Appendix 3
 
                      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.
 
                                    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.
 
 
 
<PAGE>
 
 
                                    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.
 
                                    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.
 
                                    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  greater  than ten
               years and one day after the date the Right is granted.
 
          (b)  Exercisability.  Non-Tandem  Stock  Appreciation  Rights 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 any Right 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 expiration of this six-month period. If
               the Committee provides, in its discretion, that any such Right 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.
 
          (c)  Method of Exercise.  Subject to whatever installment exercise and
               waiting  period  provisions  apply  under  subsection  (b) above,
               Non-Tandem Stock Appreciation Rights 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 Rights
               to be exercised.
 
          (d)  Payment.  Upon the  exercise of a Non-Tandem  Stock  Appreciation
               Right a Participant shall be entitled to receive,  for each Right
               exercised,  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 on the date the Right
               is  exercised  over the Fair Market  Value of one share of Common
               Stock on the date the Right was awarded to the Participant,  with
               the Committee having the right to determine the form of payment.
 
          (e)  Non-Transferability. No Non-Tandem Stock Appreciation Right shall
               be Transferable  by the Participant  otherwise than by will or by
               the laws of descent and  distribution,  and all such Rights shall
               be exercisable,  during the Participant's  lifetime,  only by the
               Participant.
 
          (f)  Termination  by  Death.  If a  Participant's  employment  by  the
               Company or a Designated Subsidiary terminates by reason of death,
               any Non-Tandem Stock Appreciation Right 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
               Right, whichever period is the shorter.
 
          (g)  Termination  by  Reason  of  Disability  or   Retirement.   If  a
               Participant's   employment   by  the  Company  or  a   Designated
               Subsidiary terminates by reason of Disability or Retirement,  any
               Non-Tandem  Stock  Appreciation  Right 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
               Right, 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  Non-Tandem  Stock  Appreciation  Right  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  Right,  whichever  period  is the
               shorter.
 
          (h)  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   Non-Tandem   Stock
               Appreciation  Right shall thereupon  terminate,  except that such
               Right  may  be  exercised,  to  the  extent  it  was  exercisable
               immediately  preceding such termination,  for the lesser of three
               months or the  balance  of the  stated  term of such Right if the
               Participant  is  involuntarily  terminated  by the Company or the
               Designated Subsidiary without cause.
 
                                    ARTICLE 8
                                Restricted Stock
 
     8.1 Awards of Restricted  Stock.  Shares of Restricted  Stock may be issued
either  alone or in  addition  to other  Awards  granted  under  the  Plan.  The
Committee shall determine the Eligible  Employees to whom, and the time or times
at which,  grants of Restricted  Stock will be made,  the number of shares to be
awarded to any person,  the price (if any) to be paid by the recipient  (subject
to Section  8.2),  the time or times  within which such Awards may be subject to
forfeiture,  the vesting  schedule and rights to acceleration  thereof,  and all
other terms and conditions of the Awards.  The Committee may condition the grant
or vesting (i.e.,  lapse of  restrictions  and risk of forfeiture) of Restricted
Stock upon the attainment of specified  performance  goals or such other factors
or criteria as the Committee may determine in its sole discretion.
 
         Restricted Stock intended to meet the requirements of Section 162(m) of
the Code for Performance-Based Compensation is referred to herein as
"Performance-Based Restricted Stock." The Committee shall determine the Eligible
Employees to whom and the time or times at which Performance-Based Restricted
Stock shall be awarded, the number of shares of Performance-Based Restricted
Stock to be awarded to any person, the duration of the period (the "Restriction
Period") during which, and the conditions under which, the Participant shall not
be permitted to Transfer shares of Performance-Based Restricted Stock and the
shares shall be subject to risk of forfeiture, the duration of the period during
which any performance goals shall be required to be attained (the "Performance
Period") and the other terms and conditions of the Award. Performance-Based
Restricted Stock shall be subject to the restrictions and conditions of this
Plan as Restricted Stock. Performance-Based Restricted Stock may be issued
either alone or in addition to other Awards granted under the Plan and shall
have the following material terms:
 
          (a)  Eligible  Employees.  Employees  eligible  to  receive  Awards of
               Performance-Based   Restricted   Stock  shall  be  those  persons
               eligible under Section 5.1.
 
          (b)  Maximum  Amount.  The aggregate  amount paid to any employee with
               respect  to Awards of  Performance-Based  Restricted  Stock  with
               respect to a Performance  Period shall not exceed  750,000 shares
               of Performance-Based Restricted Stock. The Performance Period for
               this purpose shall be one (1) to five (5) years,  as specified by
               the Committee. Unless otherwise provided by the Committee, two or
               more  Performance  Periods may  overlap,  but no two  Performance
               Periods may consist entirely of the same period.
 
          (c)  Business Criteria.
 
                    (i)  The performance goals shall be based on any one or more
                         of the  following  business  criteria  relating  to the
                         Company or any  subsidiary,  division  or other unit of
                         the Company:  (i) revenue,  (ii) net income,  (iii) net
                         income per share, (iv) operating  income,  (v) earnings
                         per  share,  (vi)  cash  flow,  (vii)  earnings  before
                         interest and taxes (EBIT) or earnings before  interest,
                         taxes,  depreciation and amortization (EBITDA),  (viii)
                         total stockholder return, (ix) total stockholder return
                         relative to peers,  (x) financial  returns  (including,
                         without limitation,  return on assets, return on equity
                         and return on investment), (xi) cost reduction targets,
                         (xii) customer satisfaction, (xiii) customer growth, or
                         (xiv) employee satisfaction.
 
                    (ii) Except  to  the  extent  that  the   treatment  of  the
                         Performance-Based Restricted Stock as Performance-Based
                         Compensation would be adversely  affected,  at the time
                         of grant of the Performance-Based Restricted Stock, the
                         Committee   may   provide   for  the  manner  in  which
                         performance  will be measured  against the  performance
                         goals (or may adjust the performance  goals) to reflect
                         losses   from   discontinued    operations,    special,
                         extraordinary, unusual or nonrecurring gains and losses
                         or charges,  non-cash charges, the cumulative effect of
                         accounting changes, acquisitions or divestitures,  core
                         process  redesigns,   structural   changes/outsourcing,
                         foreign  exchange  impacts,  the  impact  of  specified
                         corporate  transactions,  accounting or tax law changes
                         and   other   special,   extraordinary,    unusual   or
                         nonrecurring events.
 
                    (iii) The  performance  goals with respect to a  Performance
                         Period  shall be  established  by the  Committee by the
                         earlier  of (x) the  date on  which  a  quarter  of the
                         Performance Period has elapsed or (y) the date which is
                         ninety  (90)  days  after  the   commencement   of  the
                         Performance   Period,   and  in  any  event  while  the
                         performance  relating to the performance  goals remains
                         substantially uncertain.
 
     8.2  Awards and  Certificates.  The  prospective  Participant  selected  to
receive a Restricted  Stock Award shall not have any rights with respect to such
Award,  unless and until such Participant has delivered a fully executed copy of
the agreement  evidencing  the Award to the Company and has  otherwise  complied
with the  applicable  terms and  conditions of such Award.  Further,  such Award
shall be subject to the following conditions:
 
          (a)  Purchase  Price.  Subject to Section 4.3, the purchase  price for
               shares of  Restricted  Stock may be less than their par value and
               may be zero.
 
          (b)  Acceptance.  Awards of Restricted Stock must be accepted within a
               period of 60 days (or such shorter  period as the  Committee  may
               specify at grant) after the Award date, by executing a Restricted
               Stock Award  agreement and by paying  whatever price (if any) the
               Committee has designated thereunder.
 
          (c)  Legend.  Unless  shares  are  held  in  book-entry  form  (or any
               electronic equivalent thereof) in the name of or on behalf of the
               Participant,  each Participant receiving a Restricted Stock Award
               shall be issued a stock  certificate in respect of such shares of
               Restricted  Stock.  Such  certificate  shall be registered in the
               name of such  Participant,  and shall bear an appropriate  legend
               referring to the terms,  conditions,  and restrictions applicable
               to such Award, substantially in the following form:
 
               "The  anticipation,   alienation,   attachment,  sale,  transfer,
               assignment,  pledge, encumbrance or charge of the shares of stock
               represented  hereby  are  subject  to the  terms  and  conditions
               (including  forfeiture) of The Reader's Digest Association,  Inc.
               (the "Company") 2005 Key Employee Long Term Incentive Plan and an
               Agreement  entered  into  between  the  registered  owner and the
               Company  dated . Copies of such Plan and Agreement are on file at
               the principal office of the Company."
 
          (d)  Custody.  The Committee shall require that any stock certificates
               evidencing  shares of Restricted  Stock 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 duly  signed  stock  power,
               endorsed in blank,  relating to the Common Stock  covered by such
               Award.
 
     8.3  Restrictions  and Conditions.  The shares of Restricted  Stock awarded
pursuant  to this  Plan  shall be  subject  to the  following  restrictions  and
conditions:
 
          (a)  Restriction  Period.  Subject to the  provisions of this Plan and
               the  Award  agreement,   during  the  Restriction   Period,   the
               Participant   shall  not  be  permitted  to  Transfer  shares  of
               Restricted  Stock awarded under this Plan.  Except in the case of
               grants to new employees,  the period over which the  restrictions
               on  service-based  Restricted Stock Awards shall lapse may not be
               less than three years and the period over which  restrictions  on
               performance-based  Restricted Stock Awards shall lapse may not be
               less  than one  year,  which in each  case may  include  pro rata
               vesting over such period. Within these limits, the Committee,  in
               its  sole   discretion,   may  provide  for  the  lapse  of  such
               restrictions  in  installments  and may  accelerate or waive such
               restrictions in whole or in part,  based on service,  performance
               and/or  such  other  factors or  criteria  as the  Committee  may
               determine in its sole discretion.
 
          (b)  Rights as Stockholder.  Except as provided in this subsection (b)
               and  subsection  (a) above or as otherwise  provided in the terms
               and  conditions  and  restrictions  at the  time  of  grant,  the
               Participant  shall have, with respect to the shares of Restricted
               Stock, all of the rights of a holder of shares of Common Stock of
               the Company  including  the right to receive any  dividends.  The
               Committee,  in its sole discretion,  as determined at the time of
               Award,  may permit or require  the  payment  of  dividends  to be
               deferred.
 
          (c)  Termination of Employment.  Subject to the applicable  provisions
               of the Award  agreement  and this  Plan,  upon  termination  of a
               Participant's   employment  with  the  Company  or  a  Designated
               Subsidiary  for any reason  during the  Restriction  Period,  all
               Restricted  Stock still  subject to  restriction  will vest or be
               forfeited in accordance with the terms and conditions established
               by the Committee at grant.
 
          (d)  Hardship.  Subject  to the  applicable  provisions  of the  Award
               agreement  and  this  Plan,  in the  event of  hardship  or other
               special  circumstances of a Participant whose employment with the
               Company or a Designated  Subsidiary is  involuntarily  terminated
               (other  than  for  cause),   the  Committee   may,  in  its  sole
               discretion,  waive  in  whole  or in  part  any or all  remaining
               restrictions  with  respect  to  such  Participant's   shares  of
               Restricted Stock, based on such factors as the Committee may deem
               appropriate.
 
          (e)  Lapse of Restrictions. If and when the Restriction Period expires
               without a prior  forfeiture  of the  Restricted  Stock subject to
               such Restriction Period, such Restricted Stock shall vest and the
               certificates   for  such  shares   shall  be   delivered  to  the
               Participant.  All legends relating to the restrictions applicable
               to the Restricted  Stock shall be removed from said  certificates
               at the time of delivery to the Participant.
 
          (f)  Determination  of  Performance.  Promptly  after  the  end of the
               Performance Period and prior to the vesting, payment,  settlement
               or  lapsing  of any  restrictions  with  respect  to any Award of
               Performance-Based  Restricted  Stock, the Committee shall certify
               in  writing  that the  applicable  performance  goals  have  been
               satisfied  to the  extent  necessary  for the Award to qualify as
               Performance-Based  Compensation.  Promptly  after  the end of the
               Performance Period and prior to the vesting, payment,  settlement
               or lapsing of any restrictions with respect to any other Award of
               Restricted Stock with performance-based conditions, the Committee
               shall  certify  in  writing  the  extent to which the  applicable
               performance goals have been satisfied.  A Participant's  Award of
               Performance-Based  Restricted  Stock may be  reduced  at any time
               before payment or delivery of shares.
 
                                    ARTICLE 9
                             Restricted Stock Units
 
     9.1 Awards of Restricted Stock Units. Restricted Stock Units may be awarded
either  alone or in  addition  to other  Awards  granted  under  the  Plan.  The
Committee shall determine the eligible persons to whom, and the time or times at
which,  grants of Restricted  Stock Units will be made, the number of Restricted
Stock  Units to be awarded to any  person,  the price (if any) to be paid by the
recipient,  the time or  times  within  which  such  Awards  may be  subject  to
forfeiture,  the vesting  schedule and rights to acceleration  thereof,  and all
other terms and conditions of the Awards.  The Committee may condition the grant
or vesting (i.e.,  lapse of  restrictions  and risk of forfeiture) of Restricted
Stock Units upon the  attainment  of specified  performance  goals or such other
factors or criteria as the Committee may determine in its sole discretion.
 
     Restricted  Stock Units intended to meet the requirements of Section 162(m)
of the Code  for  Performance-Based  Compensation  are  referred  to  herein  as
"Performance-Based  Restricted  Stock Units." The Committee  shall determine the
Eligible  Employees  to whom and the  time or  times at which  Performance-Based
Restricted  Stock  Units  shall be  awarded,  the  number  of  Performance-Based
Restricted  Stock Units to be awarded to any person,  the duration of the period
(the  "Restriction  Period")  during  which,  and the  conditions  under  which,
settlement of Performance-Based Restricted Stock Units shall be deferred and the
Performance-Based Restricted Stock Units shall be subject to risk of forfeiture,
the duration of the period during which any performance  goals shall be required
to be attained (the "Performance Period"), and the other terms and conditions of
the Award.  Performance-Based  Restricted  Stock  Units  shall be subject to the
restrictions   and   conditions  of  this  Plan  as   Restricted   Stock  Units.
Performance-Based  Restricted  Stock  Units may be  awarded  either  alone or in
addition to other  Awards  granted  under the Plan and shall have the  following
material terms:
 
          (a)  Eligible  Employees.  Employees  eligible  to  receive  Awards of
               Performance-Based  Restricted  Stock Units shall be those persons
               eligible under Section 5.1.
 
          (b)  Maximum  Amount.  The aggregate  amount paid to any employee with
               respect to Awards of  Performance-Based  Restricted  Stock  Units
               with respect to a Performance  Period shall not exceed  1,500,000
               Restricted Stock Units.  The Performance  Period for this purpose
               shall  be  one  (1)  to  five  (5)  years,  as  specified  by the
               Committee.  Unless  otherwise  provided by the Committee,  two or
               more  Performance  Periods may  overlap,  but no two  Performance
               Periods may consist entirely of the same period.
 
          (c)  Business Criteria.
 
               (i)  The  performance  goals shall be based on any one or more of
                    the following  business  criteria relating to the Company or
                    any subsidiary,  division or other unit of the Company:  (i)
                    revenue,  (ii) net income,  (iii) net income per share, (iv)
                    operating  income,  (v) earnings per share,  (vi) cash flow,
                    (vii) earnings  before interest and taxes (EBIT) or earnings
                    before  interest,   taxes,   depreciation  and  amortization
                    (EBITDA),   (viii)  total  stockholder  return,  (ix)  total
                    stockholder  return relative to peers, (x) financial returns
                    (including,  without limitation, return on assets, return on
                    equity  and  return  on  investment),  (xi)  cost  reduction
                    targets,  (xii)  customer   satisfaction,   (xiii)  customer
                    growth, or (xiv) employee satisfaction.
 
               (ii) Except   to  the   extent   that   the   treatment   of  the
                    Performance-Based      Restricted     Stock     Units     as
                    Performance-Based  Compensation would be adversely affected,
                    at the  time of grant  of the  Performance-Based  Restricted
                    Stock  Units,  the  Committee  may provide for the manner in
                    which  performance  will be measured against the performance
                    goals (or may  adjust  the  performance  goals)  to  reflect
                    losses from discontinued operations, special, extraordinary,
                    unusual  or  nonrecurring  gains  and  losses  and  charges,
                    non-cash  charges,   the  cumulative  effect  of  accounting
                    changes,   acquisitions   or   divestitures,   core  process
                    redesigns, structural changes/outsourcing,  foreign exchange
                    impacts,  the impact of  specified  corporate  transactions,
                    accounting   or  tax  law   changes   and   other   special,
                    extraordinary, unusual or nonrecurring events.
 
               (iii) The performance goals with respect to a Performance  Period
                    shall be  established by the Committee by the earlier of (x)
                    the date on which a quarter  of the  Performance  Period has
                    elapsed or (y) the date which is ninety  (90) days after the
                    commencement  of the  Performance  Period,  and in any event
                    while the  performance  relating  to the  performance  goals
                    remains substantially uncertain.
 
     9.2 Terms and Conditions.  Restricted  Stock Units awarded pursuant to this
Article 9 shall be subject to the following terms and conditions:
 
          (a)  Acceptance.  Awards of  Restricted  Stock  Units must be accepted
               within  a  period  of 60 days  (or  such  shorter  period  as the
               Committee  may  specify  at  grant)  after  the  Award  date,  by
               executing a Restricted  Stock Unit Award  agreement and by paying
               whatever price (if any) the Committee has designated thereunder.
 
          (b)  Restriction Period.  Subject to the applicable  provisions of the
               Award agreement and this Plan,  Restricted Stock Units may not be
               Transferred during the Restriction Period.  Except in the case of
               grants to new employees,  the period over which the  restrictions
               on service-based Restricted Stock Unit Awards shall lapse may not
               be less than three years and the period  over which  restrictions
               on performance-based Restricted Stock Unit Awards shall lapse may
               not be less than one year,  which in each  case may  include  pro
               rata  vesting  over  such  period.   Within  these  limits,   the
               Committee,  in its sole discretion,  may provide for the lapse of
               such  restrictions  in  installments  and may accelerate or waive
               such  restrictions  in  whole  or  in  part,  based  on  service,
               performance   and/or  such  other  factors  or  criteria  as  the
               Committee may determine in its sole discretion.
 
          (c)  Dividends.  Unless  otherwise  determined by the Committee at the
               time of Award, amounts equal to any dividends declared during the
               Restriction Period with respect to the number of shares of Common
               Stock relating to a Restricted  Stock Unit Award will not be paid
               to the Participant.
 
          (d)  Payment.  Subject to the  provisions  of the Award  agreement and
               this Plan,  at the  expiration  of the  Restriction  Period,  the
               Restriction  Stock Units subject to the Restriction  Period shall
               vest and shares of Common  Stock or the cash value of each vested
               Restricted  Stock  Unit,  or  a  combination  thereof,  shall  be
               delivered to the Participant, or his legal representative.
 
          (e)  Termination of Employment.  Subject to the applicable  provisions
               of the Award  agreement  and this  Plan,  upon  termination  of a
               Participant's   employment  with  the  Company  or  a  Designated
               Subsidiary  for any reason  during the  Restriction  Period for a
               given Award,  the Restricted Stock Units in question will vest or
               be  forfeited  in  accordance   with  the  terms  and  conditions
               established by the Committee at grant.
 
          (f)  Accelerated  Vesting.  Based on service,  performance and/or such
               other  factors  or  criteria,   if  any,  as  the  Committee  may
               determine,  the Committee may, at or after grant,  accelerate the
               vesting of all or any part of any  Restricted  Stock Unit  and/or
               waive the deferral limitations for all or any part of such Award.
 
          (g)  Hardship.  Subject  to the  applicable  provisions  of the  Award
               agreement  and  this  Plan,  in the  event of  hardship  or other
               special  circumstances of a Participant whose employment with the
               Company or a Designated  Subsidiary is  involuntarily  terminated
               (other  than  for  cause),   the  Committee   may,  in  its  sole
               discretion,  based  on such  factors  as the  Committee  may deem
               appropriate,  waive  in  whole  or in  part  any  or  all  of the
               remaining deferral  limitations imposed hereunder with respect to
               any or all of the Participant's Restricted Stock Units.
 
          (h)  Determination  of  Performance.  Promptly  after  the  end of the
               Performance Period and prior to the vesting, payment,  settlement
               or   lapsing   of   any   restrictions   with   respect   to  any
               Performance-Based  Restricted  Stock Unit,  the  Committee  shall
               certify in writing  that the  applicable  performance  goals have
               been  satisfied to the extent  necessary for the Award to qualify
               as Performance-Based Compensation.  Promptly after the end of the
               Performance Period and prior to the vesting, payment,  settlement
               or  lapsing  of  any  restrictions  with  respect  to  any  other
               Restricted  Stock  Unit with  performance-based  conditions,  the
               Committee  shall  certify  in  writing  the  extent  to which the
               applicable performance goals have been satisfied. A Participant's
               Award of Performance-Based  Restricted Stock Units may be reduced
               at any time before payment or delivery of shares.
 
                                   ARTICLE 10
                               Performance Shares
 
     10.1 Award of Performance Shares.  Performance Shares may be awarded either
alone or in addition to other  Awards  granted  under this Plan.  The  Committee
shall  determine  the  eligible  persons  to whom and the time or times at which
Performance  Shares  shall be awarded,  the number of  Performance  Shares to be
awarded to any person,  the  duration of the period (the  "Performance  Period")
during  which,  and the  conditions  under which,  receipt of the Shares will be
deferred,  and the other terms and  conditions of the Award in addition to those
set forth in Section  10.2.  The Committee may condition the grant or vesting of
Performance  Shares upon the attainment of specified  performance  goals or such
other  factors  or  criteria  as the  Committee  shall  determine,  in its  sole
discretion.  Performance  Shares  intended to meet the  requirements  of Section
162(m) of the Code shall have the following material terms:
 
          (a)  Eligible  Employees.  Employees  eligible  to  receive  Awards of
               Performance  Shares shall be those persons eligible under Section
               5.1.
 
          (b)  Maximum  Amount.  The aggregate  amount paid to any employee with
               respect  to  Awards  of  Performance  Shares  with  respect  to a
               Performance Period shall not exceed 1,500,000 Performance Shares.
               Unless  otherwise   provided  by  the  Committee,   an  Award  of
               Performance  Shares will consist of shares of Common Stock or the
               value of such shares  based on the average  closing  price of the
               Common  Stock over the last twenty  (20) days of the  Performance
               Period.  The Performance Period for this purpose shall be one (1)
               to  five  (5)  years,  as  specified  by  the  Committee.  Unless
               otherwise  provided  by the  Committee,  two or more  Performance
               Periods may overlap,  but no two Performance  Periods may consist
               entirely of the same period.
 
          (c)  Business Criteria.
 
               (i)  The  performance  goals shall be based on any one or more of
                    the following  business  criteria relating to the Company or
                    any subsidiary,  division or other unit of the Company:  (i)
                    revenue,  (ii) net income,  (iii) net income per share, (iv)
                    operating  income,  (v) earnings per share,  (vi) cash flow,
                    (vii) earnings  before interest and taxes (EBIT) or earnings
                    before  interest,   taxes,   depreciation  and  amortization
                    (EBITDA),   (viii)  total  stockholder  return,  (ix)  total
                    stockholder  return relative to peers, (x) financial returns
                    (including,  without limitation, return on assets, return on
                    equity  and  return  on  investment),  (xi)  cost  reduction
                    targets,  (xii)  customer   satisfaction,   (xiii)  customer
                    growth, or (xiv) employee satisfaction.
 
               (ii) Except to the extent that the  treatment of the  Performance
                    Shares as Performance-Based  Compensation would be adversely
                    affected,  at the time of grant of the  Performance  Shares,
                    the   Committee   may   provide  for  the  manner  in  which
                    performance will be measured  against the performance  goals
                    (or may adjust the performance goals) to reflect losses from
                    discontinued operations, special, extraordinary,  unusual or
                    nonrecurring gains and losses or charges,  non-cash charges,
                    the cumulative effect of accounting changes, acquisitions or
                    divestitures,    core    process    redesigns,    structural
                    changes/outsourcing, foreign exchange impacts, the impact of
                    specified  corporate  transactions,  accounting  or tax  law
                    changes  and  other  special,   extraordinary,   unusual  or
                    nonrecurring events.
 
               (iii) The performance goals with respect to a Performance  Period
                    shall be  established by the Committee by the earlier of (x)
                    the date on which a quarter  of the  Performance  Period has
                    elapsed or (y) the date which is ninety  (90) days after the
                    commencement  of the  Performance  Period,  and in any event
                    while the  performance  relating  to the  performance  goals
                    remains substantially uncertain.
 
     10.2 Terms and  Conditions.  Performance  Shares  awarded  pursuant to this
Article 10 shall be subject to the following terms and conditions:
 
          (a)  Non-Transferability.  Subject to the applicable provisions of the
               Award agreement and this Plan,  Performance  Share Awards may not
               be Transferred during the Performance Period.
 
          (b)  Dividends.  Unless  otherwise  determined by the Committee at the
               time of Award, amounts equal to any dividends declared during the
               Performance Period with respect to the number of shares of Common
               Stock  covered by a  Performance  Share Award will not be paid to
               the Participant.
 
          (c)  Payment.  Subject to the  provisions  of the Award  agreement and
               this Plan, at the  expiration of the  Performance  Period,  share
               certificates and/or cash of an equivalent value (as the Committee
               may determine in its sole  discretion)  shall be delivered to the
               Participant,  or his legal  representative,  in a number equal to
               the vested shares covered by the Performance Share Award.
 
          (d)  Termination of Employment.  Subject to the applicable  provisions
               of the Award  agreement  and this  Plan,  upon  termination  of a
               Participant's   employment  with  the  Company  or  a  Designated
               Subsidiary  for any reason  during the  Performance  Period for a
               given Award,  the Performance  Shares in question will vest or be
               forfeited in accordance with the terms and conditions established
               by the Committee at grant.
 
 
<PAGE>
 
 
          (e)  Accelerated  Vesting.  Based on service,  performance and/or such
               other  factors  or  criteria,   if  any,  as  the  Committee  may
               determine,  the Committee may, at or after grant,  accelerate the
               vesting of all or any part of any Performance  Share Award and/or
               waive the deferral limitations for all or any part of such Award.
 
          (f)  Hardship.  Subject  to the  applicable  provisions  of the  Award
               agreement  and  this  Plan,  in the  event of  hardship  or other
               special  circumstances of a Participant whose employment with the
               Company or a Designated  Subsidiary is  involuntarily  terminated
               (other  than  for  cause),   the  Committee   may,  in  its  sole
               discretion,  based  on such  factors  as the  Committee  may deem
               appropriate,  waive  in  whole  or in  part  any  or  all  of the
               remaining deferral  limitations imposed hereunder with respect to
               any or all of the Participant's Performance Shares.
 
          (g)  Determination  of  Performance.  Promptly  after  the  end of the
               Performance Period and prior to the vesting, payment,  settlement
               or  lapsing  of any  restrictions  with  respect  to any Award of
               Performance    Shares   that   is    intended    to    constitute
               Performance-Based  Compensation  made  to a  Participant  who  is
               subject  to  Section  162(m) of the  Code,  the  Committee  shall
               certify in writing  that the  applicable  performance  goals have
               been  satisfied to the extent  necessary for the Award to qualify
               as  Performance-Based  Compensation.  A  Participant's  Award  of
               Performance  Shares may be reduced at any time before  payment or
               delivery of shares.
 
                                   ARTICLE 11
                                Performance Units
 
     11.1 Award of Performance  Units.  Performance  Units may be awarded either
alone or in addition to other  Awards  granted  under this Plan.  The  Committee
shall  determine  the  eligible  persons  to whom and the time or times at which
Performance  Units  shall be  awarded,  the  number of  Performance  Units to be
awarded to any person,  the  duration of the period  (the  "Performance  Cycle")
during  which,  and  the  conditions  under  which,  a  Participant's  right  to
Performance  Units will be vested,  the  ability  of  Participants  to defer the
receipt of payment of such  Units,  and the other  terms and  conditions  of the
Award in addition to those set forth in Section 11.2. A  Performance  Unit shall
have a fixed dollar  value.  The Committee may condition the grant or vesting of
Performance  Units upon the  attainment of specified  performance  goals or such
other  factors  or  criteria  as the  Committee  shall  determine,  in its  sole
discretion.  Performance  Units  intended  to meet the  requirements  of Section
162(m) of the Code shall have the following material terms:
 
          (a)  Eligible  Employees.  Employees  eligible  to  receive  Awards of
               Performance  Units shall be those persons  eligible under Section
               5.1.
 
 
          (b)  Maximum  Amount.  The amount paid to any employee with respect to
               any one Award of  Performance  Units shall not exceed  $3,000,000
               multiplied  by the  number  of  years in the  Performance  Cycle.
               Performance  Cycles  shall  be one  (1) to  five  (5)  years,  as
               specified  by the  Committee.  Unless  otherwise  provided by the
               Committee, two or more Performance Cycles may overlap, but no two
               Performance Cycles may consist entirely of the same period.
 
          (c)  Business Criteria.
 
               (i)  The  performance  goals shall be based on any one or more of
                    the following  business  criteria relating to the Company or
                    any subsidiary,  division or other unit of the Company:  (i)
                    revenue,  (ii) net income,  (iii) net income per share, (iv)
                    operating  income,  (v) earnings per share,  (vi) cash flow,
                    (vii) earnings  before interest and taxes (EBIT) or earnings
                    before  interest,   taxes,   depreciation  and  amortization
                    (EBITDA),   (viii)  total  stockholder  return,  (ix)  total
                    stockholder  return relative to peers, (x) financial returns
                    (including,  without limitation, return on assets, return on
                    equity  and  return  on  investment),  (xi)  cost  reduction
                    targets,  (xii)  customer   satisfaction,   (xiii)  customer
                    growth, or (xiv) employee satisfaction.
 
               (ii) Except to the extent that the  treatment of the  Performance
                    Units as  Performance-Based  Compensation would be adversely
                    affected, at the time of grant of the Performance Units, the
                    Committee  may provide  for the manner in which  performance
                    will be  measured  against  the  performance  goals  (or may
                    adjust  the  performance   goals)  to  reflect  losses  from
                    discontinued operations, special, extraordinary,  unusual or
                    nonrecurring gains and losses or charges,  non-cash charges,
                    the cumulative effect of accounting changes, acquisitions or
                    divestitures,    core    process    redesigns,    structural
                    changes/outsourcing, foreign exchange impacts, the impact of
                    specified  corporate  transactions,  accounting  or tax  law
                    changes  and  other  special,   extraordinary,   unusual  or
                    nonrecurring events.
 
               (iii) The performance  goals with respect to a Performance  Cycle
                    shall be  established by the Committee by the earlier of (x)
                    the date on which a  quarter  of the  Performance  Cycle has
                    elapsed or (y) the date which is ninety  (90) days after the
                    commencement  of the  Performance  Cycle,  and in any  event
                    while the  performance  relating  to the  performance  goals
                    remains substantially uncertain.
 
     11.2 Terms and Conditions.  The Performance  Units awarded pursuant to this
Article 11 shall be subject to the following terms and conditions:
 
          (a)  Non-Transferability.  Subject to the applicable provisions of the
               Award agreement and this Plan, Performance Unit Awards may not be
               Transferred.
 
          (b)  Vesting.   At  the  expiration  of  the  Performance  Cycle,  the
               Committee  shall  determine  the extent to which the  performance
               goals have been achieved,  and the percentage of the  Performance
               Units of each Participant that have vested.
 
          (c)  Payment.  Subject  to the  applicable  provisions  of  the  Award
               agreement  and this Plan, at the  expiration  of the  Performance
               Cycle, cash and/or share  certificates of an equivalent value (as
               the  Committee  may  determine in its sole  discretion)  shall be
               delivered to the  Participant,  or his legal  representative,  in
               payment  of  the  vested   Performance   Units   covered  by  the
               Performance Unit Award.
 
          (d)  Termination of Employment.  Subject to the applicable  provisions
               of the Award  agreement  and this  Plan,  upon  termination  of a
               Participant's   employment  with  the  Company  or  a  Designated
               Subsidiary  for any  reason  during the  Performance  Cycle for a
               given Award,  the  Performance  Units in question will vest or be
               forfeited in accordance with the terms and conditions established
               by the Committee at grant.
 
          (e)  Accelerated  Vesting.  Based on service,  performance and/or such
               other  factors  or  criteria,   if  any,  as  the  Committee  may
               determine,  the Committee may, at or after grant,  accelerate the
               vesting of all or any part of any  Performance  Unit Award and/or
               waive the deferral limitations for all or any part of such Award.
 
          (f)  Hardship.  Subject  to the  applicable  provisions  of the  Award
               agreement  and  this  Plan,  in the  event of  hardship  or other
               special  circumstances of a Participant whose employment with the
               Company or a Designated  Subsidiary is  involuntarily  terminated
               (other  than  for  cause),   the  Committee   may,  in  its  sole
               discretion,  based  on such  factors  as the  Committee  may deem
               appropriate,  waive  in  whole  or in  part  any  or  all  of the
               remaining deferral  limitations imposed hereunder with respect to
               any or all of the Participant's Performance Units.
 
          (g)  Determination  of  Performance.  Promptly  after  the  end of the
               Performance Period and prior to the vesting, payment,  settlement
               or  lapsing  of any  restrictions  with  respect  to any Award of
               Performance    Units    that   is    intended    to    constitute
               Performance-Based  Compensation  made  to a  Participant  who  is
               subject  to  Section  162(m) of the  Code,  the  Committee  shall
               certify in writing that the applicable performance goals has been
               satisfied  to the  extent  necessary  for the Award to qualify as
               Performance-Based   Compensation.   A   Participant's   Award  of
               Performance Units may be reduced at any time prior to payment.
 
                                   ARTICLE 12
                            Other Stock-Based Awards
 
     12.1 Other  Awards.  Other Awards of Common Stock and other Awards that are
valued in whole or in part by reference to, or are payable in or otherwise based
on, Common Stock ("Other Stock-Based  Awards"),  including,  without limitation,
Awards valued by reference to specified  performance goals or such other factors
as the Committee may determine, may be granted either alone or in addition to or
in tandem with Stock  Options,  Stock  Appreciation  Rights,  Restricted  Stock,
Restricted Stock Units, Performance Shares or Performance Units.
 
     Subject to the provisions of this Plan, the Committee  shall have authority
to  determine  the  persons to whom and the time or times at which  such  Awards
shall be made,  the number of shares of Common  Stock to be awarded  pursuant to
such Awards,  and all other  conditions  of the Awards.  The  Committee may also
provide for the grant of Common Stock under such Awards upon the completion of a
specified performance period.
 
     12.2 Terms and Conditions.  Other Stock-Based  Awards made pursuant to this
Article 12 shall be subject to the following terms and conditions:
 
          (a)  Non-Transferability.  Subject to the applicable provisions of the
               Award agreement and this Plan,  shares of Common Stock subject to
               Awards made under this Article 12 may not be Transferred prior to
               the date on which the shares are issued,  or, if later,  the date
               on which any  applicable  restriction,  performance  or  deferral
               period lapses.
 
          (b)  Dividends.  Unless  otherwise  determined by the Committee at the
               time of Award,  subject to the provisions of the Award  agreement
               and this Plan,  the  recipient  of an Award under this Article 12
               shall be entitled to receive,  currently or on a deferred  basis,
               dividends or dividend  equivalents  with respect to the number of
               shares of Common Stock covered by the Award, as determined at the
               time of the Award by the Committee, in its sole discretion.
 
          (c)  Vesting.  Any Award  under this  Article 12 and any Common  Stock
               covered  by any such  Award  shall  vest or be  forfeited  to the
               extent so provided in the Award  agreement,  as determined by the
               Committee, in its sole discretion.
 
          (d)  Waiver  of  Limitation.   In  the  event  of  the   Participant's
               Retirement,   Disability  or  death,   or  in  cases  of  special
               circumstances, the Committee may, in it sole discretion, waive in
               whole or in part any or all of the limitations  imposed hereunder
               (if  any)  with  respect  to any or all of an  Award  under  this
               Article 12.
 
          (e)  Price. Common Stock issued on a bonus basis under this Article 12
               may be issued for no cash  consideration;  Common Stock purchased
               pursuant to a purchase  right awarded under this Article 12 shall
               be priced as determined by the Committee.
 
                                   ARTICLE 13
                  Change in Control Provisions and Transactions
 
     13.1  Benefits.  In the event of a Change in  Control  of the  Company  (as
defined below), and except as otherwise provided by the Committee upon the grant
of an Award, the Participant shall be entitled to the following benefits:
 
          (a)  All outstanding  Stock Options and Non-Tandem Stock  Appreciation
               Rights of such Participant granted prior to the Change in Control
               shall  be  fully  vested  and  immediately  exercisable  in their
               entirety,  and shall remain  outstanding in accordance with their
               terms. In its sole discretion,  the Committee may provide for the
               purchase of any such Stock  Options by the Company or  Designated
               Subsidiary  for an  amount  of cash  equal to the  excess  of the
               Change in  Control  price  (as  defined  below) of the  shares of
               Common Stock  covered by such Stock  Options,  over the aggregate
               exercise  price  of such  Stock  Options.  For  purposes  of this
               Section  13.1,  Change in Control  price shall mean the higher of
               (i) the  highest  price  per share of  Common  Stock  paid in any
               transaction  related to a Change in Control  of the  Company,  or
               (ii) the highest  Fair Market  Value per share of Common Stock at
               any time during the 60-day period preceding a Change in Control.
 
          (b)  All Performance  Share Awards and Performance Unit Awards of such
               Participant granted prior to the Change in Control shall vest, at
               a minimum, as if the applicable Performance Period or Performance
               Cycle had ended upon such Change in Control and the determination
               that any specified performance goals or targets had been achieved
               had been made at such time.
 
          (c)  The  restrictions to which any shares of Restricted Stock and any
               Restricted Stock Units of such  Participant  granted prior to the
               Change in Control  are subject  shall lapse as if the  applicable
               Restriction  Period had ended upon such Change in Control and the
               determination that any specified performance goals or targets had
               been achieved had been made at such time.
 
     Any  determination  by the Committee made pursuant to paragraph (a) of this
Section  13.1 may be made as to all  outstanding  Awards  or only as to  certain
outstanding  Awards specified by the Committee and any such determination may be
made prior to or after a Change in Control.
 
     13.2 Change in Control. For the purposes of the Plan, a "Change in Control"
means:
 
          (a)  an acquisition  (other than directly from the Company) or holding
               by a  Person  or a  Group  (other  than a  Permitted  Holder)  of
               Beneficial  Ownership of shares  representing  20% or more of the
               then  outstanding  shares of  Common  Stock of the  Company  (the
               "Outstanding Company Common Stock");  provided,  however,  that a
               Business Combination  satisfying clauses 13.2(c)(i) through (iii)
               below shall not constitute a Change in Control;
 
          (b)  if the  Directors  who were  members  of the Board on the date of
               adoption of this  provision  (the  "Initial  Directors")  and any
               Directors  whose  election  by  the  Company's  stockholders  was
               approved by a majority of the Company's  Directors  then still in
               office who were either  Incumbent  Directors or whose election or
               nomination for election was previously so approved, but excluding
               any such  individual  whose  election  as a Director  occurs as a
               result  of an actual  or  threatened  proxy  contest  or  consent
               solicitation  by or on behalf of a person  other than the Company
               or the Board (the  "Approved  Directors,  and  together  with the
               Initial Directors,  the "Incumbent  Directors"),  shall cease for
               any reason to constitute at least a majority of the Board;
 
          (c)  consummation of a Business Combination, other than a transaction
 
                  (i)      in which all or substantially all of the stockholders
                           of the Company receive Beneficial Ownership of more
                           than 50% of the voting securities of the company
                           resulting from the Business Combination,
 
                  (ii)     in which at least a majority of the board of
                           directors of the resulting company were Incumbent
                           Directors, and
 
                  (iii)    after which no Person or Group has Beneficial
                           Ownership of 35% or more of the voting securities of
                           the resulting company, who did not own at least such
                           percentage of stock of the Company immediately before
                           the Business Combination; or
 
          (d)  stockholder  approval of a complete liquidation or dissolution of
               the Company.
 
     Notwithstanding  the foregoing,  a Change in Control shall not be deemed to
occur solely because any Person or Group has  Beneficial  Ownership of shares of
Outstanding  Company Common Stock or  Outstanding  Company Voting Power equal to
the 20% threshold in subsection  13.2(a) above as a result of the acquisition by
the Company of such Common Stock or other voting  securities  which  reduces the
number of shares of Outstanding  Company Common Stock or reduces the Outstanding
Company Voting Power; provided,  that if, after such acquisition by the Company,
such Person or Group obtains  Beneficial  Ownership of shares of Common Stock or
other voting  securities  that increases the  percentage of Outstanding  Company
Common Stock or  Outstanding  Company  Voting Power  Beneficially  Owned by such
person  while  such  Person or Group  has met the 20%  threshold  in  subsection
13.2(a) above, a Change in Control shall then be deemed to occur.
 
     For purposes of this Section 13.2:
 
                  "Beneficial Ownership" shall have the meaning given to that
term under Rule 13d-3 under the Exchange Act.
 
                  "Business Combination" shall mean a merger, consolidation or
         reorganization involving the Company or its subsidiaries or a sale,
         lease, exchange or other disposition of all or substantially all of the
         Company's assets.
 
                  "Director" shall mean a member of the Board.
 
                  "Group" shall have the meaning given to that term under Rule
13d-5 under the Exchange Act.
 
                  "Permitted Holder" shall mean the Company or an employee
         benefit plan of the Company or a corporation controlled by the Company.
 
                  "Person" shall have the meaning given to that term under
Section 13(d)(3) or 14(d)(2) of the Exchange Act.
 
     13.3 Effect of Certain  Transactions.  Subject to Sections 13.1 and 13.2 or
as otherwise provided in an Award agreement, in the event of (a) the liquidation
or dissolution of the Company, or (b) a merger, consolidation, reorganization or
other corporate  transaction of the Company (a "Transaction"),  the Plan and the
Awards issued  hereunder shall continue in effect with their  respective  terms,
except that following a Transaction, at the Committee's sole discretion,  either
(i) each  outstanding  Award shall be treated as provided  for in the  agreement
entered into in connection with the  Transaction,  or (ii) if not so provided in
such agreement, each Participant shall be entitled to receive in respect of each
share of Common Stock or other stock or  securities  subject to any  outstanding
Awards,  as the case may be, upon  exercise of any Option or payment or transfer
in respect of any Award,  the same number and kind of stock,  securities,  cash,
property or other  consideration  that each holder of a share of Common Stock or
other stock or securities was entitled to receive in the  Transaction in respect
of such share; provided,  however, that such stock, securities,  cash, property,
or  other   consideration  shall  remain  subject  to  all  of  the  conditions,
restrictions and performance  criteria which were applicable to the Awards prior
to such  Transaction.  The  treatment  of any Award as provided in this  Section
shall be conclusively presumed to be appropriate for purposes of Section 4.3.
 
 
 
<PAGE>
 
 
                                   ARTICLE 14
                      Termination or Amendment of the Plan
 
     14.1 Termination or Amendment.  Notwithstanding any other provision of this
Plan,  the Board may at any time, and from time to time,  amend,  in whole or in
part, any or all of the provisions of the Plan  (including any amendment  deemed
necessary  to ensure that the  Company  may comply with any legal or  regulatory
requirement),  or suspend or terminate it entirely,  retroactively or otherwise;
provided,  however,  that,  unless in connection with compliance with a legal or
regulatory  requirement,  the  rights of a  Participant  with  respect to Awards
granted prior to such amendment,  suspension or termination, may not be impaired
without the  consent of such  Participant  and,  provided  further,  without the
approval of the holders of the  Company's  stock  entitled to vote, no amendment
may be made which would (i)  increase the  aggregate  number of shares of Common
Stock that may be issued under this Plan or the percentage of shares that may be
issued with  respect to Awards  other than Stock  Options and  Non-Tandem  Stock
Appreciation  Rights  (except by  operation  of Section  4.3);  (ii)  change the
definition of employees  eligible to receive Stock Awards under this Plan; (iii)
decrease  the  option  price of any  Stock  Option to less than 100% of the Fair
Market  Value  on the  date  of  grant;  (iv)  reduce  the  option  price  of an
outstanding Stock Option, either by lowering the option price or by canceling an
outstanding  Stock Option and granting a  replacement  Stock Option with a lower
exercise price, or (v) extend the maximum option period under Section 6.4 of the
Plan.
 
     The  Committee  may  amend  the  terms of any  Award  theretofore  granted,
prospectively  or  retroactively,  but,  subject to  Article 4 above;  provided,
however,  that,  unless in connection with compliance with a legal or regulatory
requirement, no such amendment or other action by the Committee shall impair the
rights  of  any  holder  without  the  holder's  consent.   Notwithstanding  the
foregoing,  if a Stock Option has been  Transferred in accordance with the Plan,
written consent of the Transferee (and not the  Participant)  shall be necessary
to impair the rights of the holder under the Stock Option.
 
     Notwithstanding  the foregoing,  the Board may amend the provisions of this
Plan and the terms of any Award granted, prospectively or retroactively,  at any
time without the consent of any affected Participant or Transferee to the extent
necessary  for the Plan and the Award  thereunder to comply with Section 409A of
the Code and any  regulations or other guidance issued  thereunder,  even if the
amendment affects or impairs the rights of the Participant or Transferee.
 
                                   ARTICLE 15
                                  Unfunded Plan
 
     15.1  Unfunded  Status of Plan.  This Plan is  intended  to  constitute  an
"unfunded"  plan for  incentive and deferred  compensation.  With respect to any
payments as to which a Participant has a fixed and vested interest but which are
not yet made to a Participant  by the Company,  nothing  contained  herein shall
give any such  Participant  any rights that are greater  than those of a general
creditor of the Company.
 
                                   ARTICLE 16
                               General Provisions
 
     16.1  Legend.  The  Committee  may require  each person  purchasing  shares
pursuant to a Stock  Option or other Award  under the Plan to  represent  to and
agree with the Company in writing that the  Participant  is acquiring the shares
without a view to  distribution  thereof.  In addition to any legend required by
this Plan,  the  certificates  for such shares may include any legend  which the
Committee deems appropriate to reflect any restrictions on Transfer.
 
     All  certificates for shares of Common Stock delivered under the Plan shall
be subject to such stock transfer orders and other restrictions as the Committee
may deem advisable under the rules,  regulations  and other  requirements of the
Securities and Exchange  Commission,  any stock exchange upon which the Stock is
then listed or any  national  securities  exchange  system upon whose system the
Stock is then quoted,  any applicable  federal or state  securities law, and any
applicable  corporate law, and the Committee may cause a legend or legends to be
put on any such certificates to make appropriate reference to such restrictions.
 
     16.2 Other Plans.  Nothing  contained in this 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.
 
     16.3 No Right to Employment.  Neither this Plan nor the grant of any Option
or other Award  hereunder shall give any Participant or other employee any right
with respect to continuance of employment by the Company or any subsidiary,  nor
shall  they  be a  limitation  in any way on the  right  of the  Company  or any
subsidiary by which an employee is employed to terminate  his  employment at any
time.
 
     16.4 Withholding of Taxes.
 
          (a)  At such  times as a  Participant  recognizes  taxable  income  in
               connection  with the  receipt  of shares of Common  Stock or cash
               hereunder (a "Taxable  Event"),  the Participant shall pay to the
               Company an amount  equal to the  federal,  state and local income
               taxes and other  amounts as may be required by law to be withheld
               by the Company in  connection  with the  Taxable  Event (the "Tax
               Withholding")  prior to the issuance,  or release from escrow, of
               such  shares of Common  Stock or the  payment of such  cash.  The
               Company  shall have the right to deduct  from any payment of cash
               to a  Participant  an  amount  equal  to the Tax  Withholding  in
               satisfaction  of  the  obligation  to  pay  Tax  Withholding.  In
               satisfaction  of the  obligation  to pay Tax  Withholding  to the
               Company,  a  Participant  may make a written  election  (the "Tax
               Election"),  which  may be  accepted  or  rejected  in  the  sole
               discretion  of the  Committee,  to have withheld a portion of the
               shares  then  issuable  to him or her  having an  aggregate  Fair
               Market Value equal to the Tax Withholding.
 
          (b)  To the extent required by the Committee in its  discretion,  if a
               Participant  makes a  disposition,  within the meaning of Section
               424(c) of the Code and regulations promulgated thereunder, of any
               share  or  shares  of  Common  Stock  issued  to the  Participant
               pursuant to the exercise of an Incentive  Stock Option within the
               two-year period  commencing on the day after the date of grant or
               within  the  one-year  period  commencing  on the day  after  the
               transfer  of  such  share  or  shares  of  Common  Stock  to  the
               Participant  pursuant to such exercise,  the  Participant  shall,
               within ten (10) days after such  disposition,  notify the Company
               thereof,  by  delivery  of written  notice to the  Company at its
               principal executive office.
 
          (c)  Notwithstanding  the  foregoing,   if  Stock  Options  have  been
               Transferred, the Participant shall provide the Company with funds
               sufficient to pay such Tax Withholding  when such Tax Withholding
               is due.  Furthermore,  if such  Participant  does not satisfy the
               applicable Tax Withholding obligation, the Transferee may provide
               the  funds  sufficient  to  enable  the  Company  to pay  the Tax
               Withholding. However, if Stock Options have been Transferred, the
               Company shall have no right to retain or sell without notice,  or
               to demand  surrender  from the  Transferee  of,  shares of Common
               Stock in order to pay such Tax  Withholding.  Any  fraction  of a
               share of Common Stock  required to satisfy  such tax  obligations
               shall be disregarded  and the amount due shall be paid instead in
               cash by the Participant.
 
     16.5 Deferral Election.  A Participant may elect, in the sole discretion of
the  Committee  and  consistent  with  any  rules,   procedures  or  regulations
established  by the  Committee,  to defer the  delivery  of the  proceeds of any
Award.  A  Participant  may elect to have the payment of a portion of each Award
deferred in accordance  with the terms and procedures set forth in the Company's
Deferred  Compensation  Plan, or any equivalent or successor  plan, as in effect
from time to time (the "Deferred  Compensation Plan"). The election to defer the
delivery of the proceeds  from any eligible  Award must be made on or before the
Election Date (as such term is defined in the Deferred Compensation Plan).
 
     16.6 No Assignment of Benefits.  No Option,  Award or other benefit payable
under this Plan shall,  except as otherwise  specifically  provided by law or by
the Plan, be  Transferable  in any manner,  and any attempt to Transfer any such
benefit  shall be void,  and any such benefit  shall not in any manner be liable
for or subject to the debts, contracts, liabilities, engagements or torts of any
person  who  shall be  entitled  to such  benefit,  nor shall it be  subject  to
attachment or legal process for or against such person.
 
     16.7 Listing and Other Conditions.
 
          (a)  As long as the Common  Stock is listed on a  national  securities
               exchange   or  system   sponsored   by  a   national   securities
               association,  the issue of any shares of Common Stock pursuant to
               an Option or other  Award shall be  conditioned  upon such shares
               being listed on such  exchange or system.  The Company shall have
               no  obligation  to issue such shares unless and until such shares
               are so  listed,  and the right to  exercise  any  Option or other
               Award with respect to such shares  shall be suspended  until such
               listing has been effected.
 
          (b)  If at any time  counsel to the  Company  shall be of the  opinion
               that any sale or delivery of shares of Common  Stock  pursuant to
               an  Option  or  other  Award  is or may in the  circumstances  be
               unlawful or result in the  imposition  of excise  taxes under the
               statutes,  rules or regulations  of any applicable  jurisdiction,
               the  Company  shall  have  no  obligation  to make  such  sale or
               delivery,  or to make any application or to effect or to maintain
               any  qualification  or  registration  under the Securities Act of
               1933, as amended,  or otherwise  with respect to shares of Common
               Stock or Awards,  and the right to  exercise  any Option or other
               Award shall be suspended  until,  in the opinion of said counsel,
               such sale or  delivery  shall be lawful or will not result in the
               imposition of excise taxes.
 
          (c)  Upon  termination of any period of suspension  under this Section
               16.7, any Award affected by such suspension  which shall not then
               have expired or  terminated  shall be reinstated as to all shares
               available  before such  suspension  and as to shares  which would
               otherwise  have  become  available  during  the  period  of  such
               suspension,  but no such suspension  shall extend the term of any
               Option.
 
     16.8  Interpretation.  Following  the required  registration  of any equity
security of the Company pursuant to Section 12 of the Exchange Act:
 
          (a)  The Plan is intended to comply with Rule 16b-3  promulgated under
               the Exchange Act and the Committee shall interpret and administer
               the  provisions  of  the  Plan  or  any  Agreement  in  a  manner
               consistent therewith.  Any provisions inconsistent with such Rule
               shall be  inoperative  and shall not affect the  validity  of the
               Plan.
 
          (b)  Unless otherwise expressly stated in the relevant Agreement, each
               Option,  Stock Appreciation Right,  Performance-Based  Restricted
               Stock, Performance-Based Restricted Stock Unit, Performance Share
               and  Performance  Unit  granted  under the Plan is intended to be
               Performance-Based  Compensation. The Committee shall be precluded
               from  exercising any discretion  otherwise  authorized  hereunder
               with   respect  to  Awards  that  are   intended  to  qualify  as
               Performance-Based  Compensation  to increase  the amount  payable
               that would  otherwise be due upon  attainment of the  performance
               goal.
 
     16.9  Governing  Law. This Plan and actions  taken in  connection  herewith
shall be governed and construed in accordance  with the laws of the State of New
York  (regardless of the law that might  otherwise  govern under  applicable New
York principles of conflict of laws).
 
     16.10  Construction.  Wherever  any  words  are  used in  this  Plan in the
masculine  gender they shall be  construed  as though they were also used in the
feminine  gender in all cases where they would so apply,  and wherever any words
are used herein in the singular form they shall be construed as though they were
also used in the plural form in all cases where they would so apply.
 
     16.11 Liability.  No member of the Board, no employee of the Company and no
member of the Committee  (nor the Committee  itself) shall be liable for any act
or action hereunder,  whether of omission or commission,  by any other member or
employee or by any agent to whom duties in connection with the administration of
the Plan have been  delegated  or,  except in  circumstances  involving  his bad
faith,  gross  negligence  or fraud,  for anything done or omitted to be done by
himself.
 
     16.12  Other  Benefits.  No Award  payment  under this Plan shall be deemed
compensation for purposes of computing benefits under any retirement plan of the
Company or its subsidiaries nor affect any benefits under any other benefit plan
now or subsequently in effect under which the availability or amount of benefits
is related to the level of compensation.
 
     16.13 Costs. The Company shall bear all expenses  incurred in administering
this Plan,  including  expenses of issuing  Common Stock  pursuant to any Awards
hereunder.
 
     16.14 No Right to Same  Benefits.  The provisions of Awards need not be the
same  with  respect  to  each   Participant,   and  such  Awards  to  individual
Participants need not be the same in subsequent years.
 
     16.15  Severability.  Whenever  possible,  each provision of the Plan or an
Award agreement shall be interpreted in such manner as to be effective and valid
under  applicable  law, but if any  provision of the Plan or an Award  agreement
shall  be held by a court  of  competent  jurisdiction  to be  prohibited  by or
invalid of unenforceable  under applicable law, then (a) such provision shall be
deemed to be amended to accomplish the objectives of the provision as originally
written to the fullest extent  permitted by law and (b) all other  provisions of
the Plan or the Award agreement shall remain in full force and effect.
 
     16.15  Indemnification.  Each  person who is or shall have been a member of
the Committee and each delegate of such Committee  shall be indemnified and held
harmless by the Company against and from any loss, cost,  liability,  or expense
that may be imposed  upon or  reasonably  incurred by such person in  connection
with or resulting  from any claim,  action,  suit,  or  proceeding to which such
person may be made a party or in which such  person may be involved by reason of
any action  taken or failure to act under the Plan and  against and from any and
all  amounts  paid by such  person in  settlement  thereof,  with the  Company's
approval,  or paid by such person in  satisfaction  of any  judgment in any such
action,  suit, or proceeding  against such person;  provided that the Company is
given an opportunity,  at its own expense,  to handle and defend the same before
such person  undertakes to handle and defend it personally.  The foregoing right
of indemnification  shall not be exclusive and shall be independent of any other
rights  of  indemnification  to which  such  person  may be  entitled  under the
Company's  Certificate of Incorporation or By-Laws, by contract,  as a matter of
law, or otherwise.
 
                                   ARTICLE 17
                      Effective Date of Plan and Amendments
 
     The Plan shall  become  effective  on the date,  following  adoption by the
Board, on which the Plan is approved by the holders of a majority of the capital
stock of the Company entitled to vote thereon at a duly  constituted  meeting of
the  stockholders  of the  Company.  Any  amendment  of the  Plan  shall  become
effective upon the date  specified by the Board in its  resolution  adopting the
amendment, subject to the approval of any material amendment by the holders of a
majority of the capital stock of the Company entitled to vote thereon within one
year after the  material  amendment is adopted.  Any grants of Awards  hereunder
prior to such  approval of a material  amendment  shall be  effective  when made
(unless otherwise specified by the Committee at the time of grant), but shall be
conditioned  on, and subject to, such  approval  of the  material  amendment  by
stockholders.
 
 
 
 
<PAGE>
 
 
                                   ARTICLE 18
                                  Term of Plan
 
     No Stock Option,  Stock Appreciation  Right,  Restricted Stock,  Restricted
Stock Unit, Performance Share, Performance Unit or Other Stock-Based Award shall
be granted pursuant to the Plan on or after the tenth anniversary of the earlier
of the date the Plan is adopted or the date of  stockholder  approval but Awards
granted prior to such tenth anniversary may extend beyond that date.
 
 
                                   ARTICLE 19
                                  Name of Plan
 
     This Plan shall be known as "The Reader's Digest Association, Inc. 2005 Key
Employee Long Term Incentive Plan."
 
 
                                   ARTICLE 20
            Election to Receive Awards in Lieu of Other Compensation
 
     The Committee,  in its sole  discretion,  may permit a Participant to elect
pursuant to this Plan, on such terms and  conditions as shall be approved by the
Committee,  to receive an Award under this Plan in lieu of receiving  payment of
other  compensation,  under  this Plan or  otherwise,  from the  Company  or any
Designated Subsidiary. The Committee shall have sole discretion to consent to or
disapprove any such election by any Participant. The grant of Awards pursuant to
such election shall be subject to the  provisions  and  limitations of this Plan
and applicable law.