HANDLEMAN COMPANY
                                 2004 STOCK PLAN
 
1. PURPOSE OF PLAN: The purpose of the Handleman Company 2004 Stock Plan is to
promote the performance and long-term growth of the Company by advancing its
ability to attract, motivate and retain key employees (including officers who
are also key employees) and outside Directors, as well as to strengthen the
mutuality of interests of its key employees and outside Directors with the
Company's shareholders.
 
2. DEFINITIONS: As used herein, the following definitions shall apply:
 
      (a)   "Plan" shall mean this Handleman Company 2004 Stock Plan.
 
      (b)   "Company" shall mean Handleman Company, a Michigan corporation, or
            any successor thereof.
 
      (c)   "Committee" shall mean the Compensation Committee of the Board of
            Directors of the Company. All members of the Committee must be
            independent of the management of the Company, and free of any
            relationship that would interfere with their exercise of independent
            judgment as a Committee member. Each of the members of the Committee
            will be (i) an "independent director" as defined under the rules of
            the New York Stock Exchange, as may be amended from time to time
            (ii) a "non-employee director," as defined in Rule 16b-3 promulgated
            under Section 16 of the Securities and Exchange Act of 1934, as
            amended, (the "Exchange Act") or any similar or successor provision
            and (iii) an "outside director" under Regulation Section 1.162-27
            promulgated under Section 162(m) of the Internal Revenue Code of
            1986, as amended.
 
      (d)   "Common Stock" shall mean the Company's Common Stock, $0.01 par
            value per share.
 
      (e)   "Participant" shall mean any Director who is not an employee of the
            Company or any Subsidiary (hereinafter defined as an "Outside
            Director") and any officer or employee of the Company or any
            Subsidiary designated by the Committee under Paragraph 6, for
            participation in the Plan.
 
      (f)   "Nonqualified Option" shall mean an option to purchase Common Stock
            of the Company which meets the requirements set forth in the Plan
            but does not meet the definition of, or is not intended to be, an
            incentive stock option set forth in Section 422 of the Internal
            Revenue Code of 1986, as amended (the "Code").
 
      (g)   "Incentive Option" shall mean an option to purchase Common Stock of
            the Company which meets the requirements set forth in the Plan and
            also meets the definition of an incentive stock option set forth in
            Section 422 of the Code.
 
      (h)   "Subsidiary" shall mean any Company, limited liability Company,
            partnership, or any other entity, in which the Company owns,
            directly or indirectly, stock or interest therein, possessing more
            than twenty-five percent of the combined voting power of all classes
            of stock or interests.
 
      (i)   "Restricted Stock" shall mean a grant of Common Stock of the Company
            which is subject to restrictions against transfer, forfeiture and
            such other terms and conditions determined by the Committee, as
            provided in Paragraph 17.
 
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      (j)   "Performance Share" shall mean a grant of Common Stock of the
            Company upon the attainment of one or more performance goals during
            a performance period established by the Committee, as provided in
            Paragraph 18.
 
      (k)   "Performance Unit" shall mean a grant of an amount of cash,
            determined by reference to a share of Common Stock of the Company,
            upon the attainment of one or more performance goals during a
            performance period established by the Committee, as provided in
            Paragraph 18.
 
      (l)   "Stock Appreciation Right" shall mean any right granted to a
            Participant pursuant to Paragraph 9 hereof to receive, upon exercise
            by the Participant, the excess of (i) the fair market value of one
            share of Common Stock of the Company on the date of exercise or, if
            the Committee shall so determine in the case of any such right other
            than one related to any Incentive Option, at any time during a
            specified period before the date of exercise over (ii) the grant
            price of the right on the date of grant, or if granted in connection
            with an outstanding option on the date of grant of the related
            option, as specified by the Committee in its sole discretion, which
            shall not be less than the fair market value of one share of Common
            Stock of the Company on such date of grant of the right or the
            related option, as the case may be.
 
3. ADMINISTRATION: The Plan shall be administered by the Committee. Subject to
the provisions of the Plan, the Committee shall determine, from those eligible
to be Participants under the Plan, the persons to be granted stock options,
Stock Appreciation Rights, Restricted Stock, Performance Shares and Performance
Units, the amount of stock or rights to be optioned or granted to each such
person, and the terms and conditions of any stock options, Stock Appreciation
Rights, Restricted Stock, Performance Shares and Performance Units. Subject to
the provisions of the Plan, the Committee is authorized to interpret the Plan,
to promulgate, amend and rescind rules and regulations relating to the Plan and
to make all other determinations necessary or advisable for its administration.
Interpretation and construction of any provision of the Plan by the Committee
shall be final and conclusive. Acts approved by a majority of the members
present at any meeting at which a quorum is present, or acts approved in writing
by a majority of the Committee, shall be the acts of the Committee.
 
4. INDEMNIFICATION OF COMMITTEE MEMBERS: In addition to such other rights of
indemnification as they may have, the members of the Committee shall be
indemnified by the Company against the reasonable expenses, including attorneys'
fees, actually and necessarily incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein, to which
they or any of them may be a party by reason of any action taken or failure to
act under or in connection with the Plan or any stock option, Stock Appreciation
Right, Restricted Stock, Performance Share or Performance Unit granted
hereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by the Board of Directors of the Company) or paid by
them in satisfaction of a judgment in any such action, suit or proceeding,
except in relation to matters as to which it shall be determined in such action,
suit or proceeding that such Committee member has acted in bad faith; provided,
however, that within sixty (60) days after receipt of notice of institution of
any such action, suit or proceeding a Committee member shall offer the Company
in writing the opportunity, at its own cost, to handle and defend the same.
 
5. MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN: The maximum number of shares of
stock which may be issued pursuant to Restricted Stock or Performance Share
awards or with respect to which stock options may be granted under the Plan
shall not exceed in the aggregate 750,000 shares (subject to adjustments as
provided in this Paragraph 5), of which no more than 500,000 shares in the
aggregate (subject to adjustments as provided in this Paragraph 5) may be issued
pursuant to Incentive Options.
 
The maximum number of shares with respect to which stock options, Stock
Appreciation Rights, Restricted Stock, Performance Shares or Performance Units
may be granted to any Participant (other than an Outside Director) during any
calendar year shall not exceed 200,000 shares (subject to adjustments as
provided in this Paragraph 5) and the maximum number of shares with respect to
 
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which stock options, Stock Appreciation Rights or Restricted Stock may be
granted to any Outside Director Participant during any calendar year shall not
exceed 10,000 shares (subject to adjustments as provided in this Paragraph 5).
 
For the purpose of computing the total number of shares of Common Stock
available for grants of stock options, Restricted Stock or Performance Share
awards under the Plan, there shall be counted against the foregoing limitations
the number of shares of Common Stock subject to issuance upon exercise or
settlement of grants or awards as of the dates on which such grants or awards
are granted. The shares of Common Stock which were previously subject to grants
or awards shall again be available for grants or awards under the Plan if any
such grants or awards are forfeited, terminated, expire unexercised, settled in
cash or exchanged for other grants or awards (to the extent of such forfeiture,
termination, expiration, cash settlement or exchange of such grants or awards),
or if the shares of Common Stock subject thereto can otherwise no longer be
issued. Further, any shares of Common Stock which are used as full or partial
payment to the Company by a Participant of the purchase price of shares of
Common Stock upon exercise of a stock option shall again be available for grants
or awards under the Plan. Notwithstanding the foregoing, all shares of Common
Stock with respect to which a grant or award is granted shall be counted for
purposes of the 200,000 and 10,000 shares per year, per Participant share
limitations, regardless of whether the Participant does not realize the benefit
of the grant or award as a result of forfeiture, cancellation, expiration,
termination or other event. Consistent with the purposes of the Plan and with a
view to avoiding over or under counting, the Committee shall, in its discretion,
determine the number of shares of Common Stock to charge against the shares of
Common Stock remaining available under the Plan as a result of the grant,
exercise or settlement of, or other transactions relating to, grants or awards
made under the Plan.
 
The number of shares subject to each outstanding stock option, Stock
Appreciation Right, Restricted Stock, Performance Share or Performance Unit
award, the option price with respect to outstanding stock options and Stock
Appreciation Rights, the aggregate number of shares available at any time under
the Plan, and the maximum number of shares as to which grants or awards may be
made to an individual Participant during any calendar year shall be subject to
such adjustment as the Committee, in its discretion, deems appropriate to
reflect such events as stock dividends, stock splits, recapitalizations,
mergers, consolidations or reorganizations of or by the Company; provided,
however, that no fractional shares shall be issued pursuant to the Plan, no
rights may be granted under the Plan with respect to fractional shares, and any
fractional shares resulting from such adjustments shall be eliminated from any
outstanding stock option or Restricted Stock or Performance Share award.
 
6. PARTICIPANTS: The Committee shall determine and designate from time to time,
in its sole discretion, those Outside Directors and key employees (including
officers who are also key employees) of the Company or any Subsidiary to whom
stock options, Stock Appreciation Rights, Restricted Stock, Performance Shares
or Performance Units are to be granted or awarded and who thereby become
Participants under the Plan.
 
7. WRITTEN AGREEMENT: Each stock option and Stock Appreciation Right granted and
each award of Restricted Stock, Performance Shares and Performance Units shall
be evidenced by a written agreement between the Company and the Participant and
shall contain such provisions as may be approved by the Committee. Such
agreements shall constitute binding contracts between the Company and the
Participant, and every Participant, upon acceptance of such agreement, shall be
bound by the terms and restrictions of the Plan and of such agreement. The terms
of each such agreement shall be in accordance with the Plan, but the agreements
may include such additional provisions and restrictions determined by the
Committee, provided that such additional provisions and restrictions do not
violate the terms of the Plan.
 
8. ALLOTMENT OF SHARES: Subject to the provisions of Paragraph 5 of the Plan,
the Committee shall determine and fix the number of shares of stock with respect
to which each Participant may be granted stock options and Stock Appreciation
Rights and the number of Performance Shares and Performance Units and shares of
Restricted Stock which each Participant may be awarded; provided, however, that
no Incentive Option may be granted under the Plan to any one Participant which
would result in the aggregate fair market value, determined as of the date the
option is granted, of underlying
 
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stock with respect to which Incentive Options are exercisable for the first time
by such Participant during any calendar year under any plan maintained by the
Company (or any parent or Subsidiary of the Company) exceeding $100,000.
 
9. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS: Subject to the terms of the
Plan, the Committee may grant to Participants either Incentive Options,
Nonqualified Options or any combination thereof, provided, however, that Outside
Director Participants may only be granted Nonqualified Options and an employee
of a Subsidiary may be granted an Incentive Option only if the Subsidiary is a
Company (or is treated as a disregarded entity owned by a Company) fifty percent
or more of the combined voting power of all classes of stock of which is owned,
directly or indirectly, by the Company. Each option granted under the Plan shall
designate the number of shares covered thereby, if any, with respect to which
the option is an Incentive Option, and the number of shares covered thereby, if
any, with respect to which the option is a Nonqualified Option. Stock
Appreciation Rights may be granted hereunder to Participants either alone or in
addition to or in conjunction with other awards granted under the Plan and may,
but need not, relate to a specific option granted under this Paragraph 9. The
provisions of Stock Appreciation Rights need not be the same with respect to
each recipient. Any Stock Appreciation Right related to a Nonqualified Option
may be granted at the same time such Nonqualified Option is granted or at any
time thereafter before exercise or expiration of such Nonqualified Option. Any
Stock Appreciation Right related to an Incentive Option must be granted at the
same time such Incentive Option is granted, and may be exercised only if and
when the fair market value of the Common Stock subject to the Incentive Option
exceeds the aggregate exercise price for the Common Stock subject to the
Incentive Option and the amount payable to the Participant upon exercise of such
Stock Appreciation Right may not exceed the amount of such excess. Moreover, any
Stock Appreciation Right related to an Incentive Option may be exercised only
when such Incentive Option is eligible to be exercised, and shall be
transferable only when such Incentive Option is transferable and under the same
conditions. In the case of any Stock Appreciation Right related to any option,
the Stock Appreciation Right or applicable portion thereof shall terminate and
no longer be exercisable upon the termination or exercise of the related option,
except that a Stock Appreciation Right granted with respect to less than the
full number of shares of Common Stock covered by a related option shall not be
reduced until the exercise or termination of the related option exceeds the
number of shares of Common Stock not covered by the Stock Appreciation Right.
Any option related to any Stock Appreciation Right shall no longer be
exercisable to the extent the related Stock Appreciation Right has been
exercised. The Committee may impose such conditions or restrictions on the
exercise of any Stock Appreciation Right as it shall deem appropriate.
 
10. STOCK OPTION PRICE: Subject to the rules set forth in this Paragraph 10, at
the time any stock option is granted, the Committee shall establish the price
per share for which the shares covered by the option may be purchased. With
respect to an Incentive Option, such option price shall not be less than 100% of
the fair market value of the stock on the date on which such option is granted;
provided, however, that with respect to an Incentive Option granted to an
employee who at the time of the grant owns (after applying the attribution rules
of Section 424(d) of the Code) more than 10% of the total combined voting stock
of the Company or of any parent or Subsidiary, the option price shall not be
less than 110% of the fair market value of the stock on the date such option is
granted. With respect to a Nonqualified Option, the option price shall not be
less than 100% of the fair market value of the stock on the date such option is
granted. Fair market value of a share shall be determined by the Committee and
may be determined by taking the mean between the highest and lowest quoted
selling prices of the Company's stock on any exchange or other market on which
the shares of Common Stock of the Company shall be traded on such date. The
option price shall be subject to adjustment in accordance with the provisions of
Paragraph 5 of the Plan.
 
Notwithstanding anything to the contrary contained in the Plan, no decrease in
the option price (through amendment, cancellation or replacement grants or any
other means) of any stock option previously granted to a Participant, where such
decrease would be deemed to be a repricing thereof in accordance with Item
402(i) of Regulation S-K, or any similar or successor provision, promulgated by
the Securities and Exchange Commission, shall be valid or effective unless such
repricing shall be approved by a majority of the shareholders of the Company who
vote on such repricing within twelve (12) months of the date of such repricing.
 
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11. PAYMENT OF STOCK OPTION PRICE: At the time of the exercise in whole or in
part of any stock option granted hereunder, payment of the option price in full
in cash or, with the consent of the Committee, in Common Stock of the Company,
shall be made by the Participant for all shares so purchased. In the discretion
of, and subject to such conditions as may be established by, the Committee,
payment of the option price may also be made by the Company retaining from the
shares to be delivered upon exercise of the stock option that number of shares
having a fair market value on the date of exercise equal to the option price of
the number of shares with respect to which the Participant exercises the option.
In the discretion of the Committee, a Participant may exercise an option, if
then exercisable, in whole or in part, by delivery to the Company of written
notice of the exercise in such form as the Committee may prescribe, accompanied
by irrevocable instructions to a stock broker to promptly deliver to the Company
full payment for the shares with respect to which the option is exercised from
the proceeds of the stock broker's sale of or loan against some or all of the
shares (a "Regulation T Stock Option Exercise"). In the event the Company then
has in effect a stock repurchase program, in its discretion and subject to such
terms and conditions as it may impose, the Committee may permit a Participant to
exercise an option and pay the option price by delivering to the Company a
written notice of exercise which includes a request that the Company repurchase
(and retain the repurchase price of) that number of the option shares having a
fair market value on the date of exercise equal to the option price of the
number of shares with respect to which the Participant exercises the option.
Such payment may also be made in such other manner as the Committee determines
is appropriate, in its sole discretion. No Participant shall have any of the
rights of a shareholder of the Company under any stock option until the actual
issuance of shares to said Participant, and prior to such issuance no adjustment
shall be made for dividends, distributions or other rights in respect of such
shares, except as provided in Paragraph 5.
 
12. GRANTING AND EXERCISE OF STOCK OPTIONS: Each stock option granted hereunder
shall be exercisable at any such time or times or in any such installments as
may be determined by the Committee at the time of the grant; provided, however,
that no stock option may be exercisable prior to the expiration of six (6)
months from the date of grant unless the Participant retires from employment at
a retirement age permitted under the Company's retirement Plan or dies or
becomes disabled prior thereto; and provided further that no Nonqualified Option
granted to an outside Director Participant may be exercisable prior to the
expiration of twelve (12) months from the date of grant unless the outside
director Participant dies or becomes disabled prior thereto or terminates
services as an outside director prior thereto. In addition, the aggregate fair
market value (determined at the time the option is granted) of the stock with
respect to which Incentive Options are exercisable for the first time by a
Participant during any calendar year shall not exceed $100,000.
 
A Participant may exercise a stock option, if then exercisable, in whole or in
part by delivery to the Company of written notice of the exercise, in such form
as the Committee may prescribe, accompanied by payment for the shares with
respect to which the stock option is exercised as provided in Paragraph 11.
Except as provided in Paragraph 16, stock options may be exercised only while
the Participant is an employee or an outside Director, as the case may be, of
the Company or a Subsidiary.
 
Successive stock options may be granted to the same Participant, whether or not
the stock option(s) previously granted to such Participant remain unexercised. A
Participant may exercise a stock option, if then exercisable, notwithstanding
that stock options previously granted to such Participant remain unexercised.
 
13. NON-TRANSFERABILITY OF STOCK OPTIONS: No stock option or Stock Appreciation
Right granted under the Plan to a Participant shall be transferable by such
Participant otherwise than by will, or by the laws of descent and distribution,
and each such option and Stock Appreciation Right shall be exercisable, during
the lifetime of the Participant, only by the Participant. Notwithstanding the
foregoing, in its sole discretion and subject to such terms and conditions as it
may prescribe, the Committee may permit a Participant to transfer a Nonqualified
Option or related Stock Appreciation Right.
 
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14. TERM OF STOCK OPTIONS: If not sooner terminated, each stock option granted
hereunder shall expire not more than ten (10) years from the date of the
granting thereof; provided, however, that with respect to an Incentive Option
granted to a Participant who, at the time of the grant, owns (after applying the
attribution rules of Section 424(d) of the Code) more than 10% of the total
combined voting stock of all classes of stock of the Company or any parent or
Subsidiary, such option shall expire not more than five (5) years after the date
of granting thereof.
 
15. CONTINUATION OF EMPLOYMENT: The Committee may require, in its discretion,
that any Participant under the Plan to whom a stock option or Stock Appreciation
Right shall be granted shall agree in writing as a condition of the granting of
such stock option or Stock Appreciation Right to remain in the employ of the
Company or a Subsidiary for a designated minimum period from the date of the
granting of such stock option or Stock Appreciation Right as shall be fixed by
the Committee and may further require, in its discretion, that any Participant
agree in writing to comply with any confidentiality, non-solicitation,
non-competition and non-disparagement provisions and covenants that the
Committee may require as a condition precedent to the exercise of a stock option
or Stock Appreciation Right.
 
16. TERMINATION OF EMPLOYMENT: If the employment of a Participant by the Company
or a Subsidiary shall be terminated (or an outside Director's service as a
Director shall terminate), the Committee may, in its discretion, permit the
exercise of stock options granted to such Participant (a) for a period not to
exceed three months following such termination of employment (or one year
following termination of employment on account of the Participant's death or
permanent disability) with respect to Incentive Options, and (b) for a period
not to extend beyond the expiration date with respect to Nonqualified Options.
In no event, however, shall a stock option be exercisable subsequent to its
expiration date. A stock option may only be exercised after termination of a
Participant's employment (or of an outside director's service as a director) to
the extent exercisable on the date of termination of employment (or termination
of service as an outside director); provided, however, that if the termination
of a Participant's employment (or of an outside director's service as a
director) is due to the Participant's death or permanent disability, all stock
options granted to such Participant shall thereupon become exercisable in full;
and provided further, that if the termination of a Participant's employment (or
of an outside director's service as a director) is due to the Participant's
retirement at a retirement age permitted under the Company's retirement Plan,
the Participant's stock options will become exercisable following the
termination of employment or service as a director in accordance with the
provisions established at the time of grant in the relevant stock option
agreement or agreements.
 
17. RESTRICTED STOCK AWARDS: Subject to the terms of the Plan, the Committee may
award shares of Restricted Stock to Participants. All shares of Restricted Stock
granted to Participants under the Plan shall be subject to the following terms
and conditions (and to such other terms and conditions prescribed by the
Committee):
 
      (a)   At the time of each award of restricted shares, there shall be
            established for the shares a restricted period, which shall be no
            less than six (6) months. Such restricted period may differ among
            Participants and may have different expiration dates with respect to
            portions of shares covered by the same award.
 
      (b)   Shares of Restricted Stock awarded to Participants may not be sold,
            assigned, transferred, pledged, hypothecated or otherwise encumbered
            during the restricted period applicable to such shares. Except for
            such restrictions on transfer, a Participant shall have all of the
            rights of a shareholder in respect of restricted shares awarded to
            him or her including, but not limited to, the right to receive
            dividends on, and the right to vote, the shares.
 
      (c)   If a Participant ceases to be employed by the Company or a
            Subsidiary for any reason other than death, permanent disability or
            retirement at a retirement age permitted under the Company's
            retirement Plan, all shares theretofore awarded to the Participant
            which are still subject to the restrictions imposed by Paragraph
 
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            17(b) shall upon such termination of employment be forfeited and
            transferred back to the Company, without payment of any
            consideration by the Company; provided, however, that in the event
            such employment is terminated by action of the Company or a
            Subsidiary without cause or by agreement between the Company or a
            Subsidiary and the Participant, the Committee may, in its
            discretion, release some or all of the shares from the restrictions.
            For this purpose, the Committee's definition of "cause" shall be
            final and conclusive.
 
      (d)   If a Participant ceases to be employed by the Company or a
            Subsidiary by reason of death, permanent disability or retirement at
            a retirement age permitted under the Company's retirement Plan, the
            restrictions imposed by Paragraph 17(b) shall lapse with respect to
            shares then subject to such restrictions.
 
      (e)   Stock certificates may be issued in respect of shares of Restricted
            Stock awarded hereunder, in which event the certificates shall be
            registered in the name of the Participant. Such certificates, if
            issued, shall be deposited with the Company or its designee,
            together with a stock power endorsed in blank, and, in the
            discretion of the Committee, a legend shall be placed upon such
            certificates reflecting that the shares represented thereby are
            subject to restrictions against transfer and forfeiture. In the
            discretion of the Committee, in lieu of issuing certificates for
            shares of Restricted Stock granted hereunder, the shares may be
            registered in the name of the Participant and held in book entry
            form by the Company's stock transfer agent.
 
      (f)   At the expiration of the restricted period applicable to the shares,
            the Company shall deliver to the Participant or the legal
            representative of the Participant's estate stock certificates for
            the shares. If certificates for the shares have previously been
            issued and a legend has been placed on such certificates in
            accordance with Paragraph 17(e), the Company shall cause such
            certificates to be reissued without the legend.
 
In the case of events such as stock dividends, stock splits, recapitalizations,
mergers, consolidations or reorganizations of or by the Company, any stock,
securities or other property which a Participant receives or is entitled to
receive by reason of his ownership of restricted shares shall, unless otherwise
determined by the Committee, be subject to the same restrictions applicable to
the restricted shares and shall be deposited with the Company or its designee or
held in book entry form by the Company's stock transfer agent.
 
18. PERFORMANCE SHARES AND PERFORMANCE UNITS: The Committee may grant to a
Participant the right to obtain Performance Shares or Performance Units, or some
combination of each, subject to the following terms and conditions:
 
      (a)   The Participant's right to obtain Performance Shares or Performance
            Units shall be subject to attainment of one or more performance
            goals over a performance period prescribed by the Committee.
 
      (b)   The performance goal applicable to an award to a Participant of the
            right to obtain Performance Shares or Performance Units shall be
            based upon free cash flow and/or cash flow return on investment of
            the Company, a Subsidiary, or a division or unit thereof. The
            performance goal may also be based upon stock price, market share,
            sales, revenues, earnings per share, return on equity, total
            shareholders return, costs, net income, and/or margins of the
            Company, a Subsidiary, or a division or unit thereof. The specific
            targets and other details of the performance goal shall be
            established by the Committee in its discretion. A performance goal
            must, however, be objective so that a third party with knowledge of
            the relevant facts could determine whether the goal has been
            attained.
 
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      (c)   The performance goal applicable to an award to a Participant of the
            right to obtain Performance Shares or Performance Units shall be
            established by the Committee in writing at any time during the
            period beginning on the date of the award and ending on the earlier
            of (i) ninety (90) days after commencement of the performance period
            applicable to the award, or (ii) expiration of the first 25% of the
            performance period; provided, however, that there must be
            substantial uncertainty whether a performance goal will be attained
            at the time it is established by the Committee.
 
      (d)   The performance goal established by the Committee must prescribe an
            objective formula or standard, that could be applied by a third
            party having knowledge of the relevant performance results, to
            compute the number of Performance Shares or Performance Units
            issuable to the Participant if the goal is attained.
 
      (e)   Unless otherwise determined by the Committee in the case of a
            Participant who dies or becomes permanently disabled, Performance
            Shares and Performance Units shall be issued to a Participant only
            after (i) expiration of the performance period and attainment of the
            performance goal applicable to the award, and (ii) issuance of a
            written certification by the Committee (including approved minutes
            of the meeting of the Committee at which the certification is made)
            that the performance goal and any other material terms of the award
            have been attained or satisfied.
 
      (f)   No Participant shall have any of the rights of a shareholder of the
            Company in respect of the shares covered by a Performance Share or
            Performance Unit award until the actual issuance of the shares to
            said Participant and, prior to such issuance, no adjustments shall
            be made for dividends, distributions or other rights in respect of
            such shares, except as provided in Paragraph 5.
 
      (g)   In its discretion and subject to such terms and conditions as it may
            impose, the Committee may permit a Participant to elect to defer
            receipt of Performance Shares or Performance Units to a time later
            than the time the shares otherwise would be issued or cash would
            otherwise be paid to the Participant. In such event, the Committee
            may, in its discretion, provide for the payment of a market rate of
            interest in respect of such deferral.
 
      (h)   In the discretion of the Committee, in lieu of settling a
            Performance Share award by issuance of shares of Common Stock of the
            Company to a Participant, all or a portion of the award may be
            settled by payment of cash to the Participant in an amount equal to
            the fair market value of the otherwise issuable shares as of the end
            of the performance period applicable to the award; provided,
            however, that the amount of cash paid to any Participant during any
            calendar year in settlement of a Performance Share award shall not
            exceed $1,000,000.
 
      (i)   Unless otherwise determined by the Committee, Performance Shares,
            Performance Units or rights therein awarded to a Participant may not
            be sold, assigned, transferred, pledged, hypothecated or otherwise
            encumbered by the Participant at any time before actual issuance of
            the shares to the Participant.
 
      (j)   In its discretion, the Committee may subject a Performance Share or
            Performance Unit award to a Participant to any other terms or
            conditions not inconsistent with the foregoing, including, without
            limitation, a requirement that the Participant remain an employee of
            the Company or a Subsidiary (including at or above a specified
            salary grade) for the entire performance period applicable to the
            award.
 
                                       F-8
<PAGE>
 
Performance Share and Performance Unit awards under the Plan are intended to
constitute qualified performance-based compensation for purposes of Section
162(m)(4)(C) of the Code and the Treasury Regulations thereunder, and the
provisions of this Paragraph 18 (and the other provisions of the Plan relating
to Performance Share and Performance Unit awards) shall be interpreted and
administered to effectuate that intent. Moreover, the Committee may revise or
modify the terms of an outstanding Performance Share or Performance Unit award
to the extent the Committee determines, in its discretion, that such revision or
modification is necessary for such award to constitute qualified
performance-based compensation.
 
     19. INVESTMENT PURPOSE: If the Committee in its discretion determines that
as a matter of law such procedure is or may be desirable, it may require a
Participant, upon any acquisition of stock hereunder (whether by reason of the
exercise of stock options or the award of restricted or Performance Shares) and
as a condition to the Company's obligation to deliver certificates representing
such shares, to execute and deliver to the Company a written statement in form
satisfactory to the Committee, representing and warranting that the
Participant's acquisition of shares of stock shall be for such person's own
account, for investment and not with a view to the resale or distribution
thereof and that any subsequent offer for sale or sale of any such shares shall
be made either pursuant to (a) a Registration Statement on an appropriate form
under the Securities Act of 1933, as amended (the "Securities Act"), which
Registration Statement has become effective and is current with respect to the
shares being offered and sold, or (b) a specific exemption from the registration
requirements of the Securities Act, but in claiming such exemption the
Participant shall, prior to any offer for sale or sale of such shares, obtain a
favorable written opinion from counsel for or approved by the Company as to the
availability of such exemption. The Company may endorse an appropriate legend
referring to the foregoing restriction upon the certificate or certificates
representing any shares issued or transferred to the Participant under the Plan.
 
     20. RIGHTS TO CONTINUED EMPLOYMENT: Nothing contained in the Plan or in any
stock option, Stock Appreciation Right, Restricted Stock, Performance Share or
Performance Unit granted or awarded pursuant to the Plan, nor any action taken
by the Committee hereunder, shall confer upon any Participant any right with
respect to continuation of employment by or service for the Company or a
Subsidiary as an employee or outside director nor interfere in any way with the
right of the Company or a Subsidiary to terminate such person's employment or
service as an employee or outside director at any time with or without cause.
 
     21. WITHHOLDING PAYMENTS: If, upon the exercise of a Nonqualified Option or
Stock Appreciation Right, or upon the award of Restricted Stock or the
expiration of restrictions applicable to Restricted Stock, or upon a
disqualifying disposition (within the meaning of Section 421 of the Code) of
shares acquired upon exercise of an Incentive Option, or upon the payment of
cash pursuant to a Performance Unit award or the issuance of shares pursuant to
(or the payment of cash in settlement of) a Performance Share award, there shall
be payable by the Company or a Subsidiary an amount for income tax withholding,
in the Committee's sole discretion, either the Company shall appropriately
reduce the amount of stock or cash to be paid to the Participant or the
Participant shall pay such amount to the Company or Subsidiary to reimburse it
for such income tax withholding. The Committee may in its sole discretion permit
Participants to satisfy such withholding obligations, in whole or in part, by
electing to have the amount of Common Stock delivered or deliverable by the
Company upon exercise of a stock option or upon award of Restricted Stock or
Performance Shares appropriately reduced, or by electing to tender Common Stock
back to the Company subsequent to exercise of a stock option or award of
Restricted Stock or Performance Shares, to reimburse the Company for such income
tax withholding, subject to such rules and regulations as the Committee may
adopt. The Company or any of its Subsidiaries shall also have the right to
withhold the amount of such taxes from any other sums or property due or to
become due from the Company or any of its Subsidiaries to the Participant upon
such terms and conditions as the Committee shall prescribe. The Company may also
defer issuance of stock under the Plan until payment by the Participant to the
Company or any of its Subsidiaries of the amount of any such tax. In the case of
a Regulation T Stock Option Exercise, the Committee may in its discretion permit
the Participant to irrevocably instruct a stock broker to promptly deliver to
the Company an amount (in addition to the option exercise price) equal to any
withholding tax owing in respect of the option exercise from the proceeds of the
stock broker's sale of or loan against some or all of the shares. In the event
the Company then has in effect a stock repurchase program,
 
                                       F-9
<PAGE>
 
in its discretion and subject to such terms and conditions as it may impose, the
Committee may permit Participants to satisfy their withholding tax obligations
by requesting that the Company repurchase (and retain the repurchase price of)
that number of shares issuable or issued under the Plan having a then fair
market value equal to the amount of withholding tax due. The Committee may make
such other arrangements with respect to income tax withholding as it shall
determine.
 
     22. CHANGE IN CONTROL: Notwithstanding any other provision of the Plan or
any provision of a grant or award agreement, in the event the Committee
determines that there has been or will be a change in control of the Company or
of any Subsidiary, the Committee may provide for any treatment of outstanding
stock options, Stock Appreciation Rights, Restricted Stock, Performance Share or
Performance Unit grants or awards which it determines, in its discretion, to be
appropriate. Such treatment may include, without limitation, acceleration of
vesting of stock options and Stock Appreciation Rights, release of restrictions
applicable to Restricted Stock, or deeming Performance Share or Performance Unit
awards to have been earned. In determining whether there has been or will be a
change in control of the Company or of any Subsidiary, the Committee may utilize
a definition it deems appropriate of a change in control contained in any
existing agreement between the Company or a Subsidiary and one of its senior
executives.
 
     23. GENERAL: Grants or awards may be made to Participants who are foreign
nationals or employed outside the United States, or both, on such terms and
conditions different from those specified in the Plan as may, in the judgment of
the Committee, be necessary or desirable in order to recognize differences in
local law or tax policy. The Committee also may impose conditions on the
exercise or vesting of grants or awards in order to minimize the Company's
obligation with respect to tax equalization for Participants on assignments
outside their home country.
 
     Except as otherwise provided in the Plan, the Committee shall be authorized
to make adjustments in performance goal criteria in recognition of unusual or
nonrecurring events affecting the Company or its financial statements or changes
in applicable laws, regulations or accounting principles. The Committee may
correct any defect, supply any omission or reconcile any inconsistency in the
Plan or any Performance Share or Performance Unit award in the manner and to the
extent it shall deem desirable to carry it into effect. In the event the Company
shall assume outstanding employee benefit grants or awards or the right or
obligation to make future such grants or awards in connection with the
acquisition of another Company or business entity, the Committee may, in its
discretion, make such adjustments in the terms of grants or awards under the
Plan as it shall deem appropriate.
 
     Notwithstanding any other provision of the Plan, in the case of any shares
of stock that may be issued to a Participant, including upon exercise of a stock
option, upon the grant of or release of restrictions applicable to Restricted
Stock, or upon satisfaction of performance goals applicable to Performance Share
grants, the Company may effect the issuance of the shares on a non-certificated
basis, subject to applicable law or the applicable rules of any stock exchange.
 
     24. EFFECTIVENESS OF PLAN: The Plan shall be effective as of July 16, 2004,
provided that the shareholders of the Company approve the Plan within twelve
(12) months of that date. Stock options, Stock Appreciation Rights, Restricted
Stock and rights to obtain Performance Shares and Performance Units may be
granted or awarded prior to shareholder approval of the Plan, but each such
stock option, Stock Appreciation Right, Restricted Stock, Performance Share or
Performance Unit grant or award shall be subject to shareholder approval of the
Plan. No stock option or Stock Appreciation Right may be exercised and no
Performance Shares or Performance Unit may be issued prior to shareholder
approval, and any Restricted Stock awarded is subject to forfeiture if such
shareholder approval is not obtained.
 
                                      F-10
<PAGE>
 
     25. TERMINATION, DURATION AND AMENDMENTS OF PLAN: The Plan may be abandoned
or terminated at any time by the Board of Directors of the Company. Unless
sooner terminated by the Board of Directors, the Plan shall terminate on the
date ten (10) years after its adoption by the Board of Directors, and no stock
options, Stock Appreciation Rights, Restricted Stock or rights to obtain
Performance Shares or Performance Units may be granted or awarded thereafter.
The termination of the Plan shall not affect the validity of any stock option,
Stock Appreciation Right, Restricted Stock or award of a right to obtain
Performance Shares or Performance Units outstanding on the date of termination.
 
For the purpose of conforming to any changes in applicable law or governmental
regulations, or for any other lawful purpose, the Board of Directors shall have
the right, without approval of the shareholders of the Company, to amend or
revise the terms of the Plan or any award or agreement pursuant to the Plan at
any time; provided, however that no such amendment or revision shall (i) with
respect to the Plan, increase the maximum number of shares in the aggregate
which are subject to the Plan or with respect to which grants or awards may be
made to individual Participants (subject, however, to the provisions of
Paragraph 5), materially change the class of persons eligible to be Participants
under the Plan, establish additional and different business criteria on which
Performance Share or Performance Unit goals are based or materially increase the
benefits accruing to Participants under the Plan, without approval or
ratification of the shareholders of the Company; or (ii) with respect to an
award or agreement pursuant to the Plan, except as otherwise specifically
provided in the Plan, alter or impair any stock option, Stock Appreciation
Right, Restricted Stock or right to obtain Performance Shares or Performance
Units which shall have been previously granted or awarded under the Plan,
without the consent of the holder thereof.
 
The Plan was approved by the Compensation Committee of the Board of Directors on
July 9, 2004. The Board of Directors adopted the Plan on July 16, 2004 subject
to shareholder approval at the 2004 Annual Meeting of Shareholders.