<PAGE>
 
                                                                    EXHIBIT 10.1

                          THE PETERSEN COMPANIES, INC.
                      1997 LONG-TERM EQUITY INCENTIVE PLAN
                      ------------------------------------


1.   Purpose.
     ------- 

          This plan shall be known as The Petersen Companies, Inc. 1997 Long-
Term Equity Incentive Plan (the "Plan").  The purpose of the Plan shall be to
promote the long-term growth and profitability of The Petersen Companies, Inc.
(the "Company") and its Subsidiaries by (i) providing certain directors,
officers and key employees of, and certain other key individuals who perform
services for, the Company and its Subsidiaries with incentives to maximize
stockholder value and otherwise contribute to the success of the Company and
(ii) enabling the Company to attract, retain and reward the best available
persons for positions of substantial responsibility.  Grants of incentive or
nonqualified stock options, stock appreciation rights ("SARs") in tandem with
options, restricted stock, performance awards, or any combination of the
foregoing may be made under the Plan.

2.   Definitions.
     ----------- 

          (a) "Board of Directors" and "Board" mean the board of directors of
               ------------------       -----                                
The Petersen Companies, Inc.

          (b) "Cause" means the occurrence of one of the following events:
               -----                                                      

                  (i)   Conviction of a felony or any crime or offense lesser 
than a felony involving the property of the Company or a Subsidiary; or

                  (ii)  Conduct that has caused demonstrable and serious injury
to the Company or a Subsidiary, monetary or otherwise; or

                  (iii) Willful refusal to perform or substantial disregard of
duties properly assigned, as determined by the Company.

          (c) "Change in Control" means the occurrence of one of the following
               -----------------                                              
events:

                  (i)   if any "person" or "group" as those terms are used in 
Sections 13(d) and 14(d) of the Exchange Act, other than an Exempt Person, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then outstanding securities;
or
<PAGE>
 
                  (ii)  during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board and any new directors
whose election by the Board or nomination for election by the Company's
stockholders was approved by at least two-thirds of the directors then still in
office who either were directors at the beginning of the period or whose
election was previously so approved, cease for any reason to constitute a
majority thereof; or

                  (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation (other than a
corporation controlled by an Exempt Person), other than a merger or
consolidation which would result in all or a portion of the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation; or the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's assets,
other than a sale to an Exempt Person.

          (d) "Code"  means the Internal Revenue Code of 1986, as amended.
               ----                                                       

          (e) "Committee" means the Compensation Committee of the Board.  The
               ---------                                                     
membership of the Committee shall be constituted so as to comply at all times
with the applicable requirements of Rule 16b-3 under the Exchange Act and
Section 162(m) of the Code.

          (f) "Common Stock" means the Class A Common Stock, par value $.01 per
               ------------                                                    
share, of the Company, and any other shares into which such stock may be changed
by reason of a recapitalization, reorganization, merger, consolidation or any
other change in the corporate structure or capital stock of the Company.

          (g) "Competition" is deemed to occur if a person whose employment with
               -----------                                                      
the Company or its Subsidiaries has terminated obtains a position as a full-time
or part-time employee of, as a member of the board of directors of, or as a
consultant or advisor with or to, or acquires an ownership interest in excess of
5% of, a corporation, partnership, firm or other entity that engages in any of
the businesses of the Company or any Subsidiary with which the person was
involved in a management role at any time during his or her last five years of
employment with or other service for the Company or any Subsidiaries.

          (h) "Disability" means a disability that would entitle an eligible
               ----------                                                   
participant to payment of monthly disability payments under any Company
disability plan or as otherwise approved by the Committee.

          (i) "Exchange Act" means the Securities Exchange Act of 1934, as
               ------------                                               
amended.

          (j) "Exempt Person" means (i) any of Willis, Stein & Partners, L.P.,
               -------------                                                  
James D. Dunning, Jr., Laurence H. Bloch, D. Claeys Bahrenburg, Neal Vitale and
Richard Willis, or any combination of all or any of the foregoing, (ii) any
person, entity or group under the control of or 

                                      -2-
<PAGE>
 
under common control with any party included in clause (i), or (iii) a trustee
or other administrator or fiduciary holding securities under an employee benefit
plan of the Company.

          (k) "Fair Market Value" of a share of Common Stock of the Company
               -----------------                                           
means, as of the date in question, the officially-quoted closing selling price
of the stock (or if no selling price is quoted, the bid price) on the principal
securities exchange on which the Common Stock is then listed for trading
(including for this purpose the Nasdaq National Market) (the "Market") for the
immediately preceding trading day or, if the Common Stock is not then listed or
quoted in the Market, the Fair Market Value shall be the fair value of the
Common Stock determined in good faith by the Board; provided, however, that when
shares received upon exercise of an option are immediately sold in the open
market, the net sale price received may be used to determine the Fair Market
Value of any shares used to pay the exercise price or withholding taxes and to
compute withholding taxes.

          (l) "Incentive Stock Option" means an option conforming to the
               ----------------------                                   
requirements of Section 422 of the Code and any successor thereto.

          (m) "Non-Employee Director" has the meaning given to such term in Rule
               ---------------------                                            
16b-3 under the Exchange Act.

          (n) "Nonqualified Stock Option" means any stock option other than an
               -------------------------                                      
Incentive Stock Option.

          (o) "Other Company Securities" mean securities of the Company other
               ------------------------                                      
than Common Stock, which may include, without limitation, unbundled stock units
or components thereof, debentures, preferred stock, warrants and securities
convertible into or exchangeable for Common Stock or other property.

          (p) "Retirement" means retirement as defined under any Company pension
               ----------                                                       
plan or retirement program or termination of one's employment on retirement with
the approval of the Committee.

          (q) "Subsidiary" means a corporation or other entity of which
               ----------                                              
outstanding shares or ownership interests representing 50% or more of the
combined voting power of such corporation or other entity, or such lesser
percentage as may be approved by the Committee, are owned directly or indirectly
by the Company.

3.   Administration.
     -------------- 

          The Plan shall be administered by the Committee; provided that the
Board may, in its discretion, at any time and from time to time, resolve to
administer the Plan, in which case the term "Committee" shall be deemed to mean
the Board for all purposes herein.  The Committee shall consist of at least two
directors.  Subject to the provisions of the Plan, the Committee shall be
authorized to (i) select persons to participate in the Plan, (ii) determine the
form and substance of grants made under the Plan to each participant, and the
conditions and restrictions, if any, subject to which such grants will be made,
(iii) modify the terms of grants made under the Plan, (iv) 

                                      -3-
<PAGE>
 
interpret the Plan and grants made thereunder, (v) make any adjustments
necessary or desirable in connection with grants made under the Plan to eligible
participants located outside the United States and (vi) adopt, amend, or rescind
such rules and regulations, and make such other determinations, for carrying out
the Plan as it may deem appropriate. Decisions of the Committee on all matters
relating to the Plan shall be in the Committee's sole discretion and shall be
conclusive and binding on all parties. The validity, construction, and effect of
the Plan and any rules and regulations relating to the Plan shall be determined
in accordance with applicable federal and state laws and rules and regulations
promulgated pursuant thereto. No member of the Committee and no officer of the
Company shall be liable for any action taken or omitted to be taken by such
member, by any other member of the Committee or by any officer of the Company in
connection with the performance of duties under the Plan, except for such
member's own willful misconduct or as expressly provided by statute.

          The expenses of the Plan shall be borne by the Company.  The Plan
shall not be required to establish any special or separate fund or make any
other segregation of assets to assume the payment of any award under the Plan,
and rights to the payment of such awards shall be no greater than the rights of
the Company's general creditors.

4.   Shares Available for the Plan.
     ----------------------------- 

          Subject to adjustments as provided in Section 15, an aggregate of
2,041,269 shares of Common Stock (the "Shares") may be issued pursuant to the
                                       ------                                
Plan.  Such Shares may be in whole or in part authorized and unissued, or shares
which have been reacquired by the Company and held as treasury shares.  If any
grant under the Plan expires or terminates unexercised, becomes unexercisable or
is forfeited as to any Shares, such unpurchased or forfeited Shares shall
thereafter be available for further grants under the Plan unless, in the case of
options granted under the Plan, related SARs are exercised.

          Without limiting the generality of the foregoing provisions of this
Section 4 or the generality of the provisions of Sections 3, 6 or 17 or any
other section of this Plan, the Committee may, at any time or from time to time,
and on such terms and conditions (that are consistent with and not in
contravention of the other provisions of this Plan) as the Committee may, in its
sole discretion, determine, enter into agreements (or take other actions with
respect to the options) for new options containing terms (including exercise
prices) more (or less) favorable than the outstanding options.

5.   Participation.
     ------------- 

          Participation in the Plan shall be limited to those directors
(including Non-Employee Directors), officers (including non-employee officers)
and key employees of, and other key individuals performing services for, the
Company and its Subsidiaries selected by the Committee (including participants
located outside the United States).  Nothing in the Plan or in any grant
thereunder shall confer any right on a participant to continue in the employ of
or the performance of services for the Company or shall interfere in any way
with the right of the Company to terminate the employment or performance of
services of a participant at any time.  By accepting any award under the Plan,
each participant and each person claiming under or through him or her shall be

                                      -4-
<PAGE>
 
conclusively deemed to have indicated his or her acceptance and ratification of,
and consent to, any action taken under the Plan by the Company, the Board or the
Committee.

          Incentive Stock Options or Nonqualified Stock Options, SARs in tandem
with options, restricted stock awards, performance awards, or any combination
thereof, may be granted to such persons and for such number of Shares as the
Committee shall determine (such individuals to whom grants are made being
sometimes herein called "optionees" or "grantees," as the case may be).
Determinations made by the Committee under the Plan need not be uniform and may
be made selectively among eligible individuals under the Plan, whether or not
such individuals are similarly situated.  A grant of any type made hereunder in
any one year to an eligible participant shall neither guarantee nor preclude a
further grant of that or any other type to such participant in that year or
subsequent years.

6.   Incentive and Nonqualified Options.
     ---------------------------------- 

          The Committee may from time to time grant to eligible participants
Incentive Stock Options, Nonqualified Stock Options, or any combination thereof;
provided that the Committee may grant Incentive Stock Options only to eligible
employees of the Company or its subsidiaries (as defined for this purpose in
Section 424(f) of the Code).  In any one calendar year, the Committee shall not
grant to any one participant, options or SARs to purchase a number of shares of
Common Stock in excess of 100,000.  The options granted shall take such form as
the Committee shall determine, subject to the following terms and conditions.

          It is the Company's intent that Nonqualified Stock Options granted
under the Plan not be classified as Incentive Stock Options, that Incentive
Stock Options be consistent with and contain or be deemed to contain all
provisions required under Section 422 of the Code and any successor thereto, and
that any ambiguities in construction be interpreted in order to effectuate such
intent.  If an Incentive Stock Option granted under the Plan does not qualify as
such for any reason, then to the extent of such nonqualification, the stock
option represented thereby shall be regarded as a Nonqualified Stock Option duly
granted under the Plan, provided that such stock option otherwise meets the
Plan's requirements for Nonqualified Stock Options.

          (a) Price.  The price per Share deliverable upon the exercise of each
              -----                                                            
option ("exercise price") shall be established by the Committee, except that in
the case of the grant of any Incentive Stock Option, the exercise price may not
be less than 100% of the Fair Market Value of a share of Common Stock as of the
date of grant of the option, and in the case of the grant of any Incentive Stock
Option to an employee who, at the time of the grant, owns more than 10% of the
total combined voting power of all classes of stock of the Company or any of its
Subsidiaries, the exercise price may not be less that 110% of the Fair Market
Value of a share of Common Stock as of the date of grant of the option, in each
case unless otherwise permitted by Section 422 of the Code.

          (b) Payment.  Options may be exercised, in whole or in part, upon
              -------                                                      
payment of the exercise price of the Shares to be acquired. Unless otherwise
determined by the Committee, payment shall be made (i) in cash (including check,
bank draft or money order), (ii) by delivery of outstanding shares of Common
Stock with a Fair Market Value on the date of exercise equal to the 

                                      -5-
<PAGE>
 
aggregate exercise price payable with respect to the options' exercise, (iii) by
simultaneous sale through a broker reasonably acceptable to the Committee of
Shares acquired on exercise, as permitted under Regulation T of the Federal
Reserve Board, (iv) by authorizing the Company to withhold from issuance a
number of Shares issuable upon exercise of the options which, when multiplied by
the Fair Market Value of a share of Common Stock on the date of exercise is
equal to the aggregate exercise price payable with respect to the options so
exercised or (v) by any combination of the foregoing. Options may also be
exercised upon payment of the exercise price of the Shares to be acquired by
delivery of the optionee's promissory note, but only to the extent specifically
approved by and in accordance with the policies of the Committee.

          In the event a grantee elects to pay the exercise price payable with
respect to an option pursuant to clause (ii) above, (A) only a whole number of
share(s) of Common Stock (and not fractional shares of Common Stock) may be
tendered in payment, (B) such grantee must present evidence acceptable to the
Company that he or she has owned any such shares of Common Stock tendered in
payment of the exercise price (and that such tendered shares of Common Stock
have not been subject to any substantial risk of forfeiture) for at least six
months prior to the date of exercise, and (C) Common Stock must be delivered to
the Company.  Delivery for this purpose may, at the election of the grantee, be
made either by (A) physical delivery of the certificate(s) for all such shares
of Common Stock tendered in payment of the price, accompanied by duly executed
instruments of transfer in a form acceptable to the Company, or (B) direction to
the grantee's broker to transfer, by book entry, such shares of Common Stock
from a brokerage account of the grantee to a brokerage account specified by the
Company.  When payment of the exercise price is made by delivery of Common
Stock, the difference, if any, between the aggregate exercise price payable with
respect to the option being exercised and the Fair Market Value of the share(s)
of Common Stock tendered in payment (plus any applicable taxes) shall be paid in
cash.  No grantee may tender shares of Common Stock having a Fair Market Value
exceeding the aggregate exercise price payable with respect to the option being
exercised.

          In the event a grantee elects to pay the exercise price payable with
respect to an option pursuant to clause (iv) above, (A) only a whole number of
Share(s) (and not fractional Shares) may be withheld in payment and (B) such
grantee must present evidence acceptable to the Company that he or she has owned
a number of shares of Common Stock at least equal to the number of Shares to be
withheld in payment of the exercise price (and that such owned shares of Common
Stock have not been subject to any substantial risk of forfeiture) for at least
six months prior to the date of exercise.  When payment of the exercise price is
made by withholding of Shares, the difference, if any, between the aggregate
exercise  price payable with respect to the option being exercised and the Fair
Market Value of the Share(s) withheld in payment (plus any applicable taxes)
shall be paid in cash.  No grantee may authorize the withholding of Shares
having a Fair Market Value exceeding the aggregate exercise price payable with
respect to the option being exercised. Any withheld Shares shall no longer be
issuable under such option.

          (c) Terms of Options.  The term during which each option may be
              ----------------                                           
exercised shall be determined by the Committee, but, except as otherwise
provided herein, in no event shall an option be exercisable in whole or in part,
in the case of a Nonqualified Stock Option or an Incentive Stock Option (other
than as described below), more than ten years from the date it is granted or, in
the case of an Incentive Stock Option granted to an employee who at the time of
the grant owns 

                                      -6-
<PAGE>
 
more than 10% of the total combined voting power of all classes of stock of the
Company or any of its Subsidiaries, if required by the Code, more than five
years from the date it is granted. All rights to purchase Shares pursuant to an
option shall, unless sooner terminated, expire at the date designated by the
Committee. The Committee shall determine the date on which each option shall
become exercisable and may provide that an option shall become exercisable in
installments. The Shares constituting each installment may be purchased in whole
or in part at any time after such installment becomes exercisable, subject to
such minimum exercise requirements as may be designated by the Committee. Unless
otherwise provided herein or in the terms of the related grant, an optionee may
exercise an option only if he or she is, and has been continuously since the
date the option was granted, a director, officer or employee of the Company or a
Subsidiary. Prior to the exercise of an option and delivery of the Shares
represented thereby, the optionee shall have no rights as a stockholder with
respect to any Shares covered by such outstanding option (including any dividend
or voting rights).

          (d) Limitations on Grants. If required by the Code, the aggregate Fair
              ---------------------                                             
Market Value (determined as of the grant date) of Shares for which an Incentive
Stock Option is exercisable for the first time during any calendar year under
all equity incentive plans of the Company and its Subsidiaries may not exceed
$100,000.

          (e) Termination; Change in Control.
              ------------------------------ 

                  (i)   Unless otherwise determined by the Committee, if a 
participant ceases to be a director, officer or employee of , or to perform
other services for, the Company and any Subsidiary due to death or Disability,
all or any portion of the participant's options and SARs may become fully vested
and exercisable and shall remain so for a period of 180 days from the date of
such death or Disability, but in no event after the expiration date of the
option. Notwithstanding the foregoing, if the Disability giving rise to the
termination of employment is not within the meaning of Section 422(e)(3) of the
Code, Incentive Stock Options not exercised by such participant within 90 days
after the date of termination of employment will cease to qualify as Incentive
Stock Options and will be treated as Nonqualified Stock Options under the Plan
if required to be so treated under the Code.

                  (ii)  Unless otherwise determined by the Committee, if a
participant ceases to be a director, officer or employee of, or to perform other
services for, the Company and any Subsidiary upon the occurrence of his or her
Retirement, (A) each of his or her options and SARs that was exercisable on the
date of Retirement shall remain exercisable for, and shall otherwise terminate
at the end of, a period of not more than one year after the date of Retirement,
but in no event after the expiration date of the options; provided that the
participant does not engage in Competition during such one year period unless he
or she receives written consent to do so from the Board or the Committee, and
(B) all of the participant's options and SARs that were not exercisable on the
date of Retirement shall be forfeited immediately upon such Retirement.
Notwithstanding the foregoing, Incentive Stock Options not exercised by such
participant within 90 days after Retirement will cease to qualify as Incentive
Stock Options and will be treated as Nonqualified Stock Options under the Plan
if required to be so treated under the Code.

                                      -7-
<PAGE>
 
                  (iii) If a participant ceases to be a director, officer or
employee of, or to perform other services for, the Company or a Subsidiary due
to Cause, all of his or her options and SARs shall be forfeited immediately upon
such cessation, whether or not then exercisable.

                  (iv)  Unless otherwise determined by the Committee, if a
participant ceases to be a director, officer or employee of, or to otherwise
perform services for, the Company or a Subsidiary for any reason other than
death, Disability, Retirement or Cause, (A) each of his or her options and SARs
that was exercisable on the date of such cessation shall remain exercisable for,
and shall otherwise terminate at the end of, a period of 30 days after the date
of such cessation, but in no event after the expiration date of the options;
provided that the participant does not engage in Competition during such 30-day
period unless he or she receives written consent to do so from the Board or the
Committee, and (B) all of the participant's options and SARs that were not
exercisable on the date of such cessation shall be forfeited immediately upon
such cessation.

                  (v)   Unless otherwise determined by the Committee if there 
is a Change in Control of the Company, all of the participant's options and SARs
shall become fully vested and exercisable immediately prior to such Change in
Control and shall remain so until the expiration date of the options and SARs.

          (f) Grant of Reload Options.  The Committee may provide, in its
              -----------------------                                    
discretion, for the grant (either at the time of grant or exercise of an
option), to a grantee who exercises all or any portion of an option for Shares
which have a Fair Market Value equal to not less than 100% of the price for such
options ("Exercised Options") and who pays all or part of such exercise price
with shares of Common Stock, of an additional option (a "Reload Option") for a
number of shares of Common Stock equal to the sum (the "Reload Number") of the
number of shares of Common Stock tendered or withheld in payment of such
exercise price for the Exercised Options plus, if so provided by the Committee,
the number of shares of Common Stock, if any, tendered or withheld by the
grantee or withheld by the Company in connection with the exercise of the
Exercised Options  to satisfy any federal, state or local tax withholding
requirements.  The terms of each Reload Option, including the date of its
expiration and the terms and conditions of its exercisability and
transferability, shall be the same as the terms of the Exercised Option to which
it relates, except that (i) the grant date for each Reload Option shall be the
date of exercise of the Exercised Option to which it relates, (ii) the exercise
price for each Reload Option shall be the Fair Market Value of the Common Stock
on the grant date of the Reload Option and (iii) no Reload Option may be
exercised within one year from the grant date thereof.


7.   Stock Appreciation Rights.
     ------------------------- 

          The Committee shall have the authority to grant SARs under this Plan
to any optionee in tandem with options, either at the time of grant of the
related option or thereafter by amendment to an outstanding option.  The
exercise of an option shall result in an immediate forfeiture of any related SAR
to the extent the option is exercised, and the exercise of an SAR shall cause an
immediate forfeiture of any related option to the extent the SAR is exercised.
SARs shall be subject to such other terms and conditions as the Committee may
specify.  An SAR shall expire at the same 

                                      -8-
<PAGE>
 
time as the related option expires and shall be transferable only when, and
under the same conditions as, the related option is transferable.

          SARs shall be exercisable only when, to the extent and on the
conditions that the related option is exercisable.  No SAR may be exercised
unless the Fair Market Value of a share of Common Stock of the Company on the
date of exercise exceeds the exercise price of the option to which the SAR
corresponds.  Prior to the exercise of the SAR and delivery of the cash and/or
Shares represented thereby, the optionee shall have no rights as a stockholder
with respect to Shares covered by such outstanding SAR (including any dividend
or voting rights).

          Upon the exercise of an SAR, the optionee shall be entitled to a
distribution in an amount equal to the difference between the Fair Market Value
of a share of Common Stock on the date of exercise and the exercise price of the
option to which the SAR is related, multiplied by the number of Shares as to
which the SAR is exercised.  The Committee shall decide whether such
distribution shall be in cash, in Shares, in Other Company Securities or in a
combination thereof.

          All SARs will be exercised automatically on the last day prior to the
expiration date of the related option, so long as the Fair Market Value of a
share of Common Stock on that date exceeds the exercise price of the related
option.

8.   Restricted Stock.
     ---------------- 

          The Committee may at any time and from time to time grant Shares of
restricted stock under the Plan to such participants and in such amounts as it
determines.  Each grant of restricted stock shall specify the applicable
restrictions on such Shares, the duration of such restrictions (which shall be
at least six months except as otherwise provided in the third paragraph of this
Section 8), and the time or times at which such restrictions shall lapse with
respect to all or a specified number of Shares that are part of the grant.

          The participant will be required to pay the Company the aggregate par
value of any Shares of restricted stock (or such larger amount as the Board may
determine to constitute capital under Section 154 of the Delaware General
Corporation Law, as amended) within ten days of the date of grant, unless such
Shares of restricted stock are treasury shares.  The Shares will be held in
escrow by the Company on the participant's behalf during any period of
restriction thereon and will bear an appropriate legend specifying the
applicable restrictions thereon, and the participant will be required to execute
a blank stock power therefor.  Except as otherwise provided by the Committee,
during such period of restriction the participant shall have all of the rights
of a holder of Common Stock, including but not limited to the rights to receive
dividends (or amounts equivalent to dividends) and to vote, and any stock
received as a distribution with respect to such participant's restricted stock
shall be subject to the same restrictions as then in effect for the restricted
stock.

          Except as otherwise provided by the Committee, immediately prior to a
Change in Control or at such time as a grantee ceases to be a director, officer
or employee of , or to otherwise perform services for, the Company and its
Subsidiaries due to death, Disability or Retirement during any period of
restriction, all restrictions on Shares granted to such grantee shall lapse. At
such time as a grantee ceases to be a director, officer or employee of, or to
otherwise perform services for, the 

                                      -9-
<PAGE>
 
Company or its Subsidiaries for any other reason, all restricted stock granted
to such grantee on which the restrictions have not lapsed shall be forfeited to
the Company.

9.   Performance Awards.
     ------------------ 

          Performance awards may be granted to participants at any time and from
time to time as determined by the Committee.  The Committee shall have complete
discretion in determining the size and composition of performance awards so
granted to a participant and the appropriate period over which performance is to
be measured (a "performance cycle").  Performance awards may include (i)
specific dollar-value target awards (ii) performance units, the value of each
such unit being determined by the Committee at the time of issuance, and/or
(iii) performance Shares, the value of each such Share being equal to the Fair
Market Value of a share of Common Stock.

          The value of each performance award may be fixed or it may be
permitted to fluctuate based on a performance factor (e.g., return on equity)
selected by the Committee.

          The Committee shall establish performance goals and objectives for
each performance cycle on the basis of such criteria and objectives as the
Committee may select from time to time, including, without limitation, the
performance of the participant, the Company, one or more of its Subsidiaries or
divisions or any combination of the foregoing.  During any performance cycle,
the Committee shall have the authority to adjust the performance goals and
objectives for such cycle for such reasons as it deems equitable.

          The Committee shall determine the portion of each performance award
that is earned by a participant on the basis of the Company's performance over
the performance cycle in relation to the performance goals for such cycle. The
earned portion of a performance award may be paid out in Shares, cash, Other
Company Securities, or any combination thereof, as the Committee may determine.

          A participant must be a director, officer or employee of, or otherwise
perform services for, the Company or its Subsidiaries at the end of the
performance cycle in order to be entitled to payment of a performance award
issued in respect of such cycle; provided, however, that, except as otherwise
determined by the Committee, if a participant ceases to be a director, officer
or employee of , or to otherwise perform services for, the Company and its
Subsidiaries upon his or her death, Retirement, or Disability prior to the end
of the performance cycle, the participant shall earn a proportionate portion of
the performance award based upon the elapsed portion of the performance cycle
and the Company's performance over that portion of such cycle.

10.  Withholding Taxes.
     ----------------- 

     (a) Participant Election.  Unless otherwise determined by the Committee, a
         --------------------                                                  
participant may elect to deliver shares of Common Stock (or have the Company
withhold shares acquired upon exercise of an option or SAR or deliverable upon
grant or vesting of restricted stock, as the case may be) to satisfy, in whole
or in part, the amount the Company is required to withhold for taxes in
connection with the exercise of an option or SAR or the delivery of restricted
stock upon grant or vesting, as the case may be.  Such election must be made on
or before the date the amount of tax to 

                                     -10-
<PAGE>
 
be withheld is determined. Once made, the election shall be irrevocable. The
fair market value of the shares to be withheld or delivered will be the Fair
Market Value as of the date the amount of tax to be withheld is determined. In
the event a participant elects to deliver shares of Common Stock pursuant to
this Section 10(a), such delivery must be made subject to the conditions and
pursuant to the procedures set forth in Section 6(b) with respect to the
delivery of Common Stock in payment of the exercise price of options.

     (b) Company Requirement.  The Company may require, as a condition to any
         -------------------                                                 
grant or exercise under the Plan or to the delivery of certificates for Shares
issued hereunder, that the grantee make provision for the payment to the
Company, either pursuant to Section 10(a) or this Section 10(b), of any federal,
state or local taxes of any kind required by law to be withheld with respect to
any grant or any delivery of Shares.  The Company, to the extent permitted or
required by law, shall have the right to deduct from any payment of any kind
(including salary or bonus) otherwise due to a grantee, an amount equal to any
federal, state or local taxes of any kind required by law to be withheld with
respect to any grant or to the delivery of Shares under the Plan, or to retain
or sell without notice a sufficient number of the Shares to be issued to such
grantee to cover any such taxes, the payment of which has not otherwise been
provided for in accordance with the terms of the Plan, provided that the Company
shall not sell any such Shares if such sale would be considered a sale by such
grantee for purposes of Section 16 of the Exchange Act that is not exempt from
matching thereunder.

11.  Written Agreement; Vesting.
     -------------------------- 

          Each employee to whom a grant is made under the Plan shall enter into
a written agreement with the Company that shall contain such provisions,
including without limitation vesting requirements, consistent with the
provisions of the Plan, as may be approved by the Committee. Unless the
Committee determines otherwise and except as otherwise provided in Sections 6,
7, 8 and 9 in connection with a Change of Control or certain occurrences of
termination, no grant under this Plan may be exercised within six months of the
date such grant is made.

12.  Transferability.
     --------------- 

          Unless the Committee determines otherwise, no option, tandem SAR,
performance award, or restricted stock granted under the Plan shall be
transferable by a participant otherwise than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Code.  Unless the Committee determines otherwise, an option, SAR, or
performance award may be exercised only by the optionee or grantee thereof or
his guardian or legal representative; provided that Incentive Stock Options may
be exercised by such guardian or legal representative only if permitted by the
Code and any regulations promulgated thereunder.

13.  Listing, Registration and Qualification.
     --------------------------------------- 

          If the Committee determines that the listing, registration or
qualification upon any securities exchange or under any law of Shares subject to
any option, SAR, performance award or restricted stock grant is necessary or
desirable as a condition of, or in connection with, the granting of same or the
issue or purchase of Shares thereunder, no such option or SAR may be exercised
in 

                                     -11-
<PAGE>
 
whole or in part, no such performance award may be paid out and no Shares may
be issued unless such listing, registration or qualification is effected free of
any conditions not acceptable to the Committee.

          It is the intent of the Company that the Plan comply in all respects
with Section 162(m) of the Code, that awards made hereunder comply in all
respects with Rule 16b-3 under the Exchange Act, that any ambiguities or
inconsistencies in construction of the Plan be interpreted to give effect to
such intention and that if any provision of the Plan is found not to be in
compliance with Rule 16b-3 or Section 162(m), such provision shall be deemed
null and void to the extent required to permit the Plan to comply with Rule 16b-
3 or Section 162(m), as the case may be.

14.  Transfer of Employee.
     -------------------- 

          Transfer of an employee from the Company to a Subsidiary, from a
Subsidiary to the Company, and from one Subsidiary to another shall not be
considered a termination of employment; nor shall it be considered a termination
of employment if an employee is placed on military or sick leave or such other
leave of absence which is considered by the Committee as continuing intact the
employment relationship.

15.  Adjustments.
     ----------- 

          In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, distribution of assets,
or any other change in the corporate structure or shares of the Company, the
Committee shall make such adjustment as it deems appropriate in the number and
kind of Shares or other property reserved for issuance under the Plan, in the
number and kind of Shares or other property covered by grants previously made
under the Plan, and in the exercise price of outstanding options and SARs.  Any
such adjustment shall be final, conclusive and binding for all purposes of the
Plan.  In the event of any merger, consolidation or other reorganization in
which the Company is not the surviving or continuing corporation or in which a
Change in Control is to occur, all of the Company's obligations regarding
options, SARs performance awards, and restricted stock that were granted
hereunder and that are outstanding on the date of such event shall, on such
terms as may be approved by the Committee prior to such event, be assumed by the
surviving or continuing corporation or canceled in exchange for property
(including cash).

          Without limitation of the foregoing, in connection with any
transaction of the type specified by clause (iii) of the definition of a Change
in Control in Section 2(c), the Committee may, in its discretion, (i) cancel any
or all outstanding options under the Plan in consideration for payment to the
holders thereof of an amount equal to the portion of the consideration that
would have  been payable to such holders pursuant to such transaction if their
options had been fully exercised immediately prior to such transaction, less the
aggregate exercise price that would have been payable therefor, or (ii) if the
amount that would have been payable to the option holders pursuant to such
transaction if their options had been fully exercised immediately prior thereto
would be less than the aggregate exercise price that would have been payable
therefor, cancel any or all such options for no consideration or payment of any
kind.  Payment of any amount payable pursuant to the preceding sentence may be
made in cash or, in the event that the consideration to be received

                                     -12-
<PAGE>
 
in such transaction includes securities or other property, in cash and/or
securities or other property in the Committee's discretion.

16.  Termination and Modification of the Plan.
     ---------------------------------------- 

          The Board of Directors, without further approval of the stockholders,
may modify or terminate the Plan, except that no modification shall become
effective without prior approval of the stockholders of the Company if
stockholder approval would be required for continued compliance with the
performance-based compensation exception of Section 162(m) of the Code or any
listing requirement of the principal stock exchange on which the Common Stock is
then listed.

17.  Amendment or Substitution of Awards under the Plan.
     -------------------------------------------------- 

          The terms of any outstanding award under the Plan may be amended from
time to time by the Committee in its discretion in any manner that it deems
appropriate (including, but not limited to, acceleration of the date of exercise
of any award and/or payments thereunder or of the date of removal of
restrictions on Shares); provided that, except as otherwise provided in Section
15, no such amendment shall adversely affect in a material manner any right of a
participant under the award without his or her written consent.  The Committee
may, in its discretion, permit holders of awards under the Plan to surrender
outstanding awards in order to exercise or realize rights under other awards, or
in exchange for the grant of new awards, or require holders of awards to
surrender outstanding awards as a condition precedent to the grant of new awards
under the Plan.

18.  Commencement Date; Termination Date.
     ----------------------------------- 

          The date of commencement of the Plan shall be September 29, 1997,
subject to approval by the shareholders of the Company.  Unless previously
terminated upon the adoption of a resolution of the Board terminating the Plan,
the Plan shall terminate at the close of business on September 29, 2007;
provided that the Board may, prior to such termination, extend the term of the
Plan for up to five years for the grant of awards other than Incentive Stock
Options.  No termination of the Plan shall materially and adversely affect any
of the rights or obligations of any person, without his consent, under any grant
of options or other incentives theretofore granted under the Plan.

19.  Governing Law.  The Plan shall be governed by the corporate laws of the
     -------------                                                          
State of Delaware, without giving effect to any choice of law provisions.

                                     -13-