Exhibit 10.10

AMENDED AND RESTATED
APRIA HEALTHCARE GROUP INC.
1997 STOCK INCENTIVE PLAN

Includes Amendment 1998-1 Made by the Board of Directors

As of June 30, 1998

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TABLE OF CONTENTS

ARTICLE I  -  THE PLAN.

Section 1.1.
Section 1.2.
Section 1.3.
Section 1.4.
Section 1.5.
Section 1.6.
Section 1.7.
Section 1.8.
Section 1.9.
Section 1.10.
Purpose
Administration and Authorization; Power and Procedure
Participation
Shares Available for Awards; Share Limits
Grant of Awards
Award Period
Limitations on Exercise and Vesting of Awards
No Transferability; Limited Exception to Transfer Restrictions
Acceptance of Notes to Finance Exercise
Limitations on Grants of Awards to Non-Employee Directors

ARTICLE II  -  OPTIONS.

Section 2.1.
Section 2.2.
Section 2.3.
Section 2.4.
Section 2.5.
Section 2.6.
Grants
Option Price
Limitations on Grant and Terms of Incentive Stock Options
Limits on 10% Holders
Cancellation and Regrant/Waiver of Restrictions
Options and Rights in Substitution for Stock Options Granted by Other
Corporations

ARTICLE III -  STOCK APPRECIATION RIGHTS.

Section 3.1.
Section 3.2.
Section 3.3.
Grants
Exercise of Stock Appreciation Rights
Payment

ARTICLE IV  -  RESTRICTED STOCK AWARDS.

Section 4.1.
Section 4.2.
Section 4.3.
Grants
Restrictions
Return to the Corporation

ARTICLE V  -  PERFORMANCE SHARE AWARDS AND STOCK BONUSES.

Section 5.1.
Section 5.2.
Section 5.3.
Section 5.4.
Grants of Performance Share Awards
Special Performance-Based Share Awards
Grants of Stock Bonuses
Deferred Payments

ARTICLE VI  -  OTHER PROVISIONS.

Section 6.1.
Section 6.2.
Section 6.3.
Section 6.4.
Section 6.5.
Section 6.6.
Section 6.7.
Section 6.8.
Section 6.9.
Section 6.10.
Section 6.11.
Section 6.12.
Section 6.13.
Rights of Eligible Persons, Participants and Beneficiaries
Adjustments; Acceleration
Effect of Termination of Employment
Compliance with Laws
Tax Withholding
Plan Amendment, Termination and Suspension
Privileges of Stock Ownership
Effective Date of the Plan
Term of the Plan
Governing Law/Construction/Severability
Captions
Effect of Change of Subsidiary Status
Non-Exclusivity of Plan

ARTICLE VII -  DEFINITIONS.

Section 7.1.
Section 7.2.
Definitions
Changes in Applicable Law

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APRIA HEALTHCARE GROUP INC.
1997 STOCK INCENTIVE PLAN

ARTICLE I.   THE PLAN.

      Section 1.1.   Purpose.

     The purpose of this Plan is to promote the success of the Company by
providing an additional means through the grant of Awards to attract, motivate,
retain and reward key employees, including officers, whether or not directors,
of the Company with awards and incentives for high levels of individual
performance and improved financial performance of the Company and to attract,
motivate and retain experienced and knowledgeable independent directors.
“Corporation” means Apria Healthcare Group Inc., a Delaware corporation, and
“Company” means the Corporation and its Subsidiaries, collectively. These terms
and other capitalized terms are defined in Article VII.

      Section 1.2.   Administration and Authorization; Power and Procedure.

 

(a)     Committee. This Plan shall be administered by and all Awards to Eligible
Persons shall be authorized by the Committee. Subject to the bylaws of this
Corporation, action of the Committee with respect to the administration of this
Plan shall be taken pursuant to a majority vote or by unanimous written consent
of its members.

 

(b)     Plan Awards; Interpretation; Powers of Committee. Subject to the express
provisions of this Plan, the Committee shall have the authority:

 

(i)     to determine from among those persons eligible the particular Eligible
Persons who will receive any Awards;

 

(ii)      to grant Awards to Eligible Persons, determine the price at which
securities will be offered or awarded and the amount of securities to be offered
or awarded to any of such persons, determine the other specific terms and
conditions of such Awards consistent with the express limits of this Plan,
establish the installments (if any) in which such Awards shall become
exercisable or shall vest, or determine that no delayed exercisability or
vesting is required, and establish the events of termination or reversion of
such Awards;

 

(iii)      to approve the forms of Award Agreements (which need not be identical
either as to type of award or among Participants);

 

(iv)      to construe and interpret this Plan and any agreements defining the
rights and obligations of the Company and Participants, further define the terms
used in this Plan, and prescribe, amend and rescind rules and regulations
relating to the administration of this Plan;

 

(v)      to cancel, modify, or waive the Corporation’s rights with respect to,
or modify, discontinue, suspend, or terminate any or all outstanding Awards held
by Eligible Persons, subject to any required consent under Section 6.6;

 

(vi)      to accelerate or extend the exercisability or extend the term of any
or all such outstanding Awards within the maximum ten-year term of Awards under
Section 1.6; and

 

(vii)      to make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable for the
administration of this Plan and the effectuation of its purposes.

 

(c)      Binding Determinations. Any action taken by, or inaction of, the
Corporation, any Subsidiary, the Board or the Committee relating or pursuant to
this Plan shall be within the absolute discretion of that entity or body and
shall be conclusive and binding upon all persons. No member of the Board or
Committee, or officer of the Corporation or any Subsidiary, shall be liable for
any such action or inaction of the entity or body, of another person or, except
in circumstances involving bad faith, of himself or herself. Subject only to
compliance with the express provisions hereof, the Board and Committee may act
in their absolute discretion in matters within their authority related to this
Plan.

 

(d)      Reliance on Experts. In making any determination or in taking or not
taking any action under this Plan, the Committee or the Board, as the case may
be, may obtain and may rely upon the advice of experts, including professional
advisors to the Corporation. No director, officer or agent of the Company shall
be liable for any such action or determination taken or made or omitted in good
faith.

 

(e)      Delegation. The Committee may delegate ministerial, non-discretionary
functions to a third-party administrator or to individuals who are officers or
employees of the Company.

     Section 1.3.   Participation.

     Awards may be granted by the Committee only to those persons that the
Committee determines to be Eligible Persons. An Eligible Person who has been
granted an Award may, if otherwise eligible, be granted additional Awards if the
Committee shall so determine.

     Section 1.4.   Shares Available for Awards; Share Limits.

 

(a)      Shares Available. Subject to the provisions of Section 6.2, the capital
stock that may be delivered under this Plan shall be shares of the Corporation’s
authorized but unissued Common Stock and any shares of its Common Stock held as
treasury shares. The shares may be delivered for any lawful consideration.

 

(b)      Share Limits. The aggregate maximum number of shares of Common Stock
that may be delivered pursuant to Awards (including Incentive Stock Options)
granted under this Plan and which are required to be charged or reserved by
provisions of Section 1.4(c) (the “Maximum Aggregate Limit”) shall be 2,500,000
shares, plus in each calendar year, commencing in 1998, occurring during the
term of this Plan, 1% of the issued and outstanding shares of the Corporation’s
Common Stock as of December 31 of the preceding calendar year. The maximum
number of shares of Common Stock that may be delivered pursuant to Options
qualified as Incentive Stock Options granted under Article II of this Plan is
7,500,000 shares. The maximum number of shares subject to Options and Stock
Appreciation Rights that are granted during any calendar year to any individual
shall be limited to 100,000 shares. Each of the three foregoing numerical limits
shall be subject to adjustment as contemplated by this Section 1.4 and Section
6.2.

 

(c)      Share Reservation; Replenishment and Reissue of Unvested Awards. No
Award may be granted under this Plan unless, on the date of grant, the sum of
(i) the maximum number of shares issuable at any time pursuant to such Award,
plus (ii) the number of shares that have previously been issued pursuant to
Awards granted under this Plan, other than reacquired shares available for
reissue consistent with any applicable legal limitations, plus (iii) the maximum
number of shares that may be issued at any time after such date of grant
pursuant to Awards that are outstanding on such date, does not exceed the
Maximum Aggregate Limit. Shares that are subject to or underlie Awards which
expire or for any reason are cancelled or terminated, are forfeited, fail to
vest, or for any other reason are not paid or delivered under this Plan, as well
as reacquired shares, shall again, except to the extent prohibited by law, be
available for subsequent Awards under the Plan. Except as limited by law, if an
Award is or may be settled only in cash, such Award need not be counted against
any of the limits under this Section 1.4.

     Section 1.5.    Grant of Awards.

     Subject to the express provisions of this Plan, the Committee shall
determine the number of shares of Common Stock subject to each Award, the price
(if any) to be paid for the shares or the Award and, in the case of Performance
Share Awards, in addition to matters addressed in Section 1.2(b), the specific
objectives, goals and performance criteria (such as an increase in sales, market
value, earnings or book value over a base period, the years of service before
vesting, the relevant job classification or level of responsibility or other
factors) that further define the terms of the Performance Share Award. Each
Award shall be evidenced by an Award Agreement signed on behalf of the
Corporation and, if required by the Committee, by the Participant. The Award
Agreement shall set forth the material terms and conditions of the Award
established by the Committee consistent with the specific provisions of this
Plan. The Award Agreement may be executed on behalf of the Corporation by a duly
authorized officer by manual or facsimile signature.

     Section 1.6.   Award Period.

     Each Award and all executory rights or obligations under the related Award
Agreement shall expire on such date (if any) as shall be determined by the
Committee, but in the case of Options or other rights to acquire Common Stock
not later than ten (10) years after the Award Date.

     Section 1.7.    Limitations on Exercise and Vesting of Awards.

 

(a)      Provisions for Exercise. Unless the Committee otherwise expressly
provides, no Award shall be exercisable or shall vest until at least six months
after the initial Award Date, and once exercisable an Award shall remain
exercisable until the expiration or earlier termination of the Award.

 

(b)      Procedure. Any exercisable Award shall be deemed to be exercised when
the Secretary of the Corporation or his designee receives written notice of such
exercise from the Participant, together with any required payment made in
accordance with Section 2.2(a).

 

(c)      Fractional Shares/Minimum Issue. Fractional share interests shall be
disregarded, but may be accumulated. The Committee, however, may determine in
the case of Eligible Persons that cash, other securities, or other property will
be paid or transferred in lieu of any fractional share interests. No fewer than
100 shares may be purchased on exercise of any Award at one time unless the
number purchased is the total number at the time available for purchase under
the Award.

     Section 1.8.    No Transferability; Limited Exception to Transfer
Restrictions.

 

(a)      Limit on Exercise and Transfer. Unless otherwise expressly provided in
(or pursuant to) this Section 1.8, by applicable law and by the Award Agreement,
as the same may be amended, (i) all Awards are non-transferable and shall not be
subject in any manner to sale, transfer, anticipation, alienation, assignment,
pledge, encumbrance or charge; (ii) Awards shall be exercised only by the
Participant; and (iii) amounts payable or shares issuable pursuant to an Award
shall be delivered only to (or for the account of) the Participant.

 

(b)      Exceptions. The Committee may permit Awards to be exercised by and paid
to certain persons or entities related to the Participant pursuant to such
conditions and procedures as the Committee may establish. Any permitted transfer
shall be subject to the condition that the Committee receive evidence
satisfactory to it that the transfer is being made for estate and/or tax
planning purposes or a gratuitous or donative basis and without consideration
(other than nominal consideration). Notwithstanding the foregoing, Incentive
Stock Options and Restricted Stock Awards shall be subject to any and all
applicable transfer restrictions under the Code.

 

(c)      Further Exceptions to Limits On Transfer. The exercise and transfer
restrictions in Section 1.8(a) shall not apply to:

 

(i)     transfers to the Corporation,

 

(ii)      the designation of a beneficiary to receive benefits in the event of
the Participant’s death or, if the Participant has died, transfers to or
exercise by the Participant’s beneficiary, or, in the absence of a validly
designated beneficiary, transfers by will or the laws of descent and
distribution,

 

(iii)     transfers pursuant to a QDRO order,

 

(iv)      if the Participant has suffered a disability, permitted transfers or
exercises on behalf of the Participant by his or her legal representative, or

 

(v)      the authorization by the Committee of “cashless exercise” procedures
with third parties who provide financing for the purpose of (or who otherwise
facilitate) the exercise of Awards consistent with applicable laws and the
express authorization of the Committee.

Notwithstanding the foregoing, Incentive Stock Options and Restricted Stock
Awards shall be subject to all applicable transfer restrictions under the Code.

     Section 1.9.    Acceptance of Notes to Finance Exercise.

     The Corporation may, with the Committee’s approval, accept one or more
notes from any Eligible Person in connection with the exercise or receipt of any
outstanding Award; provided that any such note shall be subject to the following
terms and conditions:

 

(a)     The principal of the note shall not exceed the amount required to be
paid to the Corporation upon the exercise or receipt of one or more Awards under
the Plan and the note shall be delivered directly to the Corporation in
consideration of such exercise or receipt.

 

(b)     The initial term of the note shall be determined by the Committee;
provided that the term of the note, including extensions, shall not exceed a
period of five years.

 

(c)     The note shall provide for full recourse to the Participant and shall
bear interest at a rate determined by the Committee but not less than the
interest rate necessary to avoid the imputation of interest under the Code.

 

(d)     If the employment of the Participant terminates, the unpaid principal
balance of the note shall become due and payable on the 10th business day after
such termination; provided, however, that if a sale of such shares would cause
such Participant to incur liability under Section 16(b) of the Exchange Act, the
unpaid balance shall become due and payable on the 10th business day after the
first day on which a sale of such shares could have been made without incurring
such liability assuming for these purposes that there are no other transactions
(or deemed transactions in securities of this Corporation) by the Participant
subsequent to such termination.

 

(e)     If required by the Committee or by applicable law, the note shall be
secured by a pledge of any shares or rights financed thereby in compliance with
applicable law.

 

(f)     The terms, repayment provisions, and collateral release provisions of
the note and the pledge securing the note shall conform with applicable rules
and regulations of the Federal Reserve Board as then in effect.

     Section 1.10.    Limitations on Grants of Awards to Non-Employee Directors.

     Notwithstanding anything else contained herein to the contrary, the maximum
number of shares subject to Nonqualified Stock Options granted to a Non-Employee
Director in any calendar year shall not exceed 30,000 shares.

ARTICLE II.    OPTIONS.

     Section 2.1.    Grants.

     One or more Options may be granted under this Article to any Eligible
Person. Each Option granted shall be designated in the applicable Award
Agreement by the Committee as either an Incentive Stock Option subject to
Section 2.3, or a Non-Qualified Stock Option.

Section 2.2.   Option Price.

 

(a)     Pricing Limits. The purchase price per share of the Common Stock covered
by each Option shall be determined by the Committee at the time of the Award,
but in the case of Incentive Stock Options shall not be less than 100% (110% in
the case of a Participant described in Section 2.4) of the Fair Market Value of
the Common Stock on the date of grant.

 

(b)     Payment Provisions. The purchase price of any shares purchased on
exercise of an Option granted under this Article shall be paid in full at the
time of each purchase in one or a combination of the following methods: (i) in
cash or by electronic funds transfer; (ii) by check payable to the order of the
Corporation; (iii) if authorized by the Committee or specified in the applicable
Award Agreement, by a promissory note of the Participant consistent with the
requirements of Section 1.9; (iv) by notice and third party payment in such
manner as may be authorized by the Committee; or (iv) by the delivery of shares
of Common Stock of the Corporation already owned by the Participant, provided,
however, that the Committee may in its absolute discretion limit the
Participant’s ability to exercise an Award by delivering such shares, and
provided further that any shares delivered which were initially acquired upon
exercise of an Option must have been owned by the Participant for at least six
months as of the date of delivery. Shares of Common Stock used to satisfy the
exercise price of an Option shall be valued at their Fair Market Value on the
date of exercise.

     Section 2.3.   Limitations on Grant and Terms of Incentive Stock Options.

 

(a)     $100,000 Limit. To the extent that the aggregate Fair Market Value of
stock with respect to which incentive stock options first become exercisable by
a Participant in any calendar year exceeds $100,000, taking into account both
Common Stock subject to Incentive Stock Options under this Plan and stock
subject to incentive stock options under all other plans of the Company or any
parent corporation, such options shall be treated as Nonqualified Stock Options.
For this purpose, the Fair Market Value of the stock subject to options shall be
determined as of the date the options were awarded. In reducing the number of
options treated as incentive stock options to meet the $100,000 limit, the most
recently granted options shall be reduced first. To the extent a reduction of
simultaneously granted options is necessary to meet the $100,000 limit, the
Committee may, in the manner and to the extent permitted by law, designate which
shares of Common Stock are to be treated as shares acquired pursuant to the
exercise of an Incentive Stock Option.

 

(b)     Option Period. Each Option and all rights thereunder shall expire no
later than ten years after the Award Date.

 

(c)     Other Code Limits. Incentive Stock Options may only be granted to
Eligible Employees who are actually employed by the Corporation or a Subsidiary
and that satisfy the other eligibility requirements of the Code. There shall be
imposed in any Award Agreement relating to Incentive Stock Options such other
terms and conditions as from time to time are required in order that the Option
be an “incentive stock option” as that term is defined in Section 422 of the
Code.

     Section 2.4.   Limits on 10% Holders.

     No Incentive Stock Option may be granted to any person who, at the time the
Option is granted, owns (or is deemed to own under Section 424(d) of the Code)
shares of outstanding Common Stock possessing more than 10% of the total
combined voting power of all classes of stock of the Corporation, unless the
exercise price of such Option is at least 110% of the Fair Market Value of the
stock subject to the Option and such Option by its terms is not exercisable
after the expiration of five years from the date such Option is granted.

     Section 2.5.    Cancellation and Regrant/Waiver of Restrictions.

     Subject to Section 1.4 and the specific limitations on Awards contained in
this Plan, the Committee from time to time may authorize, generally or in
specific cases only, for the benefit of any Eligible Person any adjustment in
the exercise or purchase price, the vesting schedule, the number of shares
subject to, the restrictions upon or the term of, an Award granted under this
Article by cancellation of an outstanding Award and a subsequent regranting of
an Award, by amendment, by substitution of an outstanding Award, by waiver or by
other legally valid means. Such amendment or other action may result among other
changes in an exercise or purchase price which is higher or lower than the
exercise or purchase price of the original Award or prior Award, provide for a
greater or lesser number of shares subject to the Award, or provide for a longer
or shorter vesting or exercise period.

     Section 2.6.   Options and Rights in Substitution for Stock Options Granted
by Other Corporations.

     Options and Stock Appreciation Rights may be granted to Eligible Persons
under this Plan in substitution for employee stock options granted by other
entities to persons who are or who will become Eligible Persons in respect of
the Company, in connection with a distribution, merger or reorganization by or
with the granting entity or an affiliated entity, or the acquisition by the
Company, directly or indirectly, of all or a substantial part of the stock or
assets of the other entity.

ARTICLE III.    STOCK APPRECIATION RIGHTS.

     Section 3.1.    Grants.

     In its discretion, the Committee may grant a Stock Appreciation Right to
any Eligible Person either concurrently with the grant of another Award or in
respect of an outstanding Award, in whole or in part, or independently of any
other Award. Any Stock Appreciation Right granted in connection with an
Incentive Stock Option shall contain such terms as may be required to comply
with the provisions of Section 422 of the Code and the regulations promulgated
thereunder, unless the holder otherwise agrees.

     Section 3.2.   Exercise of Stock Appreciation Rights.

 

(a)     Exercisability. Unless the Award Agreement or the Committee otherwise
provides, a Stock Appreciation Right related to another Award shall be
exercisable at such time or times, and to the extent, that the related Award
shall be exercisable.

 

(b)     Effect on Available Shares. To the extent that a Stock Appreciation
Right is exercised, the number of underlying shares of Common Stock theretofore
subject to a related Award shall be charged against the maximum amount of Common
Stock that may be delivered pursuant to Awards under this Plan. The number of
shares subject to the Stock Appreciation Right and the related Option of the
Participant shall be reduced by the number of underlying shares as to which the
exercise related, unless the Award Agreement otherwise provides.

 

(c)     Stand-Alone SARs. A Stock Appreciation Right granted independently of
any other Award shall be exercisable pursuant to the terms of the Award
Agreement but in no event earlier than six months after the Award Date, except
in the case of death or Total Disability.

     Section 3.3.    Payment.

 

(a)    Amount. Unless the Committee otherwise provides, upon exercise of a Stock
Appreciation Right and the attendant surrender of an exercisable portion of any
related Award, the Participant shall be entitled to receive payment of an amount
determined by multiplying

 

(i)      the difference obtained by subtracting the exercise price per share of
Common Stock under the related Award (if applicable) or the initial share value
specified in the Award from the Fair Market Value of a share of Common Stock on
the date of exercise of the Stock Appreciation Right, by

 

(ii)      the number of shares with respect to which the Stock Appreciation
Right shall have been exercised.

 

(b)      Form of Payment. The Committee, in its sole discretion, shall determine
the form in which payment shall be made of the amount determined under Section
3.3(a) above, either solely in cash, solely in shares of Common Stock (valued at
Fair Market Value on the date of exercise of the Stock Appreciation Right), or
partly in such shares and partly in cash, provided that the Committee shall have
determined that such exercise and payment are consistent with applicable law. If
the Committee permits the Participant to elect to receive cash or shares (or a
combination thereof) on such exercise, any such election shall be subject to
such conditions as the Committee may impose.

ARTICLE IV.    RESTRICTED STOCK AWARDS.

     Section 4.1.    Grants.

     The Committee may, in its discretion, grant one or more Restricted Stock
Awards to any Eligible Person. Each Restricted Stock Award Agreement shall
specify the number of shares of Common Stock to be issued to the Participant,
the date of such issuance, the consideration for such shares (but not less than
the minimum lawful consideration under applicable state law) by the Participant,
the extent to which the Participant shall be entitled to dividends, voting and
other rights in respect of the shares prior to vesting and the restrictions
imposed on such shares and the conditions of release or lapse of such
restrictions. Such restrictions shall not lapse earlier than six months after
the Award Date, except to the extent the Committee may otherwise provide. Stock
certificates evidencing shares of Restricted Stock pending the lapse of the
restrictions (“restricted shares”) shall bear a legend making appropriate
reference to the restrictions imposed hereunder and shall be held by the
Corporation or by a third party designated by the Committee until the
restrictions on such shares shall have lapsed and the shares shall have vested
in accordance with the provisions of the Award and Section 1.7. Upon issuance of
the Restricted Stock Award, the Participant may be required to provide such
further assurance and documents as the Committee may require to enforce the
restrictions.

     Section 4.2.    Restrictions.

 

(a)     Pre-Vesting Restraints. Except as provided in Section 4.1 and 1.8,
restricted shares comprising any Restricted Stock Award may not be sold,
assigned, transferred, pledged or otherwise disposed of or encumbered, either
voluntarily or involuntarily, until the restrictions on such shares have lapsed
and the shares have become vested.

 

(b)     Dividend and Voting Rights. Unless otherwise provided in the applicable
Award Agreement, a Participant receiving a Restricted Stock Award shall be
entitled to cash dividend and voting rights for all shares issued even though
they are not vested, provided that such rights shall terminate immediately as to
any restricted shares which cease to be eligible for vesting.

 

(c)     Cash Payments. If the Participant shall have paid or received cash
(including any dividends) in connection with the Restricted Stock Award, the
Award Agreement shall specify whether and to what extent such cash shall be
returned (with or without an earnings factor) as to any restricted shares which
cease to be eligible for vesting.

     Section 4.3.   Return to the Corporation.

     Unless the Committee otherwise expressly provides, restricted shares that
remain subject to restrictions at the time of termination of employment or are
subject to other conditions to vesting that have not been satisfied by the time
specified in the applicable Award Agreement shall not vest and shall be returned
to the Corporation in such manner and on such terms as the Committee shall
therein provide.

ARTICLE V.    PERFORMANCE SHARE AWARDS AND STOCK BONUSES.

     Section 5.1.    Grants of Performance Share Awards.

     The Committee may, in its discretion, grant Performance Share Awards to
Eligible Persons based upon such factors as the Committee shall deem relevant in
light of the specific type and terms of the award. An Award Agreement shall
specify the maximum number of shares of Common Stock (if any) subject to the
Performance Share Award, the consideration (but not less than the minimum lawful
consideration) to be paid for any such shares as may be issuable to the
Participant, the duration of the Award and the conditions upon which delivery of
any shares or cash to the Participant shall be based. The amount of cash or
shares or other property that may be deliverable pursuant to such Award shall be
based upon the degree of attainment over a specified period (a “performance
cycle”) as may be established by the Committee of such measure(s) of the
performance of the Company (or any part thereof) or the Participant as may be
established by the Committee. The Committee may provide for full or partial
credit, prior to completion of such performance cycle or the attainment of the
performance achievement specified in the Award, in the event of the
Participant’s death, or Total Disability, a Change in Control Event or in such
other circumstances as the Committee consistent with Section 6.10(c)(2), if
applicable, may determine.

     Section 5.2.   Special Performance-Based Share Awards.

     Without limiting the generality of the foregoing, and in addition to
Options and Stock Appreciation Rights granted under other provisions of this
Plan which are intended to satisfy the exception for “performance-based
compensation” under Section 162(m) of the Code (with such Awards hereinafter
referred to as a “Qualifying Option” or a “Qualifying Stock Appreciation Right,”
respectively), other performance-based awards within the meaning of
Section 162(m) of the Code (“Performance-Based Awards”), whether in the form of
restricted stock, performance stock, phantom stock, or other rights, the vesting
or exercisability of which depends on the degree of achievement of the
Performance Goals relative to preestablished targeted levels for the Corporation
or the Corporation and one or more of its Subsidiaries or divisions, may be
granted under this Plan. Any Qualifying Option or Qualifying Stock Appreciation
Right shall be subject only to the requirements of subsections (a) and (c) below
in order for such Awards to satisfy the requirements for Performance-Based
Awards under this Section 5.2. With the exception of any Qualifying Option or
Qualifying Stock Appreciation Right, an Award that is intended to satisfy the
requirements of this Section 5.2 shall be designated as a Performance-Based
Award at the time of grant.

 

(a)     Eligible Class. The eligible class of persons for Performance-Based
Awards under this Section shall be the executive officers of the Corporation.

 

(b)     Performance Goal Alternatives. The specific performance goals for
Performance-Based Awards granted under this Section (other than Qualifying
Options and Qualifying Stock Appreciation Rights) shall be, on an absolute or
relative basis, one or more of the Performance Goals, as selected by the
Committee in its sole discretion. The Committee shall establish in the
applicable Award Agreement the specific performance target(s) relative to the
Performance Goal(s) which must be attained before the compensation under the
Performance-Based Award becomes payable. The specific targets shall be
determined within the time period permitted under Section 162(m) of the Code
(and any regulations issued thereunder) so that such targets are considered to
be preestablished and so that the attainment of such targets is substantially
uncertain at the time of their establishment. The applicable performance
measurement period may not be less than one nor more than 10 years.

 

(c)     Maximum Performance-Based Award. Notwithstanding any other provision of
the Plan to the contrary, in no event shall grants in any calendar year to a
Participant under this Section 5.2 relate to more than 100,000 shares of Common
Stock (subject to adjustment under Section 6.2) or a cash amount of more than
$1,000,000. Awards that are cancelled during the year shall be counted against
this limit to the extent required by Section 162(m) of the Code.

 

(d)     Committee Certification. Before any Performance-Based Award under this
Section 5.2 (other than Qualifying Options or Qualifying Stock Appreciation
Rights) is paid, the Committee must certify in writing that the Performance
Goal(s) and any other material terms of the Performance-Based Award were
satisfied; provided, however, that a Performance-Based Award may be paid without
regard to the satisfaction of the applicable Performance Goal in the event of a
Change in Control Event in accordance with Section 6.2(d).

 

(e)     Terms and Conditions of Awards. The Committee will have the discretion
to determine the restrictions or other limitations of the individual Awards
granted under this Section 5.2 including the authority to reduce Awards, payouts
or vesting or to pay no Awards, in its sole discretion, if the Committee
preserves such authority at the time of grant by language to this effect in its
authorizing resolutions or otherwise.

 

(f)     Adjustments for Changes in Capitalization and other Material Changes. In
the event of a change in corporate capitalization, such as a stock split or
stock dividend, or a corporate transaction, such as a merger, consolidation,
spinoff, reorganization or similar event, or any partial or complete liquidation
of the Corporation, or any similar event consistent with regulations issued
under Section 162(m) of the Code including, without limitation, any material
change in accounting policies or practices affecting the Corporation and/or the
Performance Goals or targets, then the Committee may make adjustments to the
Performance Goals and targets relating to outstanding Performance-Based Awards
to the extent such adjustments are made to reflect the occurrence of such an
event; provided, however, that adjustments described in this subsection may be
made only to the extent that the occurrence of an event described herein was
unforeseen at the time the targets for a Performance-Based Award were
established by the Committee.

 

(g)     Stock Payout Features. In lieu of cash payment of an Award, the
Committee may require or allow a portion of the Award to be part in the form of
shares of Common Stock, restricted shares or an Option.

     Section 5.3.    Grants of Stock Bonuses.

     The Committee may grant a Stock Bonus to any Eligible Person to reward
exceptional or special services, contributions or achievements in the manner and
on such terms and conditions (including any restrictions on such shares) as
determined from time to time by the Committee. The number of shares so awarded
shall be determined by the Committee. The Award may be granted independently or
in lieu of a cash bonus.

     Section 5.4.   Deferred Payments.

     The Committee may authorize for the benefit of any Eligible Person the
deferral of any payment of cash or shares that may become due or of cash
otherwise payable under this Plan, and provide for accredited benefits thereon
based upon such deferment, at the election or at the request of such
Participant, subject to the other terms of this Plan. Such deferral shall be
subject to such further conditions, restrictions or requirements as the
Committee may impose, subject to any then vested rights of Participants.

ARTICLE VI.  OTHER PROVISIONS.

     Section 6.1.   Rights of Eligible Persons, Participants and Beneficiaries.

 

(a)     Employment Status. Status as an Eligible Person shall not be construed
as a commitment that any Award will be made under this Plan to an Eligible
Person or to Eligible Persons generally.

 

(b)     No Employment Contract. Nothing contained in this Plan (or in any other
documents related to this Plan or to any Award) shall confer upon any Eligible
Person or other Participant any right to continue in the employ or other service
of the Company or constitute any contract or agreement of employment or other
service, nor shall interfere in any way with the right of the Company to change
such person’s compensation or other benefits or to terminate the employment of
such person, with or without cause, but nothing contained in this Plan or any
document related hereto shall adversely affect any independent contractual right
of such person without his or her consent thereto.

 

(c)     Plan Not Funded. Awards payable under this Plan shall be payable in
shares or from the general assets of the Corporation, and no special or separate
reserve, fund or deposit shall be made to assure payment of such Awards. No
Participant, Beneficiary or other person shall have any right, title or interest
in any fund or in any specific asset (including shares of Common Stock, except
as expressly otherwise provided) of the Company by reason of any Award
hereunder. Neither the provisions of this Plan (or of any related documents),
nor the creation or adoption of this Plan, nor any action taken pursuant to the
provisions of this Plan shall create, or be construed to create, a trust of any
kind or a fiduciary relationship between the Company and any Participant,
Beneficiary or other person. To the extent that a Participant, Beneficiary or
other person acquires a right to receive payment pursuant to any Award
hereunder, such right shall be no greater than the right of any unsecured
general creditor of the Company.

     Section 6.2.   Adjustments; Acceleration.

 

(a)     Adjustments. If there shall occur any extraordinary dividend or other
extraordinary distribution in respect of the Common Stock (whether in the form
of cash, Common Stock, other securities, or other property), or any
reclassification, recapitalization, stock split (including a stock split in the
form of a stock dividend), reverse stock split, reorganization, merger,
combination, consolidation, split-up, spin-off, combination, or exchange of
Common Stock or other securities of the Corporation, or there shall occur any
other like corporate transaction or event in respect of the Common Stock or a
sale of substantially all the assets of the Corporation as an entirety, then the
Committee shall, in such manner and to such extent (if any) as it deems
appropriate and equitable (1) proportionately adjust any or all of (i) the
number and type of shares of Common Stock (or other securities) which thereafter
may be made the subject of Awards (including the specific numbers of shares set
forth elsewhere in this Plan), (ii) the number, amount and type of shares of
Common Stock (or other securities or property) subject to any or all outstanding
Awards, (iii) the grant, purchase, or exercise price of any or all outstanding
Awards, (iv) the securities, cash or other property deliverable upon exercise of
any outstanding Awards, or (v) the performance standards appropriate to any
outstanding Awards, or (2) in the case of an extraordinary dividend or other
distribution, recapitalization, reclassification, merger, reorganization,
consolidation, combination, sale of assets, split up, exchange, or spin off,
make provision for a cash payment or for the substitution or exchange of any or
all outstanding Awards or the cash, securities or property deliverable to the
holder of any or all outstanding Awards based upon the distribution or
consideration payable to holders of the Common Stock of the Corporation upon or
in respect of such event; provided, however, in each case, that with respect to
Awards of Incentive Stock Options, no such adjustment shall be made which would
cause the Plan to violate Section 424(a) of the Code or any successor provisions
thereto without the written consent of holders materially adversely affected
thereby. In any of such events, the Committee may take such action sufficiently
prior to such event if necessary to permit the Participant to realize the
benefits intended to be conveyed with respect to the underlying shares in the
same manner as is available to stockholders generally.

 

(b)     Acceleration of Awards Upon Change in Control. As to any Participant,
unless prior to a Change in Control Event the Committee determines that, upon
its occurrence, there shall be no acceleration of benefits under Awards or
determines that only certain or limited benefits under Awards shall be
accelerated and the extent to which they shall be accelerated, and/or
establishes a different time in respect of such Change in Control Event for such
acceleration, then upon the occurrence of a Change in Control Event (i) each
Option and Stock Appreciation Right shall become immediately exercisable, (ii)
Restricted Stock shall immediately vest free of restrictions, and (iii) each
Performance Share Award shall become payable to the Participant; provided,
however, that in no event shall any Award be accelerated as to any Section 16
Person to a date less than six months after the Award Date of such Award. The
Committee may override the limitations on acceleration in this Section 6.2(b) by
express provision in the Award Agreement and may accord any Eligible Person a
right to refuse any acceleration, whether pursuant to the Award Agreement or
otherwise, in such circumstances as the Committee may approve. Any acceleration
of Awards shall comply with applicable regulatory requirements, including
without limitation Section 422 of the Code.

 

(c)     Possible Early Termination of Accelerated Awards. If any Option or other
right to acquire Common Stock under this Plan has been fully accelerated as
permitted by Section 6.2(b) but is not exercised prior to (i) a dissolution of
the Corporation, or (ii) an event described in Section 6.2(a) that the
Corporation does not survive, or (iii) the consummation of an event described in
Section 6.2(a) that results in a Change in Control Event approved by the Board,
such Option or right shall thereupon terminate, subject to any provision that
has been expressly made by the Committee for the survival, substitution,
exchange or other settlement of such Option or right.

     Section 6.3.   Effect of Termination of Employment.

     The Committee shall establish in respect of each Award granted to an
Eligible Person the effect of a termination of employment on the rights and
benefits thereunder and in so doing may make distinctions based upon the cause
of termination. In addition, in the event of, or in anticipation of, a
termination of employment with the Company for any reason, other than discharge
for cause, the Committee may, in its discretion, increase the portion of the
Participant’s Award available to the Participant, or Participant’s Beneficiary
or Personal Representative, as the case may be, or, subject to the provisions of
Section 1.6, extend the exercisability period upon such terms as the Committee
shall determine and expressly set forth in or by amendment to the Award
Agreement.

     Section 6.4.   Compliance with Laws.

     This Plan, the granting and vesting of Awards under this Plan and the
offer, issuance and delivery of shares of Common Stock and/or the payment of
money under this Plan or under Awards granted hereunder are subject to
compliance with all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities law and federal
margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Corporation, be
necessary or advisable in connection therewith. Any securities delivered under
this Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Corporation, provide such assurances and
representations to the Corporation as the Corporation may deem necessary or
desirable to assure compliance with all applicable legal requirements.

     Section 6.5.   Tax Withholding.

     Upon any exercise, vesting, or payment of any Award or upon the disposition
of shares of Common Stock acquired pursuant to the exercise of an Incentive
Stock Option prior to satisfaction of the holding period requirements of Section
422 of the Code, the Company shall have the right at its option to (i) require
the Participant (or Personal Representative or Beneficiary, as the case may be)
to pay or provide for payment of the amount of any taxes which the Company may
be required to withhold with respect to such Award event or payment or (ii)
deduct from any amount payable in cash the amount of any taxes which the Company
may be required to withhold with respect to such cash payment. In any case where
a tax is required to be withheld in connection with the delivery of shares of
Common Stock under this Plan, the Committee may in its sole discretion grant
(either at the time of the Award or thereafter) to the Participant the right to
elect, pursuant to such rules and subject to such conditions as the Committee
may establish, to have the Corporation reduce the number of shares to be
delivered by (or otherwise reacquire) the appropriate number of shares valued at
their then Fair Market Value, to satisfy such withholding obligation.

     Section 6.6.   Plan Amendment, Termination and Suspension.

 

(a)     Board Authorization. The Board may, at any time, terminate or, from time
to time, amend, modify or suspend this Plan, in whole or in part. No Awards may
be granted during any suspension of this Plan or after termination of this Plan,
but the Committee shall retain jurisdiction as to Awards then outstanding in
accordance with the terms of this Plan.

 

(b)     Stockholder Approval. Any amendment that would (i) materially increase
the benefits accruing to Participants under this Plan, (ii) materially increase
the aggregate number of securities that may be issued under this Plan, or (iii)
materially modify the requirements as to eligibility for participation in this
Plan, shall be subject to stockholder approval only to the extent then required
by Section 422 of the Code or applicable law, or deemed necessary or advisable
by the Board.

 

(c)     Amendments to Awards. Without limiting any other express authority of
the Committee under but subject to the express limits of this Plan, the
Committee by agreement or resolution may waive conditions of or limitations on
Awards to Eligible Persons that the Committee in the prior exercise of its
discretion has imposed, without the consent of a Participant, and may make other
changes to the terms and conditions of Awards that do not affect in any manner
materially adverse to the Participant, his or her rights and benefits under an
Award.

 

(d)     Limitations on Amendments to Plan and Awards. No amendment, suspension
or termination of the Plan or change of or affecting any outstanding Award
shall, without written consent of the Participant, affect in any manner
materially adverse to the Participant any rights or benefits of the Participant
or obligations of the Corporation under any Award granted under this Plan prior
to the effective date of such change. Changes contemplated by Section 6.2 shall
not be deemed to constitute changes or amendments for purposes of this Section
6.6.

     Section 6.7.   Privileges of Stock Ownership.

     Except as otherwise expressly authorized by the Committee or this Plan, a
Participant shall not be entitled to any privilege of stock ownership as to any
shares of Common Stock not actually delivered to and held of record by him or
her. No adjustment will be made for dividends or other rights as a stockholders
for which a record date is prior to such date of delivery.

     Section 6.8.   Effective Date of the Plan.

     This Plan shall be effective as of February 28, 1997, the date of Board
approval, subject to stockholder approval within 12 months thereafter.

     Section 6.9.   Term of the Plan.

     No Award shall be granted more than ten years after the effective date of
this Plan (the “termination date”). Unless otherwise expressly provided in this
Plan or in an applicable Award Agreement, any Award granted prior to the
termination date may extend beyond such date, and all authority of the Committee
with respect to Awards hereunder, including the authority to amend an Award,
shall continue during any suspension of this Plan and in respect of outstanding
Awards on the termination date.

     Section 6.10.   Governing Law/Construction/Severability.

 

(a)     Choice of Law. This Plan, the Awards, all documents evidencing Awards
and all other related documents shall be governed by, and construed in
accordance with the laws of the state of incorporation of the Corporation.

 

(b)     Severability. If any provision shall be held by a court of competent
jurisdiction to be invalid and unenforceable, the remaining provisions of this
Plan shall continue in effect.

 

(c)     Plan Construction.

 

     (1)     Rule 16b-3. It is the intent of the Corporation that transactions
in and affecting Awards in the case of Participants who are or may be subject to
Section 16 of the Exchange Act satisfy any then applicable requirements of Rule
16b-3 so that such persons (unless they otherwise agree) will be entitled to the
benefits of Rule 16b-3 or other exemptive rules under Section 16 of the Exchange
Act in respect of these transactions and will not be subjected to avoidable
liability thereunder. If any provision of this Plan or of any Award would
otherwise frustrate or conflict with the intent expressed above, that provision
to the extent possible shall be interpreted so as to avoid such conflict. If the
conflict remains irreconcilable, the Committee may disregard the provision if it
concludes that to do so furthers the interest of the Corporation and is
consistent with the purposes of this Plan as to such persons in the
circumstances.

 

     (2)     Section 162(m). It is the further intent of the Company that
Options or Stock Appreciation Rights with an exercise or base price not less
than Fair Market Value on the date of grant and Performance Share Awards under
Section 5.2 of this Plan that are granted to or held by a Section 16 Person
shall qualify as performance-based compensation under Section 162(m) of the
Code, and this Plan shall be interpreted consistent with such intent.

     Section 6.11.    Captions.

     Captions and headings are given to the sections and subsections of this
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.

     Section 6.12.   Effect of Change of Subsidiary Status.

     For purposes of this Plan and any Award hereunder, if an entity ceases to
be a Subsidiary a termination of employment and service shall be deemed to have
occurred with respect to each Eligible Person in respect of such Subsidiary who
does not continue as an Eligible Person in respect of another entity within the
Company.

     Section 6.13.   Non-Exclusivity of Plan.

     Nothing in this Plan shall limit or be deemed to limit the authority of the
Board or the Committee to grant awards or authorize any other compensation, with
or without reference to the Common Stock, under any other plan or authority.

ARTICLE VII.   DEFINITIONS.

     Section 7.1.   Definitions.

     “Award” shall mean an award of any Option, Stock Appreciation Right,
Restricted Stock, Stock Bonus, Performance Share Award, Performance-Based Award,
dividend equivalent or deferred payment right or other right or security that
would constitute a “derivative security” under Rule 16a-1(c) of the Exchange
Act, or any combination thereof, whether alternative or cumulative, authorized
by and granted under this Plan.

     “Award Agreement” shall mean any writing setting forth the terms of an
Award that has been authorized by the Committee.

     “Award Date” shall mean the date upon which the Committee took the action
granting an Award or such later date as the Committee designates as the Award
Date at the time of the Award.

     “Award Period” shall mean the period beginning on an Award Date and ending
on the expiration date of such Award.

     “Beneficiary” shall mean the person, persons, trust or trusts designated by
a Participant or, in the absence of a designation, entitled by will or the laws
of descent and distribution, to receive the benefits specified in the Award
Agreement and under this Plan in the event of a Participant’s death, and shall
mean the Participant’s executor or administrator if no other Beneficiary is
designated and able to act under the circumstances.

     “Board” shall mean the Board of Directors of the Corporation.

     “Cash Flow” shall mean cash and cash equivalents derived from either (i)
net cash flow from operations or (ii) net cash flow from operations, financings
and investing activities, as determined by the Committee at the time an Award is
granted.

     “Change in Control Event” shall mean any of the following:

  (1)      Approval by the stockholders of the Corporation of the dissolution or
liquidation of the Corporation;

  (2)      Approval by the stockholders of the Corporation of an agreement to
merge or consolidate, or otherwise reorganize, with or into one or more entities
that are not Subsidiaries, as a result of which less than 50% of the outstanding
voting securities of the surviving or resulting entity immediately after the
reorganization are, or will be, owned, directly or indirectly, by stockholders
of the Corporation immediately before such reorganization (assuming for purposes
of such determination that there is no change in the record ownership of the
Corporation’s securities from the record date for such approval until such
reorganization and that such record owners hold no securities of the other
parties to such reorganization); provided that an event described in this clause
(2) shall not constitute a Change in Control Event if the majority of members of
the Board of the surviving entity is comprised of individuals who were members
of the Board immediately prior to such event;

  (3)      Approval by the stockholders of the Corporation of the sale of
substantially all of the Corporation’s business and/or assets to a person or
entity which is not a Subsidiary;

  (4)      Any “person” (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act but excluding any person described in and satisfying the conditions
of Rule 13d-1(b)(1) thereunder), becomes the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Corporation representing more than 50% of the combined voting power of the
Corporation’s then outstanding securities entitled to then vote generally in the
election of directors of the Corporation; or

  (5)      At any time during the term of this Plan, 51% or more of the
individuals elected to serve, and who are then serving, on the Board are
individuals who were not (i) members of the Board at the time of the adoption of
this Plan by the Board, or (ii) nominated or elected to their current term of
office as a director by a committee of the Board which is authorized to fill
vacancies on the Board (or if there is no such committee, by a majority of the
Board in office at the time of such individual’s nomination or election by the
Board to fill a vacancy), or (iii) approved by a majority of members of the
Board who were either members of the Board at the time this Plan was adopted by
the Board, or nominated or elected as described in clause (5) (ii) above.

     “Code” shall mean the Internal Revenue Code of 1986, as amended from time
to time.

     “Commission” shall mean the Securities and Exchange Commission.

     “Committee” shall mean the Board or a committee appointed by the Board to
administer this Plan, which committee shall be comprised only of two or more
directors or such greater number of directors as may be required under
applicable law, each of whom, (i) in respect of any decision at a time when the
Participant affected by the decision may be subject to Section 162(m) of the
Code, shall be an “outside” director within the meaning of Section 162(m) of the
Code, and (ii) in respect of any decision affecting a transaction at a time when
the Participant involved in the transaction may be subject to Section 16 of the
Exchange Act, shall be a “non-employee director” within the meaning of Rule
16b-3(b)(3) promulgated under the Exchange Act.

     “Common Stock” shall mean the Common Stock of the Corporation and such
other securities or property as may become the subject of Awards, or become
subject to Awards, pursuant to an adjustment made under Section 6.2 of this
Plan.

     “Company” shall mean, collectively, the Corporation and its Subsidiaries.

     “Corporation” shall mean Apria Healthcare Group Inc., a Delaware
corporation, and its successors.

     “Disinterested” shall mean disinterested within the meaning of any
applicable regulatory requirements, including Rule 16b-3.

     “EBITDA” shall mean earnings before interest, taxes, depreciation and
amortization.

     “Eligible Employee” shall mean an officer (whether or not a director) or
key employee of the Company.

     “Eligible Person” means an Eligible Employee, or any Other Eligible Person,
as determined by the Committee in its discretion.

     “EPS” shall mean earnings per common share on a fully diluted basis
determined by dividing (i) net earnings, less dividends on preferred stock of
the Corporation by (ii) the weighted average number of common shares and common
shares equivalents outstanding.

     “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended.

     “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended
from time to time.

     “Fair Market Value” on any date shall mean (i) if the stock is listed or
admitted to trade on a national securities exchange, the closing price of the
stock on the principal national securities exchange on which the stock is so
listed or admitted to trade, on such date, or, if there is no trading of the
stock on such date, then the closing price of the stock on the next preceding
date on which there was trading in such shares; (ii) if the stock is not listed
or admitted to trade on a national securities exchange, the last price for the
stock on such date, as furnished by the National Association of Securities
Dealers, Inc. (“NASD”) through the NASDAQ National Market Reporting System or a
similar organization if the NASD is no longer reporting such information;
(iii) if the stock is not listed or admitted to trade on a national securities
exchange and is not reported on the National Market Reporting System, the mean
between the bid and asked price for the stock on such date, as furnished by the
NASD or a similar organization; or (iv) if the stock is not listed or admitted
to trade on a national securities exchange, is not reported on the National
Market Reporting System and if bid and asked prices for the stock are not
furnished by the NASD or a similar organization, the value as established by the
Committee at such time for purposes of this Plan.

     “Free Cash Flow” shall mean cash postings less cost of sales, operating
expenses (net of bad debt) and capital expenditures.

     “Incentive Stock Option” shall mean an Option which is intended, as
evidenced by its designation, as an incentive stock option within the meaning of
Section 422 of the Code, the award of which contains such provisions (including
but not limited to the receipt of stockholder approval of this Plan, if the
Award is made prior to such approval) and is made under such circumstances and
to such persons as may be necessary to comply with that section.

     “Nonqualified Stock Option” shall mean an Option that is designated as a
Nonqualified Stock Option and shall include any Option intended as an Incentive
Stock Option that fails to meet the applicable legal requirements thereof. Any
Option granted hereunder that is not designated as an incentive stock option
shall be deemed to be designated a nonqualified stock option under this Plan and
not an incentive stock option under the Code.

     “Non-Employee Director” shall mean a member of the Board of Directors of
the Corporation who is not an officer or employee of the Company.

     “Option” shall mean an option to purchase Common Stock granted under this
Plan. The Committee shall designate any Option granted to an Eligible Person as
a Nonqualified Stock Option or an Incentive Stock Option.

     “Other Eligible Person” shall mean any Non-Employee Director or any
individual consultant or advisor who renders or has rendered bona fide services
(other than services in connection with the offering or sale of securities of
the Company in a capital raising transaction) to the Company, and who is
selected to participate in this Plan by the Committee. A non-employee agent
providing bona fide services to the Company (other than as an eligible advisor
or consultant) may also be selected as an Other Eligible Person if such agent’s
participation in this Plan would not adversely affect (i) the Corporation’s
eligibility to use Form S-8 to register under the Securities Act of 1933, as
amended, the offering of shares issuable under this Plan by the Company or (ii)
the Corporation’s compliance with any other applicable laws.

     “Participant” shall mean an Eligible Person who has been granted an Award
under this Plan.

     “Performance-Based Award” shall mean an Award of a right to receive shares
of Common Stock or other compensation (including cash) under Section 5.2, the
issuance or payment of which is contingent upon, among other conditions, the
attainment of performance objectives specified by the Committee.

     “Performance Goal” shall mean EBITDA or EPS or ROE or Cash Flow or Free
Cash Flow, or sales growth, or cost containment or reduction, or Total
Stockholder Return, and “Performance Goals” means any one or more thereof.

     “Performance Share Award” shall mean an Award of a right to receive shares
of Common Stock made in accordance with Section 5.1, the issuance or payment of
which is contingent upon, among other conditions, the attainment of performance
objectives specified by the Committee.

     “Personal Representative” shall mean the person or persons who, upon the
disability or incompetence of a Participant, shall have acquired on behalf of
the Participant, by legal proceeding or otherwise, the power to exercise the
rights or receive benefits under this Plan and who shall have become the legal
representative of the Participant.

     “Plan” shall mean this 1997 Stock Incentive Plan.

     “QDRO” shall mean a qualified domestic relations order as defined in
Section 414(p) of the Code or Title I, Section 206(d)(3) of ERISA (to the same
extent as if this Plan were subject thereto), or the applicable rules
thereunder.

     “Restricted Stock Award” shall mean an award of a fixed number of shares of
Common Stock to the Participant subject, however, to payment of such
consideration, if any, and such forfeiture provisions, as are set forth in the
Award Agreement.

     “Restricted Stock” shall mean shares of Common Stock awarded to a
Participant under this Plan, subject to payment of such consideration, if any,
and such conditions on vesting and such transfer and other restrictions as are
established in or pursuant to this Plan, for so long as such shares remain
unvested under the terms of the applicable Award Agreement.

     “ROE” shall mean consolidated net income of the Corporation (less preferred
dividends), divided by the average consolidated common stockholders equity.

     “Rule 16b-3” shall mean Rule 16b-3 as promulgated by the Commission
pursuant to the Exchange Act, as amended from time to time.

     “Section 16 Person” shall mean a person subject to Section 16(a) of the
Exchange Act.

     “Securities Act” shall mean the Securities Act of 1933, as amended from
time to time.

     “Stock Appreciation Right” shall mean a right to receive a number of shares
of Common Stock or an amount of cash, or a combination of shares and cash, the
aggregate amount or value of which is determined by reference to a change in the
Fair Market Value of the Common Stock that is authorized under this Plan.

     “Stock Bonus” shall mean an Award of shares of Common Stock granted under
this Plan for no consideration other than past services and without restriction
other than such transfer or other restrictions as the Committee may deem
advisable to assure compliance with law.

     “Subsidiary” shall mean any corporation or other entity a majority of whose
outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Corporation.

     “Total Disability” shall mean a “permanent and total disability” within the
meaning of Section 22(e)(3) of the Code and (except in the case of a
Non-Employee Director) such other disabilities, infirmities, afflictions or
conditions as the Committee by rule may include.

     “Total Stockholder Return” shall mean with respect to the Corporation or
other entities (if measures on a relative basis), the (i) change in the market
price of its common stock (as quoted in the principal market on which it is
traded as of the beginning and ending of the period) plus dividends and other
distributions paid, divided by (ii) the beginning quoted market price, all of
which is adjusted for any changes in equity structure, including but not limited
to stock splits and stock dividends.

     Section 7.2.   Changes in Applicable Law.

     To the extent any terms defined or utilized in this Plan are defined by
identification to a particular statute or regulation, and if there shall occur a
change in such statutory or regulatory definition, then the definition of such
term shall be deemed to have been amended to conform to the change in the
statutory or regulatory definition, unless the Committee shall determine that
such change would create a result which is contrary to the intents and purposes
of this Plan or work to create a hardship for either any Eligible Person or the
Company, in which event the Committee, at its option, shall have authority to
amend this Plan in a manner so as to achieve the original intents and purposes
of this Plan or to diminish or eliminate the hardship caused by such change in a
statutory definition. Any such amendment may be made retroactively to the date
of the change in the statutory or regulatory definition.

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