds   $100,000,   such Options shall be treated as Options

          which are not Incentive Stock Options.

 

          To the extent (if any)   permitted   under   Section 422A of the Code, or

          the   applicable   regulations   thereunder   or any   applicable   Internal

          Revenue Service pronouncement,   if (i) a Participant's employment with

          the Company or a   Designated   Subsidiary   is   terminated   by reason of

          death,   Disability or Retirement and (ii) the portion of any Incentive

          Stock Option that is otherwise exercisable during the post-termination

          period   specified under   subsections   (f), (g) or (h) above,   computed

          without   regard to the   $100,000   limitation   currently   contained   in

          Section 422A(d) of the Code, is greater than the portion of such Stock

          Option that is immediately   exercisable as an "incentive stock option"

          during such   post-termination   period under Section 422A,   such excess

          shall be treated as a Non-Qualified   Stock Option.   If the exercise of

          an   Incentive   Stock   Option is   accelerated   by reason of a Change in

          Control,   any   portion of such Option   that is not   exercisable   as an

          Incentive Stock Option by reason of the $100,000 limitation   contained

          in Section   422A(d)   of the Code   shall be treated as a   Non-Qualified

          Stock Option.

 

          Should any of the foregoing   provisions   not be necessary in order for

          the Stock Options to qualify as Incentive Stock Options, or should any

          additional   provisions   be required,   the Committee may amend the Plan

          accordingly,   without the   necessity of obtaining   the approval of the

          stockholders of the Company.

 

     (k)   Buyout and Settlement Provisions.   The Committee may at any time offer

          to buy out an   Option   previously   granted,   based on such   terms   and

          conditions as the Committee   shall   establish and   communicate   to the

          Participant at the time that such offer is made.

 

          In   addition,   if the   Option   agreement   so   provides   at grant or is

          amended   (with the   Participant's   consent)   after   grant and prior to

          exercise to so provide,   the Committee may require that all or part of

          the   shares   to be   issued   with   respect   to the   spread   value of an

          exercised Option take the form of Performance Shares, Restricted Stock

           or   Restricted   Stock   Units,   which   shall be   valued   on the date of

          exercise   on the basis of the Fair   Market   Value of such   Performance

          Shares,   Restricted Stock or Restricted Stock Units determined without

          regard to the   deferral   limitations   and/or   forfeiture   restrictions

          involved.

 

 

 

 

<PAGE>

 

 

                                    ARTICLE 7

                            Stock Appreciation Rights

 

     7.1 Tandem Stock   Appreciation   Rights.   Stock   Appreciation   Rights may be

granted in conjunction   with all or part of any Stock Option (a "Reference Stock

Option") granted under this Plan ("Tandem Stock   Appreciation   Rights").   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   Reference   Stock Option.   In the case of an

Incentive Stock Option, such rights may be granted only at the time of the grant

of such Reference Stock Option.

 

     7.2 Terms and Conditions of Tandem Stock Appreciation Rights.   Tandem Stock

Appreciation   Rights   shall   be   subject   to   such   terms   and   conditions,   not

inconsistent   with the provisions of this Plan, as shall be determined from time

to time by the Committee, including the following:

 

     (a)   Term. A Tandem Stock   Appreciation Right or applicable portion thereof

          granted with respect to a Reference   Stock Option shall   terminate and

          no longer be   exercisable   upon the   termination   or   exercise   of the

          Reference Stock Option,   except that,   unless otherwise   determined by

          the Committee, in its sole discretion,   at the time of grant, a Tandem

          Stock   Appreciation   Right   granted with respect to less than the full

          number of shares   covered by the   Reference   Stock Option shall not be

          reduced until and then only to the extent the exercise or   termination

          of the Reference   Stock Option causes the number of shares   covered by

          the   Tandem   Stock   Appreciation   Right to exceed the number of shares

          remaining available and unexercised under the Reference Stock Option.

 

     (b)   Exercisability.   Tandem Stock Appreciation Rights shall be exercisable

          only at such time or times and to the extent that the Reference   Stock

          Options to which they relate shall be exercisable   in accordance   with

          the   provisions   of Article 6 and this Article 7;   provided,   however,

          that any Tandem Stock   Appreciation   Right   granted   subsequent to the

          grant of the Reference   Stock Option shall not be   exercisable   during

          the first six months of its term, except that this special   limitation

          shall not apply in the event of death or Disability of the Participant

           prior to the expiration of the six-month period.

 

     (c)   Method of Exercise. A Tandem Stock Appreciation Right may be exercised

          by an optionee by surrendering the applicable portion of the Reference

          Stock Option. Upon such exercise and surrender,   the Participant shall

          be entitled to receive an amount   determined in the manner   prescribed

          in this Section 7.2. Stock Options which have been so surrendered,   in

          whole or in part,   shall no longer be   exercisable   to the   extent the

          related Tandem Stock Appreciation Rights have been exercised.

 

     (d)   Payment.   Upon the   exercise of a Tandem   Stock   Appreciation   Right a

          Participant   shall be entitled to receive up to, but no more than,   an

          amount in cash   and/or   shares of Common   Stock   equal in value to the

          excess of the Fair Market   Value of one share of Common Stock over the

          option   price   per   share   specified   in the   Reference   Stock   Option

           multiplied   by the   number of shares in   respect   of which the   Tandem

          Stock Appreciation Right shall have been exercised, with the Committee

          having the right to determine the form of payment.

 

     (e)   Non-Transferability.    Tandem   Stock   Appreciation    Rights   shall   be

          Transferable   only when and to the extent   that the   underlying   Stock

          Option would be Transferable under subsection 6.4(e) of the Plan.

 

     (f)   Deemed   Exercise of   Reference   Stock   Option.   Upon the exercise of a

          Tandem Stock   Appreciation   Right,   the Reference Stock Option or part

          thereof   to which such Stock   Appreciation   Right is related   shall be

          deemed to have been   exercised for the purpose of the   limitation   set

          forth in Article 4 of the Plan on the number of shares of Common Stock

          to be issued under the Plan.

 

     7.3 Non-Tandem Stock   Appreciation   Rights.   Non-Tandem Stock   Appreciation

Rights may also be granted without   reference to any Stock Options granted under

this Plan; provided, however, that no Participant shall be granted Stock Options

or Non-Tandem   Stock   Appreciation   Rights,   or both, with respect to a total of

more than   1,500,000   shares of   Common   Stock   during   any   fiscal   year of the

Company.

 

     7.4   Terms   and   Conditions   of   Non-Tandem   Stock    Appreciation    Rights.

Non-Tandem   Stock   Appreciation   Rights   shall   be   subject   to such   terms   and

conditions,   not   inconsistent   with the   provisions   of this Plan,   as shall be

determined from time to time by the Committee, including the following:

 

     (a)   Term. The term of each Non-Tandem   Stock   Appreciation   Right shall be

          fixed by the   Committee,   but shall not be grea