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                                                                    EXHIBIT 10.1

                            SMITH INTERNATIONAL, INC.

                   1989 LONG-TERM INCENTIVE COMPENSATION PLAN
                (As Amended and Restated as of February 2, 2000)


1.       PURPOSE OF THE PLAN

     The purpose of the 1989 Long-Term Incentive Compensation Plan (the "Plan")
     is to advance the interests of Smith International, Inc. (the "Company")
     and its shareholders by strengthening the ability of the Company to attract
     and retain in its employ persons of training, experience and ability, and
     to furnish additional incentives to officers and valued employees of the
     Company upon whose judgment, initiative and efforts the successful conduct
     and development of the business of the Company largely depends.


2.       DEFINITIONS

     Whenever the following terms are used in this Plan, they shall have the
     meaning specified below unless the context clearly indicates to the
     contrary.


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

         "Cash Award" shall mean a cash award granted pursuant to Section 1 of
the Plan.

         "Committee" shall mean the Compensation and Benefits Committee of the
Board of Directors, unless the Board of Directors appoints another committee to
administer the Plan. The Committee shall consist of not less than two directors
who fulfill the "nonemployee director" requirements of Rule 16b-3 under the
Securities Exchange Act of 1934 and the "outside director" requirements of
Section 162(m) of the Internal Revenue Code.

         The Board of Directors shall have the power to fill vacancies on the
Committee arising by resignation, death, removal or otherwise. The Board of
Directors, in its discretion, may bifurcate the powers and duties of the
Committee among one or more separate committees, or retain all powers and duties
of the Committee in a single Committee.

         "Common Stock" shall mean the common shares, $1.00 par value of the
Company and any class of common shares into which such common shares may
hereafter be converted.

         "Company" shall mean Smith International, Inc.

         "Covered Employee" shall mean a named executive officer who is one of
the group of covered employees, as defined in Section 162(m) of the Internal
Revenue Code and Treasury Regulation Section 1.162-27(c) (or its successor).

         "Director" shall mean a member of the Board of Directors.

         "Disinterested Person" shall have the meaning assigned to that term
under the rules and regulations of the Securities and Exchange Commission under
the Exchange Act.

         "Eligible Person" shall mean a person eligible to receive an Incentive
Award.

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         "Employee" shall mean any employee of the Company, or of any of its
present or future parent or subsidiary corporations, or a corporation (or a
parent or subsidiary corporation of such corporation) issuing or assuming an
Option in a transaction to which Section 425(a) of the Internal Revenue Code
applies, whether such Employee is so employed at the time this Plan is adopted
or becomes so employed subsequent to adoption of this Plan.

         "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

         "Fair Market Value" shall mean the average of the high and low prices
of a share of Common Stock on the New York Stock Exchange on the date as of
which fair market value is to be determined, or if no such sales were made on
such date, the closing price of such shares on the New York Stock Exchange on
the next preceding date on which there were such sales; provided, however, that
the Committee may utilize such other listing or reporting services that in its
judgment provide an accurate index of the fair market value of the Common Stock.

         "Holder" shall mean a person holding an Incentive Award.

         "Incentive Award" shall mean an Option, Stock Appreciation Right,
Restricted Stock, Stock Award or Cash Award granted under the Plan.

         "Insider" shall mean, while the Company is a Publicly Held Corporation,
an individual who is, on the relevant date, an officer, director, or ten percent
(10%) beneficial owner of any class of the Company's equity securities that is
registered pursuant to Section 12 of the Exchange Act, all as defined under
Section 16 of the Exchange Act.

         "Nonstatutory Stock Option" shall mean an option granted pursuant to
Section 7 of the Plan.

         "Option" shall mean a Nonstatutory Stock Option.

         "Optionee" shall mean any person holding an Option granted under the
Plan.

         "Parent corporation" and "subsidiary corporation" shall have the
meanings assigned to them in Sections 425(e) and 425(f) of the Internal Revenue
Code.

         "Performance-Based Exception" shall mean the exception from the tax
deductibility limitations of Section 162(m) of the Internal Revenue Code, as
prescribed in Section 162(m) and Treasury Regulation Section 1.162-27(e) (or its
successor).

         "Plan" shall mean the Smith International, Inc. 1989 Long-Term
Incentive Compensation Plan as set forth herein, as the same may be amended from
time to time.

         "Publicly Held Corporation" shall mean an issuer (as defined in Section
3 of the Exchange Act), the securities of which are registered under Section 12
of the Exchange Act or that is required to file reports under Section 15(d) of
the Exchange Act.

         "Stock Appreciation Right" shall mean a right granted pursuant to
Section 8 or Section 9 of the Plan to receive a number of shares of Common Stock
or, in the discretion of the Committee, an amount of cash or a combination of
shares and cash, based on the increase in the Fair Market Value of the shares
subject to the right.

         "Stock Award" shall mean a stock award granted pursuant to Section 10
of the Plan.

3.         SHARES OF COMMON STOCK SUBJECT TO THE PLAN

         (a) Effective as of June 20, 2002, subject to Section 3(c) and Section
12 of the Plan, the aggregate number of shares of Common Stock that may be
issued or transferred or as to which Stock Appreciation Rights may be exercised
pursuant to Incentive Awards under the Plan shall not exceed 14,400,000 shares.

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         Unless the Committee determines that a particular Incentive Award
granted to a Covered Employee is not intended to comply with the
Performance-Based Exception, the following rules shall apply to grants of
Incentive Awards to Covered Employees:


                  (1) Subject to adjustment as provided in Section 12, the
         maximum aggregate number of shares of Common Stock that may be granted
         or that may vest, as applicable, in any calendar year pursuant to any
         Incentive Award held by any individual Covered Employee shall be One
         Million (1,000,000) shares.

                  (2) The maximum aggregate cash payout with respect to any
         Incentive Awards granted in any calendar year which may be made to any
         Covered Employee shall be Ten Million dollars ($10,000,000).

                  (3) With respect to any Incentive Award granted to a Covered
         Employee that is canceled or repriced, the number of shares subject to
         such Incentive Award shall continue to count against the maximum number
         of shares that may be the subject of Incentive Awards granted to such
         Covered Employee and, in this regard, such maximum number shall be
         determined in accordance with Section 162(m) of the Internal Revenue
         Code.

                  (4) The limitations of subsections (1), (2) and (3) above
         shall be construed and administered so as to comply with the
         Performance-Based Exception.

         (b) The shares to be delivered under the Plan shall be made available,
at the discretion of the Board of Directors or the Committee, either from
authorized but unissued shares of Common Stock or from previously issued shares
of Common Stock reacquired by the Company, including shares purchased on the
open market. Common Stock issued under the Plan in connection with restricted
stock or stock awards shall be issued shares held as treasury shares.

         (c) If any shares of Common Stock subject to an Option are not issued
or transferred and cease to be issuable or transferable for any reason, the
shares not so issued or transferred shall no longer be charged against the
limitation provided for in Section 3(a) and may again be made subject to
Incentive Awards. However, shares as to which an Option has been surrendered in
connection with the exercise of a related Stock Appreciation Right shall not
again be available for the grant of any further Incentive Awards. If a Stock
Appreciation Right not related to an Option expires or terminates without having
been exercised, then the number of shares of Common Stock with respect to which
the unexercised portion of such Stock Appreciation Right was granted shall no
longer be charged against the limitation provided for in Section 3(a) and may
again be made subject to Incentive Awards.

         (d) The Committee may, in its discretion, determine to cancel, and
agree to the cancellation of, Options in order to make a participant eligible
for the grant of an Option at a lower price than the option cancelled.

         (e) In the event that shares of Common Stock are issued as restricted
stock or pursuant to a stock award and thereafter are forfeited or reacquired by
the Company pursuant to rights reserved upon issuance thereof, such forfeited
and reacquired shares may again be issued under the Plan, either as restricted
stock, pursuant to stock awards or otherwise.


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4.        ADMINISTRATION OF THE PLAN

         (a) The Plan shall be administered by the Committee, which shall
consist of three or more persons (i) who are not eligible to receive Incentive
Awards under the Plan, (ii) who have not been eligible, at any time within one
year prior to appointment to the Committee, for selection as persons to whom
Incentive Awards may be granted pursuant to the Plan or to whom shares may be
allocated or stock options or stock appreciation rights may be granted pursuant
to any other plan of the Company or any of its affiliates entitling the
participants therein to acquire stock, stock appreciation rights or options of
the Company or any of its affiliates and (iii) who are Disinterested Persons.
All members of the Committee shall be Disinterested Persons. The Board of
Directors may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, however caused, shall be filled only by
the Board of Directors. The Board of Directors may take any action permitted to
be taken by the Committee if a majority of the Directors are Disinterested
Persons.

         (b) The Committee shall have and may exercise such powers and authority
of the Board of Directors as may be necessary or appropriate for the Committee
to carry out its functions as described in the Plan, and any references in the
Plan to any specific power or authority of the Committee shall not derogate from
the foregoing. The Committee shall have authority in its discretion to determine
the Eligible Persons to whom, and the time or times at which, Incentive Awards
may be granted and the number of shares subject to each Incentive Award. Subject
to the express provisions of the Plan, the Committee shall also have authority
to interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to it, to determine the terms and provisions of the respective
Incentive Award agreements (which need not be identical) and to make all other
determinations necessary or advisable for the administration of the Plan. All
interpretations, determinations and actions by the Committee shall be final,
conclusive and binding upon all parties.

         (c) No member of the Board of Directors or the Committee shall be
liable for any action or determination made in good faith by the Board of
Directors or the Committee with respect to the Plan or any Incentive Award
thereunder.

5.        ELIGIBILITY

         (a) All full-time salaried Employees (including officers and directors,
but excluding directors of the Company who are not also full-time employees of
the Company) who are engaged in performing management, supervisory, sales,
scientific or engineering services or who have been determined by the Committee
to be key Employees are eligible to receive Incentive Awards under the Plan.
Eligible employees may be designated individually or by groups or categories
(for example, by pay grade) as the Committee deems appropriate. Participation by
officers of the Company and any performance objectives relating to such officers
must be approved by the Committee. Participation by persons other than officers
and any performance objectives relating thereto may be approved by groups or
categories (for example, by pay grade) and authority to designate participants
who are not officers and to set or modify such targets may be delegated. The
Committee shall have authority, in its sole discretion, to determine and
designate from time to time those Eligible Persons who are to be granted
Incentive Awards, the type of Incentive Award to be granted, and the number of
shares of Common Stock or the amount of cash subject to each Incentive Award. In
making such determinations, the Committee may take into account the nature of
the services rendered by the respective Eligible Persons, their present and
potential contributions to the Company's success and such other factors as the
Committee in its sole discretion shall deem relevant.

         (b) An Eligible Person who has been granted an Incentive Award may, if
he is otherwise eligible, be granted an additional Incentive Award.

         (c) No Insider shall be eligible to be granted an Incentive Award that
may be subject to Rule 16a-3 under the Exchange Act unless and until such
Insider has granted a limited power of attorney to those officers of the Company
who have been designated by the Committee for purposes of making required
filings under the Exchange Act.

6.        FORMS OF INCENTIVE AWARDS

          Incentive Awards may be granted in the following forms:

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         (a) Nonstatutory Stock Option in accordance with Section 7 of the Plan;

         (b) Stock Appreciation Right, related to an Option in accordance with
Section 8 of the Plan;

         (c) Stock Appreciation Right not related to an Option in accordance
with Section 9 of the Plan;

         (d) Stock Award in accordance with Section 10 of the Plan;

         (e) Restricted Stock in accordance with Section 10 of the Plan;

         (f) Cash Award in accordance with Section 11 of the Plan; or

         (g) Any combination of the foregoing.

7.        NONSTATUTORY STOCK OPTIONS

         The Committee may at any time and from time to time approve the grant
by the Company of Nonstatutory Stock Options to Eligible Persons to purchase
shares of Common Stock of the Company, and determine the specific Eligible
Persons to whom such Options may be granted, the number of shares subject to
each Option, the terms and provisions of the Option agreement, and the time or
times at which such Options may be exercised, subject to the following terms and
conditions:

         (a) The date of grant shall be the date the Committee takes the
necessary action to approve the grant; provided, however, that if the minutes or
appropriate resolutions of the Committee provide that an Option is to be granted
as of a date in the future, the date of grant shall be such future date. In any
event, the intended Optionee must be an Eligible Person on the date of grant.

         (b) The purchase price of Common Stock under each Nonstatutory Stock
Option shall be determined by the Committee, and will have an exercise price of
not less than the Fair Market Value of the Common Stock on the date the Option
is granted, subject to adjustment as provided in section 12 below. Options
cannot be cancelled and regranted at a lower price.

         (c) Each Nonstatutory Stock Option shall become exercisable at such
time or times during its term as shall be determined by the Committee at the
time of grant. The Committee may accelerate the exercisability of any stock
option. Subject to the foregoing and with the approval of the Committee, all or
any part of the shares of Common Stock with respect to which the right to
purchase has accrued may be purchased by the Company at the time of such accrual
or at any time or times thereafter during the term of the Option.

         (d) No Nonstatutory Stock Option may be exercised after ten years from
the date the Option is granted.

         (e) Upon the exercise of a Nonstatutory Stock Option, the purchase
price shall be payable in full in cash or its equivalent acceptable to the
Company. In the discretion of the Committee, the purchase price may be paid by
the assignment and delivery to the Company of shares of Common Stock or a
combination of cash and such shares equal in value to the Option exercise price.
Any shares so assigned and delivered to the Company in payment or partial
payment of the purchase price shall be valued at their Fair Market Value on the
exercise date.

         (f) No fractional shares shall be issued pursuant to the exercise of a
Nonstatutory Stock Option, nor shall any cash payment be made in lieu thereof.

         (g) A Nonstatutory Stock Option shall not be assignable or transferable
by the Optionee to whom granted otherwise than by will or the laws of descent
and distribution, and may be exercised during the lifetime of the Optionee only
by the Optionee; provided, however, that the Optionee may transfer an Option for
estate planning


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purposes for no consideration to (i) any member of his immediate family, (ii)
any trust or entity created solely for the benefit of the Optionee or the
members of the Optionee's immediate family or (iii) any custodian under the
Uniform Transfers to Minors Act or any similar act in effect in any state solely
for the benefit of a member of the Optionee's immediate family, and the trustee
or the transferee may exercise the transferred Option during or after the
lifetime of the Optionee, provided that the trustee or the transferee will
remain subject to all the terms and conditions applicable to the Option set
forth in the Plan or the Option agreement. For purposes of this Section 7(g),
"immediate family" means the Optionee's spouse, children and grandchildren. The
provisions of this Section 7(g) shall apply to all past and future Options
granted under the Plan regardless of the date of grant.

         (h) No person shall have the rights and privileges of a shareholder
with respect to shares subject to or purchased under a Nonstatutory Stock Option
until the date appearing on the stock certificate issued upon the exercise of
the Option.

         (i) To the extent that a Nonstatutory Stock Option is exercised, any
related Stock Appreciation Right shall be proportionately reduced by a number of
shares equal to the number of shares with respect to which the Option is
exercised.

         (j) Upon approval of the Committee, the Company may repurchase a
previously granted stock option from an Optionee by mutual agreement before such
option has been exercised by payment to the Optionee of the amount per share by
which: (i) the Fair Market Value of the Common Stock subject to the option on
the date of purchase exceeds (ii) the option price.

         (k) Each Nonstatutory Stock Option shall be evidenced by a written
agreement and may, but need not, include any other terms and conditions not
inconsistent with the Plan as the Committee may approve.

8.        STOCK APPRECIATION RIGHTS RELATED TO OPTIONS

          The Committee may at any time and from time to time approve the grant
by the Company of Stock Appreciation Rights to Eligible Persons that are related
to Nonstatutory Stock Options, and determine the specific Eligible Persons to
whom Stock Appreciation Rights may be granted, the terms and provisions of the
Stock Appreciation Rights agreements, and the time or times at which such Stock
Appreciation Rights may be exercised, subject to the following terms and
conditions:

         (a) The date of grant shall be the date the Committee takes the
necessary action to approve the grant; provided, however, that, if the minutes
of appropriate resolutions of the Committee provide that a Stock Appreciation
Right is to be granted as of a date in the future, the date of grant shall be
such future date. In any event, the intended Optionee must be an Eligible Person
on the date of grant.

         (b) A Stock Appreciation Right may be granted in connection with a
Nonstatutory Stock Option, either at the time of the grant of such Option or at
any time thereafter during the term of the Option.

         (c) A Stock Appreciation Right shall entitle the Holder of the related
Option, upon exercise of the Stock Appreciation Right, to surrender such Option,
or any portion thereof to the extent unexercised (subject to a limitation of 50%
of the shares of Common Stock subject to the Option), with respect to the number
of shares as to which Stock Appreciation Right is exercised, and to receive
payment of an amount computed pursuant to Section 8(e). Such Option shall, to
the extent so surrendered, thereupon cease to be exercisable.

         (d) Subject to Section 8(g), a Stock Appreciation Right granted
hereunder shall be exercisable at such time or times, and only to the extent,
that a related Option is exercisable and shall not be transferable except to the
extent that such related Option may be transferable. The Stock Appreciation
Right shall be exercisable only by the Holder thereof or by such other person or
entity entitled to exercise the related Option in the event of the death of the
Holder.

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         (e) Subject to the right of the Committee to deliver cash in lieu of
shares of Common Stock, the number of shares of Common Stock which shall be
issuable upon the exercise of a Stock Appreciation Right shall be determined by
dividing:

                  (i) the number of shares of Common Stock as to which the Stock
         Appreciation Right is exercised multiplied by the amount of the
         appreciation in such shares (for this purpose, "appreciation" shall
         mean the amount by which the Fair Market Value of the shares of Common
         Stock subject to the Stock Appreciation Right on the exercise date
         exceeds an amount which shall be determined by the Committee at the
         time of grant, which amount for a Director or an executive officer (or
         equivalent thereof) of the Company, shall not be less than the Fair
         Market Value of a share of Common Stock at the time of grant); by

                  (ii) the Fair Market Value of a share of Common Stock on the
         exercise date.

         (f) In lieu of issuing shares of Common Stock upon the exercise of a
Stock Appreciation Right, the Committee may elect to pay the holder of the Stock
Appreciation Right cash equal to the Fair Market Value on the exercise date of
any or all of the shares which would otherwise be issuable. No fractional shares
of Common Stock shall be issued upon the exercise of a Stock Appreciation Right;
instead, the holder of the Stock Appreciation Right shall be entitled to receive
a cash adjustment equal to the same fraction of the Fair Market Value of a share
of Common Stock on the exercise date or to purchase the portion necessary to
make a whole share at its Fair Market Value on the date of exercise.

         (g) The Committee may impose such conditions on the exercise of a Stock
Appreciation Right as may be required to satisfy the requirements of Rule 16b-3
under the Securities Exchange Act of 1934 (or any other comparable provisions in
effect at the time or times in question). Without limiting the generality of the
foregoing, the Committee may determine that a Stock Appreciation Right may be
exercised only during the period beginning on the third business day and ending
on the twelfth business day following the publication of the Company's quarterly
and annual summarized financial data. Such publication shall be deemed to occur
when the data first appears on a wire service, in a financial news service or in
a newspaper of general circulation. The Company may provide written notification
to the Holder of a Stock Appreciation Right specifying the date on which such
financial data was published.

         (h) No Stock Appreciation Right or related Option granted to an officer
of the Company may be exercised prior to six months after the date of grant
except in the event death or disability of the officer occurs prior to the
expiration of the six-month period.

         (i) Each Stock Appreciation Right shall be evidenced by a written
instrument and may, but need not, include any other terms and conditions not
inconsistent with the Plan as the Committee may approve.

9.        STOCK APPRECIATION RIGHTS UNRELATED TO OPTIONS

         The Committee may at any time and from time to time approve the grant
by the Company to Eligible Persons of Stock Appreciation Rights that are
unrelated to Options, and determine the specific Eligible Persons to whom such
Stock Appreciation Rights may be granted, the terms and provisions of the Stock
Appreciation Rights agreements, and the time or times at which such Stock
Appreciation Rights may be exercised, subject to the following terms and
conditions.

         (a) The date of grant shall be the date the Committee takes the
necessary action to approve the grant; provided, however, that if the minutes or
appropriate resolutions of the Committee provide that a Stock Appreciation Right
is to be granted as of a date in the future, the date of grant shall be such
future date. In any event, the intended Eligible Person must be an Eligible
Person on the date of grant.

         (b) A Stock Appreciation Right shall entitle the Holder, upon exercise
of the Stock Appreciation Right, to receive payment of an amount determined by
dividing:

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                  (i) the number of shares of Common Stock as to which the Stock
         Appreciation Right is exercised multiplied by the amount of the
         appreciation in such shares (for this purpose, "appreciation" shall
         mean the amount by which the Fair Market Value of the shares of Common
         Stock subject to the Stock Appreciation Right on the exercise date
         exceeds an amount which shall be determined by the Committee at the
         time of grant, which amount for a Director or an executive officer (or
         equivalent thereof) of the Company, shall not be less than the Fair
         Market Value of a share of Common Stock at the time of grant); by

                  (ii) the Fair Market Value of a share of Common Stock on the
         exercise date.

         (c) In lieu of issuing shares of Common Stock upon the exercise of a
Stock Appreciation Right, the Committee may elect to pay the holder of the Stock
Appreciation Right cash equal to the Fair Market Value on the exercise date of
any or all of the shares which would otherwise be issuable. No fractional shares
of Common Stock shall be issued upon the exercise of a Stock Appreciation Right;
instead, the holder of the Stock Appreciation Right shall be entitled to receive
a cash adjustment equal to the same fraction of the Fair Market Value of the
share of Common Stock on the exercise date or to purchase the portion necessary
to make a whole share at its Fair Market Value on the date of exercise.

         (d) The Committee may impose such conditions on the exercise of a Stock
Appreciation Right granted hereunder as may be required to satisfy the
requirements of Rule 16b-3 under the Securities Exchange Act of 1934 (or any
other comparable provisions in effect at the time or times in question). Without
limiting the generality of the foregoing, the Committee may determine that a
Stock Appreciation Right may be exercised only during the period beginning on
the third business day and ending on the twelfth business day following the date
of publication of the Company's quarterly and annual summarized financial data.
Such publication shall be deemed to occur when the data first appears on the
wire service, in a financial news service or in a newspaper of general
circulation. The Company may provide written notification to the Holder of a
Stock Appreciation Right specifying the date on which such financial data was
published.

         (e) No Stock Appreciation Right granted to an officer of the Company
may be exercised prior to six months after the date of grant except in the event
death or disability of the officer occurs prior to the expiration of said
six-month period.

         (f) A Stock Appreciation Right shall not be assignable or transferable
by the Holder otherwise than by will or the laws of descent and distribution,
and may be exercised during the lifetime of the Holder only by the Holder.

         (g) Each Stock Appreciation Right hereunder shall be evidenced by a
written instrument and may, but need not, include any other terms and condition
not inconsistent with the Plan as the Committee may approve.

10.      STOCK AWARD AND RESTRICTED STOCK

         The Committee may at any time and from time to time approve the grant
by the Company of a Stock Award or Restricted Stock to Eligible Persons, and
determine the specific Eligible Persons to whom such Stock awards and restricted
stock may be granted, the number of shares to be granted and the terms and
provisions of such award of Common Stock. A stock award consists of the transfer
by the Company to a participant of shares of Common Stock, without other payment
therefor, as additional compensation for his/her services to the Company. A
share of restricted stock consists of shares of Common Stock which are sold or
transferred by the Company to a participant at a price which may be below their
Fair Market Value or for no payment, but subject to restrictions on their sale
or other transfer by the participant. The transfer of Common Stock pursuant to
stock awards and the transfer and sale of restricted stock shall be subject to
the following terms and conditions:

         (a) The number of shares to be transferred or sold by the Company to a
participant pursuant to a stock award or as restricted stock shall be determined
by the Committee. The criteria of the grant of performance based restricted
stock will be established by the Committee at the date the restricted stock is
granted. If the Committee elects to grant time-based restricted stock, such
restricted stock shall vest over at least a three (3) year period.

<PAGE>

         (b) The Committee shall determine the prices, if any, at which shares
of restricted stock shall be sold to a participant, which may vary from time to
time and among participants and which may be below the Fair Market Value of such
shares of Common Stock at the date of sale.

         (c) All shares of restricted stock transferred or sold hereunder shall
be subject to such restrictions as the Committee may determine, including,
without limitation any or all of the following:

                  (i) A prohibition against the sale, transfer, pledge or other
         encumbrance of the shares of restricted stock, such prohibition to
         lapse at such time or times as the Committee shall determine (whether
         in annual or more frequent installments, at the time of the death,
         disability or retirement of the holder of such shares, or otherwise);

                  (ii) A requirement that the holder of shares of restricted
         stock forfeit, or (in the case of shares sold to a participant) resell
         back to the Company at his cost, all or a part of such shares in the
         event of termination of his employment during any period in which such
         shares are subject to restrictions;

                  (iii) A prohibition against employment of the holder of such
         restricted stock by any competitor of the Company or a subsidiary of
         the Company, or against such holder's dissemination of any secret or
         confidential information belonging to the Company or a subsidiary of
         the Company.

         (d) In order to enforce the restrictions imposed by the Committee
pursuant to (c) above, the participant receiving restricted stock shall enter
into an agreement with the Company setting forth the conditions of the grant.
Shares of restricted stock shall be registered in the name of the participant
and deposited, together with a stock power endorsed in blank, with the Company.

         (e) At the end of any time period during which the shares of restricted
stock are subject to forfeiture and restrictions on transfer, such shares will
be delivered free of all restrictions to the participant or to the participant's
legal representative, beneficiary or heir.

         (f) Subject to the terms and conditions of the Plan, each participant
receiving restricted stock shall have all the rights of a stockholder with
respect to shares of stock during any period in which such shares are subject to
forfeiture and restrictions on transfer, including without limitation, the right
to vote such shares. Dividends paid in cash or property other than Common Stock
with respect to shares of restricted stock shall be paid to the participant
currently or, at the election of the participant, be reinvested by the
participant under the Company's Automatic Dividend Reinvestment Service. Shares
purchased with reinvested dividends shall not be restricted.

11.      CASH AWARDS

         The Committee may at any time and from time to time approve the payment
by the Company of a cash award to Eligible Persons. A cash award consists of a
monetary payment made by the Company to a participant as additional compensation
for his/her services to the Company. Payment of a cash award will normally
depend on achievement of performance objectives by the Company or by
individuals. The amount of any monetary payment constituting a cash award shall
be determined by the Committee in its sole discretion. Cash awards may be
subject to other terms and conditions, which may vary from time to time and
among participants, as the Committee determines to be appropriate.

12.      ADJUSTMENT PROVISIONS

         (a) Effective as of June 20, 2002, subject to Section 12(b), if the
Company should effect any subdivision or consolidation of shares of Common Stock
or other capital readjustment, the payment of a stock dividend, stock split,
combination of shares, recapitalization, reclassification, or other increase or
reduction in the number or kind of shares outstanding, without receiving
compensation therefor in money, services or property, then an appropriate and
proportionate adjustment shall be made in (i) the maximum number and kind of
shares provided in Section 3 of the Plan, (ii) the number and kind of shares or
other securities subject to the then outstanding Options and Stock Appreciation
Rights, (iii) the number of unvested shares of Common Stock granted pursuant to
awards of
<PAGE>
Restricted Stock or a Stock Award, and (iv) the price for each share or other
unit of any other securities subject to then outstanding Options and the value
of any then outstanding Stock Appreciation Rights without change in the
aggregate purchase price or value as to which such Options or Stock Appreciation
Rights remain exercisable. The Board of Directors or Committee shall take such
action that it deems appropriate, in its discretion, so that the value of each
outstanding Incentive Award to its Holder shall not be adversely affected by a
corporate event described in this Section 12(a).

         The existence of the Plan or outstanding Incentive Awards hereunder
shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments, recapitalization,
reorganization or other changes in the Company's capital structure or its
business or any merger or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stocks ahead of or affecting the
Common Stock or the rights thereof, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding whether of a similar character or
otherwise.

         (b) Notwithstanding any provision in this Plan or in any Incentive to
the contrary, (i) the restrictions on all shares of restricted stock awarded
shall lapse immediately; (ii) all outstanding Options and Stock Appreciation
Rights will become exercisable immediately; and (iii) all performance objectives
shall be deemed to be met and payment made immediately if any of the following
events (a "Change of Control") occur unless otherwise determined by the Board of
Directors and a majority of the members of the Incumbent Board (as defined
below):

                  (i) The acquisition by any individual, entity or group (within
         the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
         Act of 1934, as amended (the "Exchange Act")) (a "Person") of
         beneficial ownership (within the meaning of Rule 13d-3 promulgated
         under the Exchange Act) of 20% or more of either (i) the then
         outstanding shares of common stock of the Company (the "Outstanding
         Company Common Stock") or (ii) the combined voting power of the then
         outstanding voting securities of the Company entitled to vote generally
         in the election of directors (the "Outstanding Company Voting
         Securities"); provided, however, that for purposes of this subsection
         (i), the following acquisitions shall not constitute a Change of
         Control: (A) any acquisition directly from the Company, (B) any
         acquisition by the Company, (C) any acquisition by any employee benefit
         plan (or related trust) sponsored or maintained by the Company or any
         corporation controlled by the Company or (D) any acquisition by any
         corporation pursuant to a transaction which complies with clauses (A),
         (B) and (C) of subsection (iii) of this paragraph (b); or

                  (ii) Individuals who, as of the date hereof, constitute the
         Board (the "Incumbent Board") cease for any reason to constitute at
         least a majority of the Board; provided, however, that any individual
         becoming a director subsequent to the date hereof whose election, or
         nomination for election by the Company's shareholders, was approved by
         a vote of at least a majority of the directors then comprising the
         Incumbent Board shall be considered as though such individual were a
         member of the Incumbent Board, but excluding, for this purpose, any
         such individual whose initial assumption of office occurs as a result
         of an actual or threatened election contest with respect to the
         election or removal of directors or other actual or threatened
         solicitation of proxies or consents by or on behalf of a Person other
         than the Board; or

<PAGE>

                  (iii) Consummation of a reorganization, merger or
         consolidation or sale or other disposition of all or substantially all
         of the assets of the Company (a "Business Combination"), in each case,
         unless, following such Business Combination, (A) all or substantially
         all of the individuals and entities who were the beneficial owners,
         respectively, of the Outstanding Company Common Stock and Outstanding
         Company Voting Securities immediately prior to such Business
         Combination beneficially own, directly or indirectly, more than 60% of,
         respectively, the then outstanding shares of common stock and the
         combined voting power of the then outstanding voting securities
         entitled to vote generally in the election of directors, as the case
         may be, of the corporation resulting from such Business Combination
         (including, without limitation, a corporation which as a result of such
         transaction owns the Company or all or substantially all of the
         Company's assets either directly or through one or more subsidiaries)
         in substantially the same proportions as their ownership, immediately
         prior to such Business Combination of the Outstanding Company Common
         Stock and Outstanding Company Voting Securities, as the case may be,
         (B) no Person (excluding any corporation resulting from such Business
         Combination or any employee benefit plan (or related trust) of the
         Company or such corporation resulting from such Business Combination)
         beneficially owns, directly or indirectly, 20% or more of,
         respectively, the then outstanding shares of common stock of the
         corporation resulting from such Business Combination or the combined
         voting power of the then outstanding voting securities of such
         corporation except to the extent that such ownership existed prior to
         the Business Combination and (C) at least a majority of the members of
         the board of directors of the corporation resulting from such Business
         Combination were members of the Incumbent Board at the time of the
         execution of the initial agreement, or of the action of the Board,
         providing for such Business Combination; or

                  (iv) Approval by the shareholders of the Company of a complete
         liquidation or dissolution of the Company.

         (c) Adjustments under Sections 12(a) and 12(b) shall be made by the
Committee, whose determination as to what adjustments shall be made and the
extent thereof shall be final, binding and conclusive. No fractional interest
shall be issued under the Plan on account of any such adjustment.

13.      GENERAL PROVISIONS

         (a) With respect to any shares of Common Stock issued or transferred
under any provisions of the Plan, such shares may be issued or transferred
subject to such conditions, in addition to those specifically provided in the
Plan, as the Committee may direct.

         (b) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Holder any right to continue in the employ of the Company
or any of its subsidiaries or affect the right of the Company to terminate the
employment of any Holder at any time with or without cause.

         (c) No shares of Common Stock shall be issued or transferred pursuant
to an Incentive Award unless and until all then applicable requirements imposed
by federal and state securities and other laws, rules and regulations and by any
regulatory agencies having jurisdiction, and by any stock exchanges upon which
the Common Stock may be listed, shall have been fully met. As a condition
precedent to the issuance of shares pursuant to the grant or exercise of an
Incentive Award, the Company may require the Holder to take any reasonable
action to meet such requirements.

         (d) No Holder (individually or as a member of a group) and no
beneficiary or other person claiming under or through such Holder shall have any
right, title or interest in or to any shares of Common Stock allocated or
reserved under the Plan or subject to any Incentive Award except as to such
shares of Common Stock, if any, that have been issued or transferred to such
Holder.

         (e) The Company may make such provisions as it deems appropriate for
the withholding of any taxes that the Company or any subsidiary corporation
determines it is required to withhold in connection with any Incentive Award.

<PAGE>

         (f) No Incentive Award and no right under the Plan, contingent or
otherwise, shall be assignable (except as provided in Section 7(g) of the Plan),
or subject to any encumbrance, pledge or charge of any nature except that, under
such rules and regulations as the Company may establish pursuant to the terms of
the Plan, a beneficiary may be designated with respect to an Incentive Award in
the event of the death of the Holder of such Incentive Award and except also,
that if such beneficiary is the executor or administrator of the estate of the
Holder of such Incentive Award, then any rights with respect to such Incentive
Award may be transferred to the person or persons or entity (including a trust)
entitled thereto under the will of the holder of such Incentive Award, or in the
case of intestacy, under the laws relating to intestacy.

         (g) Nothing in the Plan is intended to be a substitute for, or to
preclude or limit the establishment of, any other plan, practice or arrangement
for the payment of compensation or benefits to employees generally, or to any
class or group of employees that the Company now has or may hereafter lawfully
put into effect, including, without limitation, any retirement, pension,
insurance, stock purchase, incentive compensation or bonus plan.

         (h) The Company may make a loan or guarantee a loan to an Optionee in
connection with the exercise of an Option in an amount not to exceed the
aggregate exercise price of the Option being exercised and any federal and state
taxes payable in connection with the exercise for the purpose of assisting such
Optionee to exercise such Option. Any such loan or guarantee may be secured by
shares of Common Stock or other collateral deemed adequate by the Committee and
shall comply in all respects with all applicable laws and regulations. The Board
of Directors and the Committee may adopt policies regarding eligibility for such
loans and guarantees, the maximum amounts thereof, and any terms and conditions
not specified in the Plan upon which such loans will be made and guarantees
extended. Notwithstanding the foregoing, the Company will make no such loan or
guarantee to a Director or executive officer (or equivalent thereof) of the
Company in contravention of the Sarbanes-Oxley Act of 2002.

         (i) The Company shall have the right to withhold from any payments made
under the Plan or to collect as a condition of payment, any taxes required by
law to be withheld. At any time when a participant is required to pay to the
Company an amount required to be withheld under applicable income tax laws in
connection with a distribution of Common Stock or upon exercise of an option or
Stock Appreciation Right, the participant may satisfy this obligation in whole
or in part by electing (the "Election") to have the Company withhold from the
distribution shares of Common Stock having a value equal to the amount required
to be withheld. The value of the shares to be withheld shall be based on the
Fair Market Value of the Common Stock on the date that the amount of tax to be
withheld shall be determined ("Tax Date"). Each Election must be made prior to
the Tax Date. The Committee may disapprove of any Election, may suspend or
terminate the right to make Elections, or may provide with respect to any
Incentive that the right to make Elections shall not apply to such Incentive. An
Election is irrevocable.

         (j) If a participant is an officer of the Company within the meaning of
Section 16 of the 1934 Act, then an Election is subject to the following
additional restrictions:

                  (i) No Election shall be effective for a Tax Date which occurs
         within six months of the grant of the award, except that this
         limitation shall not apply in the event death or disability of the
         participant occurs prior to the expiration of the six-month period.

                  (ii) The Election must be made either six months prior to the
         Tax Date or must be made during a period beginning on the third
         business day following the date of release for publication of the
         Company's quarterly or annual summary statements of sales and earnings
         and ending on the twelfth business day following such date.

         (k) Anything in this Plan to the contrary notwithstanding, the Company,
may if it shall determine it necessary or desirable for any reason, at the time
of award of any Incentive or the issuance of any shares of Common Stock pursuant
to any Incentive, require the recipient of the Incentive, as a condition to the
receipt thereof or to the receipt of shares of Common Stock issued pursuant
thereto, to deliver to the Company a written representation of present intention
to acquire the Incentive or the shares of Common Stock issued pursuant thereto
for his own account for investment and not for distribution.

<PAGE>

         (l) Unless otherwise determined by the Committee with respect to any
particular Incentive Award, it is intended that the Plan shall comply with the
applicable requirements so that any Incentive Award subject to Section 162(m) of
the Internal Revenue Code that is granted to a Covered Employee shall qualify
for the Performance-Based Exception, except for grants of Options with an Option
price set at less than the fair market value of a share of Common Stock on the
date of grant. If any provision of the Plan or an Incentive Award would not
permit the Plan or Incentive Award to comply with the Performance-Based
Exception as so intended, such provision shall be construed or deemed to be
amended to conform to the requirements of the Performance-Based Exception to the
extent permitted by applicable law and deemed advisable by the Committee;
provided, however, no such construction or amendment shall have an adverse
effect to the grantee of a prior grant of an Incentive Award or on the economic
value to a grantee of any outstanding Incentive Award.

14.      AMENDMENT AND TERMINATION

         (a) The Board of Directors shall have the power, in its discretion, to
amend, suspend or terminate the Plan at any time. No such amendment shall,
without approval of the shareholders of the Company, except as provided in
Section 12 of the Plan:

                  (i) Change the class of persons eligible to receive Incentive
         Awards under the Plan;

                  (ii) Materially increase the benefits accruing to Eligible
         Persons under the Plan;

                  (iii) Increase the number of shares of Common Stock subject to
         the Plan; or

                  (iv) Transfer the administration of the Plan to any person who
         is not a Disinterested Person.

         (b) The Committee may, with the consent of a Holder, make such
modifications in the terms and conditions of an Option or a Stock Appreciation
Right as it deems advisable.

         (c) No amendment, suspension or termination of the Plan shall, without
the consent of the Holder, alter, terminate, impair or adversely affect any
right or obligation under any Incentive Award previously granted under the Plan.

         (d) No amendment to the Plan shall be made that would permit the
granting of Incentive Awards to members of the Committee.

         (e) A Stock Appreciation Right or an Option held by a person who was an
Employee at the time such Right or Option was granted shall terminate if and
when the Holder ceases to be an Employee, except as follows:

                  (i) If the employment of an Employee is terminated for cause,
         for which the Company shall be the sole judge, or if the Employee
         voluntarily resigns, all of the Stock Appreciation Rights and Options
         of the Employee shall expire immediately. Retirement with the consent
         of the Company shall not be deemed a voluntary resignation for purposes
         of this subparagraph (i).

                  (ii) If the employment of an Employee is terminated by the
         Company other than for cause, for which the Company shall be the sole
         judge, then the Stock Appreciation Rights and Options expire one year
         thereafter unless by their terms they expire sooner. During said
         period, the Stock Appreciation Rights and Options may be exercised in
         accordance with their terms, but only to the extent exercisable on the
         date of termination of employment.

                  (iii) If the employee retires at normal retirement age or
         retires with the consent of the Company at an earlier date the Stock
         Appreciation Rights and Options of the Employee shall expire three
         years thereafter unless by their terms they expire sooner. During said
         period, the Stock Appreciation Rights and Options may be exercised in
         accordance with their terms, but only to the extent exercisable on the
         date of retirement.

<PAGE>

                  (iv) If an Employee dies or becomes permanently and totally
         disabled while employed by the Company or a parent or subsidiary
         corporation, the Stock Appreciation Rights and Options of the Employee
         shall expire three years after the date of death or permanent and total
         disability unless by their terms they expire sooner. If the Employee
         dies or becomes permanently and totally disabled within the one-year
         period referred to in subparagraph (ii) above, the Stock Appreciation
         Rights and Options shall expire one year after the date of death or
         permanent and total disability, unless by their terms they expire
         sooner. If the Employee dies or becomes permanently and totally
         disabled within the three-year period referred to in subparagraph (iii)
         above, the Stock Appreciation Rights and Options shall expire upon the
         later of three years after retirement or one year after the date of
         death or permanent and total disability, unless by their terms they
         expire sooner. During said periods the Stock Appreciation Rights and
         Options may be exercised by the Employee, or in the event of the death
         of the Employee, the Stock Appreciation Rights and Options may be
         exercised by the Employee's designated beneficiaries or personal
         representatives or the trusts, entities or persons to whom his rights
         under the Stock Appreciation Rights and Options have been transferred,
         in accordance with Section 7(g) of the Plan, or have passed by will or
         the laws of descent and distribution, in accordance with their terms,
         but only to the extent exercisable on the date of retirement or
         termination of employment.

                  (v) Notwithstanding the above, a Stock Appreciation Right or
         Option may not be exercised after the expiration of ten years from the
         date the Stock Appreciation Right or Option is granted.

         (f) The Committee may in a particular case provide for earlier
termination or expiration periods for any Stock Appreciation Right or Option but
may not extend any of the periods provided for in this section.

         (g) The Committee may in its sole discretion determine, with respect to
a Stock Appreciation Right or Option, that any Holder who is on leave of absence
for any reason will be considered as still in the employ of the Company,
provided that the Stock Appreciation Right or Option shall be exercisable during
a leave of absence only as to the amount of number of shares with respect to
which it was exercisable at the commencement of such leave of absence.

         (h) Within two business after the date of a change in beneficial
ownership of the Common Stock issued or delivered pursuant to this Plan, an
Insider will report to the Secretary of the Company (or other designated person)
any such change to the beneficial ownership of Common Stock that is required to
be reported with respect to such Insider under Rule 16(a)-3 promulgated pursuant
to the Exchange Act. Whenever reasonably feasible, Insiders will provide the
Committee with advance notification of such change in beneficial ownership.

         (i) Effective January 26, 2003, the Company shall provide notice to any
Director or executive officer (or equivalent thereof) of the Company, as well as
to the Securities and Exchange Commission, of any "blackout period," as defined
in Section 306(a)(4) of the Sarbanes-Oxley Act of 2002, in any case in which
such Director or executive officer is subject to the requirements of Section 304
of said Act in connection with such "blackout period."

         (j) Notwithstanding anything in the Plan to the contrary, no shares of
Common Stock issued pursuant to this Plan will be delivered to a broker or
dealer that receives such shares for the account of an Insider, unless and until
the broker or dealer enters into a written agreement with the Company whereby
such broker or dealer agrees to report to the Secretary of the Company (or other
designated person) a change in the beneficial ownership of such shares.

15.      EFFECTIVE DATE OF PLAN AND DURATION OF PLAN

         This Plan shall become effective upon adoption by the Board of
Directors of the Company (February 6, 1989) and Incentive Awards may be made
under the Plan at any time thereafter, provided, however, that no shares of
Common Stock may be issued under the Plan, no Stock Appreciation Rights granted
under the Plan may be exercised and no Cash Award may be paid prior to
completion of the following: (a) the approval of the Plan by shareholders owning
a majority of the outstanding shares of Common Stock of the Company, with the
votes of any officers who are shareholders not being counted for the purpose of
determining a majority, (b) the registration of the Plan and securities to be
issued in connection therewith under the Securities Act of 1933, and (c) the
listing of the shares of


<PAGE>

Common Stock reserved for issuance under the Plan on the New York Stock
Exchange, Inc. and the Pacific Exchange, Inc. Unless previously terminated by
the Board of Directors, the Plan shall terminate at the close of business on
April 24, 2012, and no Incentive Award may be granted under the Plan thereafter,
but such termination shall not affect any Incentive Award issued or granted on
or prior to said date.