<PAGE>   1
                                                                  EXHIBIT 10.5


                         LIFE SCIENCES RESEARCH INC.

                          2001 EQUITY INCENTIVE PLAN
<PAGE>   2



                         LIFE SCIENCES RESEARCH INC.

                          2001 EQUITY INCENTIVE PLAN

<TABLE>
<S>                                                                            <C>
1.    Purpose...............................................................     1
2.    Definitions...........................................................     1
3.    Administration........................................................     4
      (a)   Authority of the Committee......................................     4
      (b)   Manner of Exercise of Committee Authority.......................     4
      (c)   Limitation of Liability.........................................     5
4.    Stock Subject to Plan.................................................     5
      (a)   Limitation on Overall Number of Shares Subject to Awards........     5
      (b)   Application of Limitations......................................     5
5.    Eligibility; Per-Person Award Limitations.............................     5
6.    Specific Terms of Awards..............................................     6
      (a)   General.........................................................     6
      (b)   Options.........................................................     6
      (c)   Stock Appreciation Rights.......................................     7
      (d)   Restricted Stock................................................     8
      (e)   Deferred Stock..................................................     9
      (f)   Bonus Stock and Awards in Lieu of Obligations...................    10
      (g)   Dividend Equivalents............................................    10
      (h)   Other Stock-Based Awards........................................    10
7.    Certain Provisions Applicable to Awards...............................    10
      (a)   Stand-Alone, Additional, Tandem, and Substitute Awards..........    10
      (b)   Term of Awards..................................................    11
      (c)   Form and Timing of Payment Under Awards; Deferrals..............    11
      (d)   Exemptions from Section 16(b) Liability.........................    11
8.    Performance and Annual Incentive Awards...............................    12
      (a)   Performance Conditions..........................................    12
      (b)   Performance Awards Granted to Designated Covered Employees......    12
      (c)   Annual Incentive Awards Granted to Designated Covered
            Employees.......................................................    13
      (d)   Written Determinations..........................................    14
      (e)   Status of Section 8(b) and Section 8(c) Awards Under Code
            Section 162(m)..................................................    15
9.    Change in Control.....................................................    15
      (a)   Effect of "Change in Control"...................................    15
      (b)   Definition of "Change in Control"...............................    16
      (c)   Definition of "Change in Control Price".........................    16
10.   General Provisions....................................................    17
      (a)   Compliance With Legal and Other Requirements....................    17
      (b)   Limits on Transferability; Beneficiaries........................    17
      (c)   Adjustments.....................................................    18
      (d)   Taxes...........................................................    18
      (e)   Changes to the Plan and Awards..................................    18
      (f)   Limitation on Rights Conferred Under Plan.......................    19
      (g)   Unfunded Status of Awards; Creation of Trusts...................    19
</TABLE>
<PAGE>   3
<TABLE>
<S>                                                                            <C>
      (h)   Nonexclusivity of the Plan......................................    19
      (i)   Payments in the Event of Forfeitures; Fractional Shares.........    20
      (j)   Governing Law...................................................    20
      (k)   Plan Effective Date and Stockholder Approval; Termination
            of Plan.........................................................    20
</TABLE>


                                      (ii)
<PAGE>   4



                         LIFE SCIENCES RESEARCH INC.

                          2001 EQUITY INCENTIVE PLAN



      1. Purpose. The purpose of this 2001 Equity Incentive Plan (the "Plan") is
to assist Life Sciences Research Inc. (the "Company") and its subsidiaries in
attracting, motivating, retaining and rewarding high-quality executives and
other employees, officers, Directors and independent contractors by enabling
such persons to acquire or increase a proprietary interest in the Company in
order to strengthen the mutuality of interests between such persons and the
Company's stockholders, and providing such persons with annual and long term
performance incentives to expend their maximum efforts in the creation of
shareholder value. The Plan is also intended to qualify certain compensation
awarded under the Plan for tax deductibility under Section 162(m) of the Code to
the extent deemed appropriate by the Committee of the Board of Directors of the
Company. Unless otherwise stated, all references to section numbers are to
sections of this Plan. The Plan shall be effective as of the Effective Date.

      2.    Definitions.  For purposes of the Plan, the following terms shall
be defined as set forth below, in addition to such terms defined in Section 1
hereof.

            (a) "Annual Incentive Award" means a conditional right granted to a
Participant under Section 8(c) to receive a cash payment, Stock or other Award,
unless otherwise determined by the Committee, after the end of a specified
fiscal year.

            (b) "Award" means any Option, SAR (including Limited SAR),
Restricted Stock, Deferred Stock, Stock granted as a bonus or in lieu of another
award, Dividend Equivalent, Other Stock-Based Award, Performance Award or Annual
Incentive Award, together with any other right or interest, granted to a
Participant under the Plan.

            (c) "Beneficiary" means the person, persons, trust or trusts which
have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or to which Awards or
other rights are transferred if and to the extent permitted under Section 10(b)
hereof. If, upon a Participant's death, there is no designated Beneficiary or
surviving designated Beneficiary, then the term Beneficiary means the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.

            (d) "Beneficial Owner", "Beneficially Owning" and "Beneficial
Ownership" shall have the meanings ascribed to such terms in Rule 13d-3 under
the Exchange Act and any successor to such Rule.

            (e)   "Board" means the Company's Board of Directors.

            (f) "Change in Control" means Change in Control as defined with
related terms in Section 9.
<PAGE>   5
            (g) "Change in Control Price" means the amount calculated in
accordance with Section 9(c).

            (h) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, including regulations thereunder and successor provisions and
regulations thereto.

            (i) "Committee" means a committee designated by the Board to
administer the Plan. The Committee shall consist of at least two directors, each
member of which shall be (i) a "non-employee director" within the meaning of
Rule 16b-3 under the Exchange Act, unless administration of the Plan by
"non-employee directors" is not then required in order for exemptions under Rule
16b-3 to apply to transactions under the Plan, and (ii) an "outside director"
within the meaning of Section 162(m) of the Code, unless administration of the
Plan by "outside directors" is not then required in order to qualify for tax
deductibility under Section 162(m) of the Code.

            (j)   "Corporate Transaction" means a Corporate Transaction as
defined in Section 9(b)(i).

            (k) "Covered Employee" means an Eligible Person who is a Covered
Employee as specified in Section 8(e).

            (l) "Deferred Stock" means a right, granted to a Participant under
Section 6(e) hereof, to receive Stock, cash or a combination thereof at the end
of a specified deferral period.

            (m)   "Director" means a member of the Board.

            (n) "Disability" means a permanent and total disability (within the
meaning of Section 22(e) of the Code), as determined by a medical doctor
satisfactory to the Committee.

            (o) "Dividend Equivalent" means a right, granted to a Participant
under Section 6(g) hereof, to receive cash, Stock, other Awards or other
property equal in value to dividends paid with respect to a specified number of
shares of Stock, or other periodic payments.

            (p) "Effective Date" means the effective date of the Plan, which
shall be upon the Exchange Offer becoming or being declared unconditional in all
respects.

            (q) "Eligible Person" means each Executive Officer of the Company
(as defined under the Exchange Act) and other officers, Directors and employees
of the Company or of any Subsidiary, and independent contractors with the
Company or any Subsidiary. The foregoing notwithstanding, only employees of the
Company or any Subsidiary shall be Eligible Persons for purposes of receiving
any Incentive Stock Options. An employee on leave of absence may be considered
as still in the employ of the Company or a Subsidiary for purposes of
eligibility for participation in the Plan.

            (r) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, including rules thereunder and successor provisions
and rules thereto.


                                       2
<PAGE>   6
            (s) "Exchange Offer" means that recommended exchange offer by the
Company for the outstanding equity of Huntingdon Life Sciences Group plc
("Huntingdon") pursuant to which the Company will issue shares of its common
stock for the outstanding ordinary shares and outstanding American Depositary
Shares of Huntingdon.

            (t) "Executive Officer" means an executive officer of the Company as
defined under the Exchange Act.

            (u) "Fair Market Value" means the fair market value of Stock, Awards
or other property as determined by the Committee or the Board, or under
procedures established by the Committee or the Board. Unless otherwise
determined by the Committee or the Board, the Fair Market Value of Stock as of
any given date if the Company is publicly-held as of such date, shall be the
closing sale price per share reported on a consolidated basis for stock listed
on the principal stock exchange or market on which Stock is traded on the date
as of which such value is being determined or, if there is no sale on that date,
then on the last previous day on which a sale was reported.

            (v) "Incentive Stock Option" or "ISO" means any Option intended to
be designated as an incentive stock option within the meaning of Section 422 of
the Code or any successor provision thereto.

            (w)   "Incumbent Board" means the Incumbent Board as defined in
Section 9(b)(ii).

            (x)   "Limited SAR" means a right granted to a Participant under
Section 6(c).

            (y) "Option" means a right granted to a Participant under Section
6(b), to purchase Stock or other Awards at a specified price during specified
time periods.

            (z) "Other Stock-Based Awards" means Awards granted to a Participant
under Section 6(h).

            (aa) "Parent Corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company, if each
of the corporations in the chain (other than the Company) owns stock possessing
50% or more of the combined voting power of all classes of stock in one of the
other corporations in the chain.

            (bb) "Participant" means a person who has been granted an Award
under the Plan which remains outstanding, including a person who is no longer an
Eligible Person.

            (cc) "Performance Award" means a right, granted to an Eligible
Person under Section 8, to receive Awards based upon performance criteria
specified by the Committee or the Board.

            (dd) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, and shall include a "group" as defined in Section 13(d) thereof.


                                       3
<PAGE>   7
            (ee) "Restricted Stock" means Stock granted to a Participant under
Section 6(d), that is subject to certain restrictions and to a risk of
forfeiture.

            (ff) "Rule 16b-3" and "Rule 16a-1(c)(3)" means Rule 16b-3 and Rule
16a-1(c)(3), as from time to time in effect and applicable to the Plan and
Participants, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act

            (gg) "Stock" means the Company's Common Stock, par value $0.01 per
share, and such other securities as may be substituted (or resubstituted) for
Stock pursuant to Section 10(c).

            (hh) "Stock Appreciation Rights" or "SAR" means a right granted to a
Participant under Section 6(c).

            (ii) "Subsidiary" means any corporation or other entity in which the
Company has a direct or indirect ownership interest of 50% or more of the total
combined voting power of the then outstanding securities or interests of such
corporation or other entity entitled to vote generally in the election of
directors or in which the Company has the right to receive 50% or more of the
distribution of profits or 50% or more of the assets on liquidation or
dissolution.

            3.    Administration.

            (a) Authority of the Committee. The Plan shall be administered by
the Committee; provided, however, that except as otherwise expressly provided in
this Plan or in order to comply with Code Section 162(m) or Rule 16b-3 under the
Exchange Act, the Board may exercise any power or authority granted to the
Committee under this Plan. The Committee or the Board shall have full and final
authority, in each case subject to and consistent with the provisions of the
Plan, to select Eligible Persons to become Participants, grant Awards, determine
the type, number and other terms and conditions of, and all other matters
relating to, Awards, prescribe Award agreements (which need not be identical for
each Participant) and rules and regulations for the administration of the Plan,
construe and interpret the Plan and Award agreements and correct defects, supply
omissions or reconcile inconsistencies therein, and to make all other decisions
and determinations as the Committee or the Board may deem necessary or advisable
for the administration of the Plan. In exercising any discretion granted to the
Committee or the Board under the Plan or pursuant to any Award, the Committee or
the Board shall not be required to follow past practices, act in a manner
consistent with past practices, or treat any Eligible Person in a manner
consistent with the treatment of other Eligible Persons.

            (b) Manner of Exercise of Committee Authority. The Committee, and
not the Board, shall exercise sole and exclusive discretion on any matter
relating to a Participant then subject to Section 16 of the Exchange Act with
respect to the Company to the extent necessary in order that transactions by
such Participant shall be exempt under Rule 16b-3 under the Exchange Act. Any
action of the Committee or the Board shall be final, conclusive and binding on
all persons, including the Company, its subsidiaries, Participants,
Beneficiaries, transferees under Section 10(b) hereof or other persons claiming
rights from or through a Participant, and stockholders. The express grant of any
specific power to the Committee or the Board, and the taking of any action by
the Committee or the Board, shall not be construed as limiting any power


                                       4
<PAGE>   8
or authority of the Committee or the Board. The Committee or the Board may
delegate to officers or managers of the Company or any subsidiary, or committees
thereof, the authority, subject to such terms as the Committee or the Board
shall determine, (i) to perform administrative functions, (ii) with respect to
Participants not subject to Section 16 of the Exchange Act, to perform such
other functions as the Committee or the Board may determine, and (iii) with
respect to Participants subject to Section 16, to perform such other functions
of the Committee or the Board as the Committee or the Board may determine to the
extent performance of such functions will not result in the loss of an exemption
under Rule 16b-3 otherwise available for transactions by such persons, in each
case to the extent permitted under applicable law and subject to the
requirements set forth in Section 8(d). The Committee or the Board may appoint
agents to assist it in administering the Plan.

            (c) Limitation of Liability. The Committee and the Board, and each
member thereof, shall be entitled, in good faith, to rely or act upon any report
or other information furnished to him or her by any executive officer, other
officer or employee of the Company or a Subsidiary, the Company's independent
auditors, counsel, consultants or any other agents assisting in the
administration of the Plan. Members of the Committee and the Board, and any
officer or employee of the Company or a subsidiary acting at the direction or on
behalf of the Committee or the Board, shall not be personally liable for any
action or determination taken or made in good faith with respect to the Plan,
and shall, to the extent permitted by law, be fully indemnified and protected by
the Company with respect to any such action or determination.

      4.    Stock Subject to Plan.

            (a) Limitation on Overall Number of Shares Subject to Awards.
Subject to adjustment as provided in Section 10(c) hereof, the total number of
shares of Stock reserved and available for delivery in connection with Awards
under the Plan, including the number of shares of Stock which may be issued
pursuant to ISOs, shall be the sum of (i) 20% of the authorized shares, plus
(ii) the number of shares with respect to Awards previously granted under the
Plan that terminate without being exercised, expire, are forfeited or canceled,
and the number of shares of Stock that are surrendered in payment of any Awards
or any tax withholding with regard thereto. Any shares of Stock delivered under
the Plan may consist, in whole or in part, of authorized and unissued shares or
treasury shares.

            (b) Application of Limitations. The limitation contained in Section
4(a) shall apply not only to Awards that are settleable by the delivery of
shares of Stock but also to Awards relating to shares of Stock but settleable
only in cash (such as cash-only SARs). The Committee or the Board may adopt
reasonable counting procedures to ensure appropriate counting, avoid double
counting (as, for example, in the case of tandem or substitute awards) and make
adjustments if the number of shares of Stock actually delivered differs from the
number of shares previously counted in connection with an Award.

      5. Eligibility; Per-Person Award Limitations. Awards may be granted under
the Plan only to Eligible Persons. In each fiscal year during any part of which
the Plan is in effect, an Eligible Person may not be granted Awards relating to
more than 5% of the authorized shares of


                                       5
<PAGE>   9
Stock of the Company at the time of such grant, subject to adjustment as
provided in Section 10(c), under each of Sections 6(b), 6(c), 6(d), 6(e), 6(f),
6(g), 6(h), 8(b) and 8(c).

      6.    Specific Terms of Awards.

            (a) General. Awards may be granted on the terms and conditions set
forth in this Section 6. In addition, the Committee or the Board may impose on
any Award or the exercise thereof, at the date of grant or thereafter (subject
to Section 10(e)), such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee or the Board shall determine,
including terms requiring forfeiture of Awards in the event of termination of
employment by the Participant and terms permitting a Participant to make
elections relating to his or her Award. The Committee or the Board shall retain
full power and discretion to accelerate, waive or modify, at any time, any term
or condition of an Award that is not mandatory under the Plan. Except in cases
in which the Committee or the Board is authorized to require other forms of
consideration under the Plan, no consideration other than services may be
required for the grant (but not the exercise) of any Award.

            (b)   Options.  The Committee and the Board each is authorized to
grant Options to Participants on the following terms and conditions:

                  (i) Exercise Price. The exercise price per share of Stock
            purchasable under an Option shall be determined by the Committee or
            the Board, provided that such exercise price shall not, in the case
            of Incentive Stock Options, be less than 100% of the Fair Market
            Value of the Stock on the date of grant of the Option and shall not,
            in any event, be less than the par value of a share of Stock on the
            date of grant of such Option. If an employee owns or is deemed to
            own (by reason of the attribution rules applicable under Section
            424(d) of the Code) more than 10% of the combined voting power of
            all classes of stock of the Company or any Parent Corporation and an
            Incentive Stock Option is granted to such employee, the option price
            of such Incentive Stock Option (to the extent required by the Code
            at the time of grant) shall be no less than 110% of the Fair Market
            Value of the Stock on the date such Incentive Stock Option is
            granted.

                  (ii) Time and Method of Exercise. The Committee or the Board
            shall determine the time or times at which or the circumstances
            under which an Option may be exercised in whole or in part
            (including based on achievement of performance goals and/or future
            service requirements), the time or times at which Options shall
            cease to be or become exercisable following termination of
            employment or upon other conditions, the methods by which such
            exercise price may be paid or deemed to be paid (including in the
            discretion of the Committee or the Board a cashless exercise
            procedure), the form of such payment, including, without limitation,
            cash, Stock, other Awards or awards granted under other plans of the
            Company or any subsidiary, or other property (including notes or
            other contractual obligations of Participants to make payment on a
            deferred basis), and the methods by or forms in which Stock will be
            delivered or deemed to be delivered to Participants.


                                       6
<PAGE>   10
                  (iii) ISOs. The terms of any ISO granted under the Plan shall
            comply in all respects with the provisions of Section 422 of the
            Code. No term of the Plan relating to ISOs (including any SAR in
            tandem therewith) shall be interpreted, amended or altered, nor
            shall any discretion or authority granted under the Plan be
            exercised, so as to disqualify either the Plan or any ISO under
            Section 422 of the Code, unless the Participant has first requested
            the change that will result in such disqualification. Thus, if and
            to the extent required to comply with Section 422 of the Code,
            Options granted as Incentive Stock Options shall be subject to the
            following special terms and conditions:

                        (A) the Option shall not be exercisable more than ten
            years after the date such Incentive Stock Option is granted;
            provided, however, that if a Participant owns or is deemed to own
            (by reason of the attribution rules of Section 424(d) of the Code)
            more than 10% of the combined voting power of all classes of stock
            of the Company or any Parent Corporation and the Incentive Stock
            Option is granted to such Participant, the term of the Incentive
            Stock Option shall be (to the extent required by the Code at the
            time of the grant) for no more than five years from the date of
            grant; and

                        (B) The aggregate Fair Market Value (determined as of
            the date the Incentive Stock Option is granted) of the Stock with
            respect to which Incentive Stock Options granted under the Plan and
            all other option plans of the Company or its Parent Corporation
            during any calendar year exercisable for the first time by the
            Participant during any calendar year shall not (to the extent
            required by the Code at the time of the grant) exceed $100,000.

            (c)   Stock Appreciation Rights.  The Committee and the Board
each is authorized to grant SAR's to Participants on the following terms and
conditions:

                  (i) Right to Payment. A SAR shall confer on the Participant to
            whom it is granted a right to receive, upon exercise thereof, the
            excess of (A) the Fair Market Value of one share of Stock on the
            date of exercise (or, in the case of a "Limited SAR" that may be
            exercised only in the event of a Change in Control, the Fair Market
            Value determined by reference to the Change in Control Price, as
            defined under Section 9(c)), over (B) the grant price of the SAR as
            determined by the Committee or the Board. The grant price of an SAR
            shall not be less than the Fair Market Value of a share of Stock on
            the date of grant except as provided under Section 7(a).

                  (ii) Other Terms. The Committee or the Board shall determine
            at the date of grant or thereafter, the time or times at which and
            the circumstances under which a SAR may be exercised in whole or in
            part (including based on achievement of performance goals and/or
            future service requirements), the time or times at which SARs shall
            cease to be or become exercisable following termination of
            employment or upon other conditions, the method of exercise, method
            of settlement, form of consideration payable in settlement, method
            by or


                                       7
<PAGE>   11
            forms in which Stock will be delivered or deemed to be delivered to
            Participants, whether or not a SAR shall be in tandem or in
            combination with any other Award, and any other terms and conditions
            of any SAR. Limited SARs that may only be exercised in connection
            with a Change in Control or other event as specified by the
            Committee or the Board, may be granted on such terms, not
            inconsistent with this Section 6(c), as the Committee or the Board
            may determine. SARs and Limited SARs may be either freestanding or
            in tandem with other Awards.

            (d)   Restricted Stock.  The Committee and the Board each is
authorized to grant Restricted Stock to Participants on the following terms
and conditions:

                  (i) Grant and Restrictions. Restricted Stock shall be subject
            to such restrictions on transferability, risk of forfeiture and
            other restrictions, if any, as the Committee or the Board may
            impose, which restrictions may lapse separately or in combination at
            such times, under such circumstances (including based on achievement
            of performance goals and/or future service requirements), in such
            installments or otherwise, as the Committee or the Board may
            determine at the date of grant or thereafter. Except to the extent
            restricted under the terms of the Plan and any Award agreement
            relating to the Restricted Stock, a Participant granted Restricted
            Stock shall have all of the rights of a stockholder, including the
            right to vote the Restricted Stock and the right to receive
            dividends thereon (subject to any mandatory reinvestment or other
            requirement imposed by the Committee or the Board). During the
            restricted period applicable to the Restricted Stock, subject to
            Section 10(b) below, the Restricted Stock may not be sold,
            transferred, pledged, hypothecated, margined or otherwise encumbered
            by the Participant.

                  (ii) Forfeiture. Except as otherwise determined by the
            Committee or the Board at the time of the Award, upon termination of
            a Participant's employment during the applicable restriction period,
            the Participant's Restricted Stock that is at that time subject to
            restrictions shall be forfeited and reacquired by the Company;
            provided that the Committee or the Board may provide, by rule or
            regulation or in any Award agreement, or may determine in any
            individual case, that restrictions or forfeiture conditions relating
            to Restricted Stock shall be waived in whole or in part in the event
            of terminations resulting from specified causes, and the Committee
            or the Board may in other cases waive in whole or in part the
            forfeiture of Restricted Stock.

                  (iii) Certificates for Stock. Restricted Stock granted under
            the Plan may be evidenced in such manner as the Committee or the
            Board shall determine. If certificates representing Restricted Stock
            are registered in the name of the Participant, the Committee or the
            Board may require that such certificates bear an appropriate legend
            referring to the restrictions applicable to such Restricted Stock,
            that the Company retain physical possession of the certificates, and
            that the Participant deliver a stock power to the Company, endorsed
            in blank, relating to the Restricted Stock.


                                       8
<PAGE>   12
                  (iv) Dividends and Splits. As a condition to the grant of an
            Award of Restricted Stock, the Committee or the Board may require
            that any cash dividends paid on a share of Restricted Stock be
            automatically reinvested in additional shares of Restricted Stock or
            applied to the purchase of additional Awards under the Plan. Unless
            otherwise determined by the Committee or the Board, Stock
            distributed in connection with a Stock split or Stock dividend, and
            other property distributed as a dividend, shall be subject to
            restrictions and a risk of forfeiture to the same extent as the
            Restricted Stock with respect to which such Stock or other property
            has been distributed.

            (e) Deferred Stock. The Committee and the Board each is authorized
to grant Deferred Stock to Participants, which are rights to receive Stock,
cash, or a combination thereof at the end of a specified deferral period,
subject to the following terms and conditions:

                  (i) Award and Restrictions. Satisfaction of an Award of
            Deferred Stock shall occur upon expiration of the deferral period
            specified for such Deferred Stock by the Committee or the Board (or,
            if permitted by the Committee or the Board, as elected by the
            Participant). In addition, Deferred Stock shall be subject to such
            restrictions (which may include a risk of forfeiture) as the
            Committee or the Board may impose, if any, which restrictions may
            lapse at the expiration of the deferral period or at earlier
            specified times (including based on achievement of performance goals
            and/or future service requirements), separately or in combination,
            in installments or otherwise, as the Committee or the Board may
            determine. Deferred Stock may be satisfied by delivery of Stock,
            cash equal to the Fair Market Value of the specified number of
            shares of Stock covered by the Deferred Stock, or a combination
            thereof, as determined by the Committee or the Board at the date of
            grant or thereafter. Prior to satisfaction of an Award of Deferred
            Stock, an Award of Deferred Stock carries no voting or dividend or
            other rights associated with share ownership.

                  (ii) Forfeiture. Except as otherwise determined by the
            Committee or the Board, upon termination of a Participant's
            employment during the applicable deferral period thereof to which
            forfeiture conditions apply (as provided in the Award agreement
            evidencing the Deferred Stock), the Participant's Deferred Stock
            that is at that time subject to deferral (other than a deferral at
            the election of the Participant) shall be forfeited; provided that
            the Committee or the Board may provide, by rule or regulation or in
            any Award agreement, or may determine in any individual case, that
            restrictions or forfeiture conditions relating to Deferred Stock
            shall be waived in whole or in part in the event of terminations
            resulting from specified causes, and the Committee or the Board may
            in other cases waive in whole or in part the forfeiture of Deferred
            Stock.

                  (iii) Dividend Equivalents. Unless otherwise determined by the
            Committee or the Board at date of grant, Dividend Equivalents on the
            specified number of shares of Stock covered by an Award of Deferred
            Stock shall be either (A) paid with respect to such Deferred Stock
            at the dividend payment date in cash


                                       9
<PAGE>   13
            or in shares of unrestricted Stock having a Fair Market Value equal
            to the amount of such dividends, or (B) deferred with respect to
            such Deferred Stock and the amount or value thereof automatically
            deemed reinvested in additional Deferred Stock, other Awards or
            other investment vehicles, as the Committee or the Board shall
            determine or permit the Participant to elect.

            (f) Bonus Stock and Awards in Lieu of Obligations. The Committee and
the Board each is authorized to grant Stock as a bonus, or to grant Stock or
other Awards in lieu of Company obligations to pay cash or deliver other
property under the Plan or under other plans or compensatory arrangements,
provided that, in the case of Participants subject to Section 16 of the Exchange
Act, the amount of such grants remains within the discretion of the Committee to
the extent necessary to ensure that acquisitions of Stock or other Awards are
exempt from liability under Section 16(b) of the Exchange Act. Stock or Awards
granted hereunder shall be subject to such other terms as shall be determined by
the Committee or the Board.

            (g) Dividend Equivalents. The Committee and the Board each is
authorized to grant Dividend Equivalents to a Participant entitling the
Participant to receive cash, Stock, other Awards, or other property equal in
value to dividends paid with respect to a specified number of shares of Stock,
or other periodic payments. Dividend Equivalents may be awarded on a
free-standing basis or in connection with another Award. The Committee or the
Board may provide that Dividend Equivalents shall be paid or distributed when
accrued or shall be deemed to have been reinvested in additional Stock, Awards,
or other investment vehicles, and subject to such restrictions on
transferability and risks of forfeiture, as the Committee or the Board may
specify.

            (h) Other Stock-Based Awards. The Committee and the Board each is
authorized, subject to limitations under applicable law, to grant to
Participants such other Awards that may be denominated or payable in, valued in
whole or in part by reference to, or otherwise based on, or related to, Stock,
as deemed by the Committee or the Board to be consistent with the purposes of
the Plan, including, without limitation, convertible or exchangeable debt
securities, other rights convertible or exchangeable into Stock, purchase rights
for Stock, Awards with value and payment contingent upon performance of the
Company or any other factors designated by the Committee or the Board, and
Awards valued by reference to the book value of Stock or the value of securities
of or the performance of specified subsidiaries or business units. The Committee
or the Board shall determine the terms and conditions of such Awards. Stock
delivered pursuant to an Award in the nature of a purchase right granted under
this Section 6(h) shall be purchased for such consideration, paid for at such
times, by such methods, and in such forms, including, without limitation, cash,
Stock, other Awards or other property, as the Committee or the Board shall
determine. Cash awards, as an element of or supplement to any other Award under
the Plan, may also be granted pursuant to this Section 6(h).

      7.    Certain Provisions Applicable to Awards.

            (a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee or the Board, be
granted either alone or in addition to, in tandem with, or in substitution or
exchange for, any other Award or any award granted under another plan of the
Company, any Subsidiary, or any business entity to be


                                       10
<PAGE>   14
acquired by the Company or a Subsidiary, or any other right of a Participant to
receive payment from the Company or any Subsidiary. Such additional, tandem, and
substitute or exchange Awards may be granted at any time. If an Award is granted
in substitution or exchange for another Award or award, the Committee or the
Board shall require the surrender of such other Award or award in consideration
for the grant of the new Award. In addition, Awards may be granted in lieu of
cash compensation, including in lieu of cash amounts payable under other plans
of the Company or any subsidiary, in which the value of Stock subject to the
Award is equivalent in value to the cash compensation (for example, Deferred
Stock or Restricted Stock), or in which the exercise price, grant price or
purchase price of the Award in the nature of a right that may be exercised is
equal to the Fair Market Value of the underlying Stock minus the value of the
cash compensation surrendered (for example, Options granted with an exercise
price "discounted" by the amount of the cash compensation surrendered).

            (b) Term of Awards. The term of each Award shall be for such period
as may be determined by the Committee or the Board; but the term of any Option
or SAR shall not exceed ten years (or such shorter term as may be required in
respect of an ISO under Section 422 of the Code).

            (c) Form and Timing of Payment Under Awards; Deferrals. Subject to
the terms of the Plan and any applicable Award agreement, payments to be made to
the Company or a subsidiary upon the exercise of an Option or other Award or
settlement of an Award may be made in such forms as the Committee or the Board
shall determine, including, without limitation, cash, Stock that have been held
for at least 6 months, other Awards or other property, and may be made in a
single payment or transfer, in installments, or on a deferred basis. The
settlement of any Award may be accelerated, and cash paid in lieu of Stock in
connection with such settlement, in the discretion of the Committee or the Board
or upon occurrence of one or more specified events (in addition to a Change in
Control). Installment or deferred payments may be required by the Committee or
the Board (subject to Section 10(e)) or permitted at the election of the
Participant on terms and conditions established by the Committee or the Board.
Payments may include, without limitation, provisions for the payment or
crediting of a reasonable interest rate on installment or deferred payments or
the grant or crediting of Dividend Equivalents or other amounts in respect of
installment or deferred payments denominated in Stock.

            (d) Exemptions from Section 16(b) Liability. It is the intent of the
Company that this Plan comply in all respects with applicable provisions of Rule
16b-3 or Rule 16a-1(c)(3) to the extent necessary to ensure that neither the
grant of any Awards to nor other transaction by a Participant who is subject to
Section 16 of the Exchange Act is subject to liability under Section 16(b)
thereof (except for transactions acknowledged in writing to be non-exempt by
such Participant). Accordingly, if any provision of this Plan or any Award
agreement does not comply with the requirements of Rule 16b-3 or Rule
16a-1(c)(3) as then applicable to any such transaction, such provision will be
construed or deemed amended to the extent necessary to conform to the applicable
requirements of Rule 16b-3 or Rule 16a-1(c)(3) so that such Participant shall
avoid liability under Section 16(b). In addition, the purchase price of any
Award conferring a right to purchase Stock shall be not less than any specified
percentage of the Fair Market Value of Stock at the date of grant of the Award
then required in order to comply with Rule 16b-3.


                                       11
<PAGE>   15


      8.    Performance and Annual Incentive Awards.

            (a) Performance Conditions. The right of a Participant to exercise
or receive a grant or settlement of any Award, and the timing thereof, may be
subject to such performance conditions as may be specified by the Committee or
the Board. The Committee or the Board may use such business criteria and other
measures of performance as it may deem appropriate in establishing any
performance conditions, and may exercise its discretion to reduce the amounts
payable under any Award subject to performance conditions, except as limited
under Sections 8(b) and 8(c) hereof in the case of a Performance Award or Annual
Incentive Award intended to qualify under Code Section 162(m). If and to the
extent required under Code Section 162(m), any power or authority relating to a
Performance Award or Annual Incentive Award intended to qualify under Code
Section 162(m), shall be exercised by the Committee and not the Board.

            (b) Performance Awards Granted to Designated Covered Employees. If
and to the extent that the Committee determines that a Performance Award to be
granted to an Eligible Person who is designated by the Committee as likely to be
a Covered Employee should qualify as "performance-based compensation" for
purposes of Code Section 162(m), the grant, exercise and/or settlement of such
Performance Award shall be contingent upon achievement of preestablished
performance goals and other terms set forth in this Section 8(b).

                  (i) Performance Goals Generally. The performance goals for
            such Performance Awards shall consist of one or more business
            criteria and a targeted level or levels of performance with respect
            to each of such criteria, as specified by the Committee consistent
            with this Section 8(b). Performance goals shall be objective and
            shall otherwise meet the requirements of Code Section 162(m) and
            regulations thereunder including the requirement that the level or
            levels of performance targeted by the Committee result in the
            achievement of performance goals being "substantially uncertain."
            The Committee may determine that such Performance Awards shall be
            granted, exercised and/or settled upon achievement of any one
            performance goal or that two or more of the performance goals must
            be achieved as a condition to grant, exercise and/or settlement of
            such Performance Awards. Performance goals may differ for
            Performance Awards granted to any one Participant or to different
            Participants.

                  (ii) Business Criteria. One or more of the following business
            criteria for the Company, on a consolidated basis, and/or specified
            Subsidiaries or business units of the Company (except with respect
            to the total stockholder return and earnings per share criteria),
            shall be used exclusively by the Committee in establishing
            performance goals for such Performance Awards (except that the
            Committee may adopt additional business criteria or amend the listed
            criteria provided that, within three years from the Effective Date,
            it submits such additional or amended criteria to the Company's
            shareholders for approval): (1) total stockholder return; (2) such
            total stockholder return as compared to total return (on a
            comparable basis) of a publicly available index such as, but not
            limited to, the Standard & Poor's 500 Stock; (3) net income; (4)
            pretax earnings; (5) earnings before interest expense, taxes,
            depreciation and amortization; (6)


                                       12
<PAGE>   16
            pretax operating earnings after interest expense and before bonuses,
            service fees, and extraordinary or special items; (7) operating
            margin; (8) earnings per share; (9) return on equity; (10) return on
            capital; (11) return on investment; (12) operating earnings; (13)
            working capital or inventory; (14) ratio of debt to stockholders'
            equity; (15) control of churn; (16) increase in number of
            subscribers (measured by percentages, ratios, comparisons, or
            absolute numbers); (17) control of operating costs; and (18) meeting
            build-out and coverage POPs targets. One or more of the foregoing
            business criteria shall also be exclusively used in establishing
            performance goals for Annual Incentive Awards granted to a Covered
            Employee under Section 8(c) hereof that are intended to qualify as
            "performanced-based compensation under Code Section 162(m).

                  (iii) Performance Period; Timing For Establishing Performance
            Goals. Achievement of performance goals in respect of such
            Performance Awards shall be measured over a performance period of up
            to ten years, as specified by the Committee. Performance goals shall
            be established not later than 90 days after the beginning of any
            performance period applicable to such Performance Awards, or at such
            other date as may be required or permitted for "performance-based
            compensation" under Code Section 162(m).

                  (iv) Performance Award Pool. The Committee may establish a
            Performance Award pool, which shall be an unfunded pool, for
            purposes of measuring Company performance in connection with
            Performance Awards. The amount of such Performance Award pool shall
            be based upon the achievement of a performance goal or goals based
            on one or more of the business criteria set forth in Section
            8(b)(ii) hereof during the given performance period, as specified by
            the Committee in accordance with Section 8(b)(iii) hereof. The
            Committee may specify the amount of the Performance Award pool as a
            percentage of any of such business criteria, a percentage thereof in
            excess of a threshold amount, or as another amount which need not
            bear a strictly mathematical relationship to such business criteria.

                  (v) Settlement of Performance Awards; Other Terms. Settlement
            of such Performance Awards shall be in cash, Stock, other Awards or
            other property, in the discretion of the Committee. The Committee
            may, in its discretion, reduce the amount of a settlement otherwise
            to be made in connection with such Performance Awards. The Committee
            shall specify the circumstances in which such Performance Awards
            shall be paid or forfeited in the event of termination of employment
            by the Participant prior to the end of a performance period or
            settlement of Performance Awards.

            (c) Annual Incentive Awards Granted to Designated Covered Employees.
If and to the extent that the Committee determines that an Annual Incentive
Award to be granted to an Eligible Person who is designated by the Committee as
likely to be a Covered Employee should qualify as "performance-based
compensation" for purposes of Code Section 162(m), the


                                       13
<PAGE>   17
grant, exercise and/or settlement of such Annual Incentive Award shall be
contingent upon achievement of preestablished performance goals and other terms
set forth in this Section 8(c).

                  (i) Annual Incentive Award Pool. The Committee may establish
            an Annual Incentive Award pool, which shall be an unfunded pool, for
            purposes of measuring Company performance in connection with Annual
            Incentive Awards. The amount of such Annual Incentive Award pool
            shall be based upon the achievement of a performance goal or goals
            based on one or more of the business criteria set forth in Section
            8(b)(ii) during the given performance period, as specified by the
            Committee in accordance with Section 8(b)(iii). The Committee may
            specify the amount of the Annual Incentive Award pool as a
            percentage of any such business criteria, a percentage thereof in
            excess of a threshold amount, or as another amount which need not
            bear a strictly mathematical relationship to such business criteria.

                  (ii) Potential Annual Incentive Awards. Not later than the end
            of the 90th day of each fiscal year, or at such other date as may be
            required or permitted in the case of Awards intended to be
            "performance-based compensation" under Code Section 162(m), the
            Committee shall determine the Eligible Persons who will potentially
            receive Annual Incentive Awards, and the amounts potentially payable
            thereunder, for that fiscal year, either out of an Annual Incentive
            Award pool established by such date under Section 8(c)(i) or as
            individual Annual Incentive Awards. In the case of individual Annual
            Incentive Awards intended to qualify under Code Section 162(m), the
            amount potentially payable shall be based upon the achievement of a
            performance goal or goals based on one or more of the business
            criteria set forth in Section 8(b)(ii) in the given performance
            year, as specified by the Committee; in other cases, such amount
            shall be based on such criteria as shall be established by the
            Committee. In all cases, the maximum Annual Incentive Award of any
            Participant shall be subject to the limitation set forth in Section
            5.

                  (iii) Payout of Annual Incentive Awards. After the end of each
            fiscal year, the Committee shall determine the amount, if any, of
            (A) the Annual Incentive Award pool, and the maximum amount of
            potential Annual Incentive Award payable to each Participant in the
            Annual Incentive Award pool, or (B) the amount of potential Annual
            Incentive Award otherwise payable to each Participant. The Committee
            may, in its discretion, determine that the amount payable to any
            Participant as an Annual Incentive Award shall be reduced from the
            amount of his or her potential Annual Incentive Award, including a
            determination to make no Award whatsoever. The Committee shall
            specify the circumstances in which an Annual Incentive Award shall
            be paid or forfeited in the event of termination of employment by
            the Participant prior to the end of a fiscal year or settlement of
            such Annual Incentive Award.

            (d) Written Determinations. All determinations by the Committee as
to the establishment of performance goals, the amount of any Performance Award
pool or potential


                                       14
<PAGE>   18
individual Performance Awards and as to the achievement of performance goals
relating to Performance Awards under Section 8(b), and the amount of any Annual
Incentive Award pool or potential individual Annual Incentive Awards and the
amount of final Annual Incentive Awards under Section 8(c), shall be made in
writing in the case of any Award intended to qualify under Code Section 162(m).
The Committee may not delegate any responsibility relating to such Performance
Awards or Annual Incentive Awards if and to the extent required to comply with
Code Section 162(m).

            (e) Status of Section 8(b) and Section 8(c) Awards Under Code
Section 162(m). It is the intent of the Company that Performance Awards and
Annual Incentive Awards under Section 8(b) and 8(c) hereof granted to persons
who are designated by the Committee as likely to be Covered Employees within the
meaning of Code Section 162(m) and regulations thereunder shall, if so
designated by the Committee, constitute "qualified performance-based
compensation" within the meaning of Code Section 162(m) and regulations
thereunder. Accordingly, the terms of Sections 8(b), (c), (d) and (e), including
the definitions of Covered Employee and other terms used therein, shall be
interpreted in a manner consistent with Code Section 162(m) and regulations
thereunder. The foregoing notwithstanding, because the Committee cannot
determine with certainty whether a given Participant will be a Covered Employee
with respect to a fiscal year that has not yet been completed, the term Covered
Employee as used herein shall mean only a person designated by the Committee, at
the time of grant of Performance Awards or an Annual Incentive Award, as likely
to be a Covered Employee with respect to that fiscal year. If any provision of
the Plan or any agreement relating to such Performance Awards or Annual
Incentive Awards does not comply or is inconsistent with the requirements of
Code Section 162(m) or regulations thereunder, such provision shall be construed
or deemed amended to the extent necessary to conform to such requirements.

      9.    Change in Control.

            (a) Effect of "Change in Control." If and to the extent provided in
the Award, in the event of a "Change in Control," as defined in Section 9(b),
the following provisions shall apply:

                  (i) Any Award carrying a right to exercise that was not
            previously exercisable and vested shall become fully exercisable and
            vested as of the time of the Change in Control, subject only to
            applicable restrictions set forth in Section 10(a);

                  (ii) Limited SARs (and other SARs if so provided by their
            terms) shall become exercisable for amounts, in cash, determined by
            reference to the Change in Control Price;

                  (iii) The restrictions, deferral of settlement, and forfeiture
            conditions applicable to any other Award granted under the Plan
            shall lapse and such Awards shall be deemed fully vested as of the
            time of the Change in Control, except to the extent of any waiver by
            the Participant and subject to applicable restrictions set forth in
            Section 10(a) hereof; and


                                       15
<PAGE>   19
                  (iv) With respect to any such outstanding Award subject to
            achievement of performance goals and conditions under the Plan, such
            performance goals and other conditions will be deemed to be met if
            and to the extent so provided by the Committee in the Award
            agreement relating to such Award.

            (b) Definition of "Change in Control. A "Change in Control" shall be
deemed to have occurred upon:

                  (i) Approval by the shareholders of the Company of a
reorganization, merger, consolidation or other form of corporate transaction or
series of transactions(but not including a public offering of stock registered
under the Securities Act of 1933, in each case, with respect to which persons
who were the shareholders of the Company immediately prior to such
reorganization, merger or consolidation or other transaction do not, immediately
thereafter, own more than 50% of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities, or a liquidation or
dissolution of the Company or the sale of all or substantially all of the assets
of the Company (unless such reorganization, merger, consolidation or other
corporate transaction, liquidation, dissolution or sale (any such event being
referred to as a "Corporate Transaction") is subsequently abandoned);

                  (ii) Individuals who, as of the date on which the Award is
granted, constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any person becoming a
director subsequent to the date on which the Award was granted 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
(other than an election or nomination of an individual whose initial assumption
of office is in connection with an actual or threatened election contest
relating to the election of the Directors of the Company, as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be,
for purposes of this Agreement, considered as though such person were a member
of the Incumbent Board; or

                  (iii) the acquisition (other than from the Company) by any
person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act, of more than 30% of either the then outstanding shares of the
Company's Common Stock or the combined voting power of the Company's then
outstanding voting securities entitled to vote generally in the election of
directors (hereinafter referred to as the ownership of a "Controlling Interest")
excluding, for this purpose, any acquisitions by (1) the Company or its
Subsidiaries, (2) any person, entity or "group" that as of the date on which the
Award is granted owns beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of a Controlling Interest or (3) any
employee benefit plan of the Company or its Subsidiaries.

            (c) Definition of "Change in Control Price." The "Change in Control
Price" means an amount in cash equal to the higher of (i) the amount of cash and
fair market value of property that is the highest price per share paid
(including extraordinary dividends) in any Corporate Transaction triggering the
Change in Control under Section 9(b)(i) or any liquidation


                                       16
<PAGE>   20
of shares following a sale of substantially all of the assets of the Company, or
(ii) the highest Fair Market Value per share at any time during the 60-day
period preceding and the 60-day period following the Change in Control.

      10.   General Provisions.

            (a) Compliance With Legal and Other Requirements. The Company may,
to the extent deemed necessary or advisable by the Committee or the Board,
postpone the issuance or delivery of Stock or payment of other benefits under
any Award until completion of such registration or qualification of such Stock
or other required action under any federal or state law, rule or regulation,
listing or other required action with respect to any stock exchange or automated
quotation system upon which the Stock or other Company securities are listed or
quoted, or compliance with any other obligation of the Company, as the Committee
or the Board, may consider appropriate, and may require any Participant to make
such representations, furnish such information and comply with or be subject to
such other conditions as it may consider appropriate in connection with the
issuance or delivery of Stock or payment of other benefits in compliance with
applicable laws, rules, and regulations, listing requirements, or other
obligations. The foregoing notwithstanding, in connection with a Change in
Control, the Company shall take or cause to be taken no action, and shall
undertake or permit to arise no legal or contractual obligation, that results or
would result in any postponement of the issuance or delivery of Stock or payment
of benefits under any Award or the imposition of any other conditions on such
issuance, delivery or payment, to the extent that such postponement or other
condition would represent a greater burden on a Participant than existed on the
90th day preceding the Change in Control.

            (b) Limits on Transferability; Beneficiaries. No Award or other
right or interest of a Participant under the Plan, including any Award or right
which constitutes a derivative security as generally defined in Rule 16a-1(c)
under the Exchange Act, shall be pledged, hypothecated or otherwise encumbered
or subject to any lien, obligation or liability of such Participant to any party
(other than the Company or a Subsidiary), or assigned or transferred by such
Participant otherwise than by will or the laws of descent and distribution or to
a Beneficiary upon the death of a Participant, and such Awards or rights that
may be exercisable shall be exercised during the lifetime of the Participant
only by the Participant or his or her guardian or legal representative, except
that Awards and other rights (other than ISOs and SARs in tandem therewith) may
be transferred to one or more Beneficiaries or other transferees during the
lifetime of the Participant, and may be exercised by such transferees in
accordance with the terms of such Award, but only if and to the extent such
transfers and exercises are permitted by the Committee or the Board pursuant to
the express terms of an Award agreement (subject to any terms and conditions
which the Committee or the Board may impose thereon, and further subject to any
prohibitions or restrictions on such transfers pursuant to Rule 16b-3). A
Beneficiary, transferee, or other person claiming any rights under the Plan from
or through any Participant shall be subject to all terms and conditions of the
Plan and any Award agreement applicable to such Participant, except as otherwise
determined by the Committee or the Board, and to any additional terms and
conditions deemed necessary or appropriate by the Committee or the Board.


                                       17
<PAGE>   21
            (c) Adjustments. If any dividend or other distribution (whether in
the form of cash, Stock, or other property), recapitalization, forward or
reverse split, reorganization, merger, consolidation, spin-off, combination,
repurchase, share exchange, liquidation, dissolution or other similar corporate
transaction or event affects the Stock such that a substitution or adjustment is
determined by the Committee or the Board to be appropriate in order to prevent
dilution or enlargement of the rights of Participants under the Plan, then the
Committee or the Board shall, in such manner as it may deem equitable,
substitute or adjust any or all of (i) the number and kind of shares of Stock
which may be delivered in connection with Awards granted thereafter, (ii) the
number and kind of shares of Stock by which annual per-person Award limitations
are measured under Section 5 hereof, (iii) the number and kind of shares of
Stock subject to or deliverable in respect of outstanding Awards and (iv) the
exercise price, grant price or purchase price relating to any Award and/or make
provision for payment of cash or other property in respect of any outstanding
Award. In addition, the Committee (and the Board if and only to the extent such
authority is not required to be exercised by the Committee to comply with Code
Section 162(m)) is authorized to make adjustments in the terms and conditions
of, and the criteria included in, Awards (including Performance Awards and
performance goals, and Annual Incentive Awards and any Annual Incentive Award
pool or performance goals relating thereto) in recognition of unusual or
nonrecurring events (including, without limitation, events described in the
preceding sentence, as well as acquisitions and dispositions of businesses and
assets) affecting the Company, any Subsidiary or any business unit, or the
financial statements of the Company or any Subsidiary, or in response to changes
in applicable laws, regulations, accounting principles, tax rates and
regulations or business conditions or in view of the Committee's assessment of
the business strategy of the Company, any Subsidiary or business unit thereof,
performance of comparable organizations, economic and business conditions,
personal performance of a Participant, and any other circumstances deemed
relevant; provided that no such adjustment shall be authorized or made if and to
the extent that such authority or the making of such adjustment would cause
Options, SARs, Performance Awards granted under Section 8(b) or Annual Incentive
Awards granted under Section 8(c) hereof to Participants designated by the
Committee as Covered Employees and intended to qualify as "performance-based
compensation" under Code Section 162(m) and the regulations thereunder to
otherwise fail to qualify as "performance-based compensation" under Code Section
162(m) and regulations thereunder.

            (d) Taxes. The Company and any Subsidiary is authorized to withhold
from any Award granted, any payment relating to an Award under the Plan,
including from a distribution of Stock, or any payroll or other payment to a
Participant, amounts of withholding and other taxes due or potentially payable
in connection with any transaction involving an Award, and to take such other
action as the Committee or the Board may deem advisable to enable the Company
and Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations,
either on a mandatory or elective basis in the discretion of the Committee.

            (e) Changes to the Plan and Awards. The Board may amend, alter,
suspend, discontinue or terminate the Plan, or the Committee's authority to
grant Awards under the Plan,


                                       18
<PAGE>   22
without the consent of stockholders or Participants, except that any amendment
or alteration to the Plan shall be subject to the approval of the Company's
stockholders not later than the annual meeting next following such Board action
if such stockholder approval is required by any federal or state law or
regulation (including, without limitation, Rule 16b-3 or Code Section 162(m)) or
the rules of any stock exchange or automated quotation system on which the Stock
may then be listed or quoted, and the Board may otherwise, in its discretion,
determine to submit other such changes to the Plan to stockholders for approval;
provided that, without the consent of an affected Participant, no such Board
action may materially and adversely affect the rights of such Participant under
any previously granted and outstanding Award. The Committee or the Board may
waive any conditions or rights under, or amend, alter, suspend, discontinue or
terminate any Award theretofore granted and any Award agreement relating
thereto, except as otherwise provided in the Plan; provided that, without the
consent of an affected Participant, no such Committee or the Board action may
materially and adversely affect the rights of such Participant under such Award.
Notwithstanding anything in the Plan to the contrary, if any right under this
Plan would cause a transaction to be ineligible for pooling of interest
accounting that would, but for the right hereunder, be eligible for such
accounting treatment, the Committee or the Board may modify or adjust the right
so that pooling of interest accounting shall be available, including the
substitution of Stock having a Fair Market Value equal to the cash otherwise
payable hereunder for the right which caused the transaction to be ineligible
for pooling of interest accounting.

            (f) Limitation on Rights Conferred Under Plan. Neither the Plan nor
any action taken hereunder shall be construed as (i) giving any Eligible Person
or Participant the right to continue as an Eligible Person or Participant or in
the employ of the Company or a Subsidiary; (ii) interfering in any way with the
right of the Company or a Subsidiary to terminate any Eligible Person's or
Participant's employment at any time, (iii) giving an Eligible Person or
Participant any claim to be granted any Award under the Plan or to be treated
uniformly with other Participants and employees, or (iv) conferring on a
Participant any of the rights of a stockholder of the Company unless and until
the Participant is duly issued or transferred shares of Stock in accordance with
the terms of an Award.

            (g) Unfunded Status of Awards; Creation of Trusts. The Plan is
intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant or
obligation to deliver Stock pursuant to an Award, nothing contained in the Plan
or any Award shall give any such Participant any rights that are greater than
those of a general creditor of the Company; provided that the Committee may
authorize the creation of trusts and deposit therein cash, Stock, other Awards
or other property, or make other arrangements to meet the Company's obligations
under the Plan. Such trusts or other arrangements shall be consistent with the
"unfunded" status of the Plan unless the Committee otherwise determines with the
consent of each affected Participant. The trustee of such trusts may be
authorized to dispose of trust assets and reinvest the proceeds in alternative
investments, subject to such terms and conditions as the Committee or the Board
may specify and in accordance with applicable law.

            (h) Nonexclusivity of the Plan. Neither the adoption of the Plan by
the Board nor its submission to the stockholders of the Company for approval
shall be construed as creating


                                       19
<PAGE>   23
any limitations on the power of the Board or a committee thereof to adopt such
other incentive arrangements as it may deem desirable including incentive
arrangements and awards which do not qualify under Code Section 162(m).

            (i) Payments in the Event of Forfeitures; Fractional Shares. Unless
otherwise determined by the Committee or the Board, in the event of a forfeiture
of an Award with respect to which a Participant paid cash or other
consideration, the Participant shall be repaid the amount of such cash or other
consideration. No fractional shares of Stock shall be issued or delivered
pursuant to the Plan or any Award. The Committee or the Board shall determine
whether cash, other Awards or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.

            (j) Governing Law. The validity, construction and effect of the
Plan, any rules and regulations under the Plan, and any Award agreement shall be
determined in accordance with the laws of the State of Maryland without giving
effect to principles of conflicts of laws, and applicable federal law.

            (k) Plan Effective Date and Stockholder Approval; Termination of
Plan. The Plan shall be effective on the Effective Date, subject to subsequent
approval within 12 months of its adoption by the Board by stockholders of the
Company eligible to vote in the election of directors, by a vote sufficient to
meet the requirements of Code Sections 162(m) and 422. Awards may be granted
under the Plan, as amended and restated, subject to stockholder approval, but
may not be exercised or otherwise settled in the event stockholder approval is
not obtained. The Plan shall terminate at such time as no shares of Stock remain
available for issuance under the Plan and the Company has no further rights or
obligations with respect to outstanding Awards under the Plan.


                                       20