Document:

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                              EMPLOYMENT AGREEMENT

                                 BY AND BETWEEN

                        DIAMOND TRIUMPH AUTO GLASS, INC.

                                       AND

                                DOUGLAS M. BOYLE

                                   DATED AS OF

                                  MAY 20, 2005
<PAGE>
           This EMPLOYMENT AGREEMENT, dated as of May 20, 2005, by and between
DOUGLAS M. BOYLE (the "Employee") and DIAMOND TRIUMPH AUTO GLASS, INC., a
Delaware corporation (the "Company"). As used herein, the term "Companies" shall
refer to the Company and its existing and future subsidiaries.

           The Company desires to engage Employee to perform services for the
Companies, and Employee desires to perform such services, on the terms and
conditions set forth below:

           NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:

         1. Employment Term.

                  The Company will employ the Employee in its business, and the
Employee will work for the Company, for a term of two (2) years, commencing as
of May 20, 2005 and ending on May 19, 2007, upon the terms and subject to the
conditions set forth in this Agreement. Such period, including any extensions or
renewals thereof, is referred to herein as the "Employment Period".

         2. Duties.

                  2.1 During the Employment Period, the Employee shall serve as
the Chief Financial Officer of the Company, and perform duties of an executive
character consisting of administrative and managerial responsibilities on behalf
of the Companies, and shall perform such other duties on behalf of the Companies
and exercise such authority as may from time to time reasonably be delegated to
the Employee by the Board of Directors of the Company consistent with his
abilities.

                  2.2 The Employee shall discharge his duties from the Company's
facility in Kingston, Pennsylvania. The Employee shall also engage in such
travel in furtherance of his duties set forth in Section 2.1, as shall be
reasonably requested by the Company.

         3. Devotion of Time.

                  Throughout the Employment Period, the Employee shall: (a)
devote substantially all of his working time to the business and affairs of the
Companies; (b) faithfully and diligently perform his duties in conformity with
the directions of the Board of Directors of the Company; (c) devote his best
efforts, energy and skill to the services of the Companies and the promotion of
their interests; and not take part in activities known by the Employee to be
detrimental to the best interests of the Companies.

         4. Compensation.

                  4.1 In consideration for the services to be performed by the
Employee during the Employment Period hereunder, the Company shall compensate
the Employee at a base salary of $200,000.00 per annum (the "Base Salary").

                  4.2 The Employee shall be eligible to participate in the
management bonus compensation plan (the "Bonus Plan") that the Company
anticipates will be adopted by the Board of Directors prior to the close of
fiscal year 2005.

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         5. Reimbursement of Expenses; Additional Benefits.

                  5.1 The Employee shall receive an automobile allowance for the
use of an automobile owned or leased by him in accordance with the policies and
procedures established by the Company from time to time for executive employees.

                  5.2 The Company shall pay directly, or reimburse the Employee
for, all other reasonable and necessary business expenses and disbursements
incurred by the Employee for or on behalf of the Company in the performance of
his duties under this Agreement. For such purposes, the Employee shall submit to
the Company itemized, invoices, statements or written reports of such expenses
in accordance with the policies and procedures established by the Company from
time to time.

                  5.3 The Employee shall be entitled to paid vacations during
the Employment Period in accordance with the then prevalent practices of the
Company for its senior executives; provided, however, that Employee shall be
entitled to such paid vacations for not less than four (4) weeks per annum.

                  5.4 During the Employment Period, the Employee shall be
entitled to participate in, and to receive benefits under, such employee benefit
plans of the Company (including, without limitation, pension, profit sharing,
bonus, group life insurance and group medical insurance plans) as may exist from
time to time for the Company's senior executives.

         6. Representations and Warranties of the Employee.

                  The Employee represents and warrants to the Company that the
Employee is under no contractual or other restriction or obligation which
conflicts with, violates or is inconsistent with the execution of this
Agreement, the performance of his duties hereunder or the other rights of the
Company hereunder.

         7. Non-Competition.

                  During the Employment Period, including any unexpired portion
thereof, the Employee shall not, directly or indirectly, own, manage, operate,
join, control, participate in, invest in or otherwise be connected or associated
with, in any manner, including, without limitation, as an officer, director,
employee, distributor, independent contractor, independent representative,
partner, consultant, advisor, agent, proprietor, trustee or investor, any
Competing Business located in any state or region (including foreign
jurisdictions) where any of the Companies currently conduct business or is
considering doing business; provided, however, that ownership of 1% or less of
the stock or other securities of a corporation, the stock of which is listed on
a national securities exchange or is quoted on The Nasdaq Stock Market's
National Market, shall not constitute a breach of this Section 7, so long as the
Employee does not in fact have the power to control, or direct the management
of, or is not otherwise engaged in activities with, such corporation.

                  For purposes hereof, the term "Competing Business" shall mean
any business or venture which is engaged, directly or indirectly, in (i)
developing, manufacturing, marketing, selling and/or distributing (including
wholesale distribution) of automobile or truck glass or windshields or other
glass products utilized in vehicles; repairing, replacing or installing

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automobile or truck glass or windshields or other glass products utilized in
vehicles; or providing any third party claims or other administrative services
related to repairing, replacing or installing automobile or truck glass or
windshields or other glass products utilized in vehicles; or selling or
installing those kinds of automobile or truck accessories sold by any of the
Companies, (ii) any other business engaged in or actively being developed by any
of the Companies, or (iii) any other business which is substantially similar to
the whole or any significant part of the business conducted by the Companies.

         8. No Solicitation.

                  During the Employment Period, including any unexpired portion
thereof, the Employee shall not, directly or indirectly, including on behalf of,
for the benefit of, or in conjunction with, any other person or entity, (i)
solicit, assist, advise, influence, induce or otherwise encourage in any way,
any employee of any of the Companies to terminate its relationship with any of
the Companies for any reason, nor assist any person or entity in doing so, or
employ, engage or otherwise contract with any employee or former employee of any
of the Companies in a Competing Business or any other business unless such
former employee shall not have been employed by any of the Companies for a
period of at least one year, (ii) interfere in any manner with the relationship
between any employee and any of the Companies or (iii) contact, service or
solicit any existing clients, customers or accounts of any of the Companies on
behalf of a Competing Business, either as an individual on his own account, as
an investor, or as an officer, director, partner, joint venturer, consultant,
employee, agent or salesman or any other person or entity.

         9. Confidential Information.

                  9.1 "Confidential Information" shall mean confidential records
and information, including, but not limited to, development, marketing,
purchasing, organizational, strategic, financial, managerial, administrative,
manufacturing, production, distribution and sales information, distribution
methods, data, specifications and processes (including the Transferred Property
as hereinafter defined) presently owned or at any time hereafter developed by
any of the Companies or its agents or consultants or used presently or at any
time hereafter in the course of the business of any of the Companies, that are
not otherwise part of the public domain.

                  9.2 The Employee hereby sells, transfers and assigns to the
Company, or to any person or entity designated by the Company, all of his entire
right, title and interest in and to all inventions, ideas, methods,
developments, disclosures and improvements (the "Inventions"), whether patented
or unpatented, and copyrightable material, and all trademarks, trade names, all
goodwill associated therewith and all federal and state registrations or
applications thereof, made, adopted or conceived by the Employee, solely or
jointly, in whole or in part (collectively, the "Transferred Property"), prior
to or during the Employment Period which (i) relate to methods, apparatus,
designs, products, processes or devices sold, leased, used or under construction
or development by any of the Companies or (ii) otherwise relate to or pertain to
the business, products, services, functions or operations of any of the
Companies. The Employee shall make adequate written records of all Inventions,
which records shall be the Company's property and shall communicate promptly and
disclose to the Company, in such form as the Company requests, all information,
details and data pertaining to the aforementioned Inventions. Whether during the
Employment Period or thereafter, the Employee shall execute and deliver to the
Company such formal transfers and assignments and such other papers and
documents as may be required of the Employee to permit the Company, or any
person or entity designated by the Company, to file and prosecute patent
applications (including, but not limited to, records, memoranda, or instruments
deemed necessary by the Company for the prosecution of a patent application or
the acquisition of letters patent in the United States, foreign countries or

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otherwise) and, as to copyrightable material, to obtain copyrights thereon, and
as to trademarks, to record the transfer of ownership of any federal or state
registrations or applications.

                  9.3 All such Confidential Information is considered secret and
will be disclosed to the Employee in confidence, and the Employee acknowledges
that, as a consequence of his employment and position with the Company, the
Employee may have access to and become acquainted with Confidential Information.
Except in the performance of his duties as an employee of the Company, the
Employee shall not, during the Employment Period and at all times thereafter,
directly or indirectly for any reason whatsoever, disclose or use any such
Confidential Information. All records, files, drawings, documents, equipment and
other tangible items, wherever located, relating in any way to or containing
Confidential Information, which the Employee has prepared, used or encountered
or shall in the future prepare, use or encounter, shall be and remain the
Company's sole and exclusive property and shall be included in the Confidential
Information. Upon termination of this Agreement, or whenever requested by the
Company, the Employee shall promptly deliver to the Company any and all of the
Confidential Information and copies thereof, not previously delivered to the
Company, that may be in the possession or under the control of the Employee. The
foregoing restrictions shall not apply to the use, divulgence, disclosure or
grant of access to Confidential Information to the extent, but only to the
extent, (i) expressly permitted or required pursuant to any other written
agreement between the Employee and the Company, (ii) such Confidential
Information has been publicly disclosed (not due to a breach by the Employee of
his obligations hereunder, or by breach of any other person, of a fiduciary or
confidential obligation to any of the Companies) or (iii) the Employee is
required to disclose Confidential Information by or to any court of competent
jurisdiction or any governmental or quasi-governmental agency, authority or
instrumentality of competent jurisdiction, provided, however, that the Employee
shall, prior to any such disclosure, immediately notify the Company of such
requirement and provided further, however, that the Company shall have the
right, at its expense, to object to such disclosures and to seek confidential
treatment of any Confidential Information to be so disclosed on such terms as it
shall determine.

         10. Acknowledgement; Remedies; Survival of this Agreement.

                  10.1 The Employee acknowledges that violation of any of the
covenants and provisions set forth in this Agreement would cause the Company
irreparable damage and agrees that the Company's remedies at law for a breach or
threatened breach of any of the provisions of this Agreement would be inadequate
and, in recognition of this fact, in the event of a breach or threatened breach
by the Employee of any of the provisions of this Agreement, it is agreed that,
in addition to the remedies at law or in equity, the Company shall be entitled,
without the posting of a bond, to equitable relief in the form of specific
performance, a temporary restraining order, temporary or permanent injunction,
or any other equitable remedy which may then be available for the purposes of
restraining the Employee from any actual or threatened breach of such covenants.
Without limiting the generality of the foregoing, if the Employee breaches or
threatens to breach Sections 7, 8, or 9 hereof, such breach or threatened breach
will entitle the Company to enjoin the Employee from disclosing any Confidential
Information to any Competing Business, to enjoin any Competing Business from
retaining the Employee or using any such Confidential Information, to enjoin the
Employee from engaging in any activities prohibited by Section 8 thereof and/or
to enjoin the Employee from rendering personal services to or in connection with
any Competing Business. The rights and remedies or the parties hereto are
cumulative and shall not be exclusive, and each such party shall be entitled to
pursue all legal and equitable rights and remedies and to secure performance of
the obligations and duties or the other under this Agreement, and the
enforcement of one or more of such rights and remedies by a party

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shall in no way preclude such party from pursuing, at the same time or
subsequently, any and all other rights and remedies available to it.

                  10.2 The provisions of this Agreement shall survive the
termination of the Employee's employment with the Company.

         11. Termination of Employment.

                  11.1 Termination. The Company may terminate the Employee's
employment for Cause (as hereinafter defined), in which case the provisions of
Section 11.2 shall apply. The Company may also terminate the Employee's
employment in the event of the Employee's death or Disability (as herein
defined), in which case the provisions of Section 11.3 shall apply. The Company
may also terminate the Employee's employment for any other reason by written
notice to the Employee, in which case the provisions of Section 11.4 shall
apply. If the Employee's employment is terminated by reason of the Employee's
resignation, the provisions of Section 11.2 shall apply, provided that no
termination of this Agreement shall relieve the Employee from liability for any
breach of this Agreement or defeat or impair the right of the Company to pursue
such relief as may otherwise be available to it as a result of any breach of
this Agreement or any term, provision or covenant contained herein.

                  11.2 Termination for Cause; Resignation. Notwithstanding
anything to the contrary contained herein, in the event that the Employee's
employment hereunder is terminated during the Agreement Term (x) by the Company
for Cause or (y) by reason of the Employee's resignation, then the Company shall
pay to the Employee, within thirty (30) days of the date of such termination,
only the Base Salary through such date of termination. For purposes of this
Agreement, "Cause" shall mean (i) conviction of, or plea of nolo contendere (no
contest) to, any crime (whether or not involving the Company) constituting a
felony in the jurisdiction involved; (ii) engaging in any act involving moral
turpitude; (iii) conduct related to the Employee's employment for which either
significant criminal or civil penalties against the Employee or any of the
Companies may be sought; (iv) gross neglect in the performance of the Employee's
duties hereunder; (v) misconduct in the performance of the Employee's duties
hereunder, which misconduct continues after notice thereof is given to the
Employee by the Board of Directors of the Company; (vi) willful failure or
refusal to perform such duties as may be delegated to the Employee commensurate
with the Employee's position, which misconduct continues after notice thereof is
given to the Employee by the Board of Directors of the Company; (vii) material
violation of the Company's policies, including, without limitation, those
relating to sexual harassment, the disclosure or misuse of Confidential
Information (as hereinafter defined), or those set forth in Company manuals or
statements of policy, which violation continues after notice thereof is given to
the Employee by the Board of Directors of the Company; (viii) engaging in any
conduct which is materially injurious or materially damaging to any of the
Companies or the reputation of any of the Companies; or (ix) material breach of
any provision of this Agreement by the Employee.

                  11.3 Death or Disability. If, as a result of the Employee's
incapacity due to physical or mental illness, the Employee shall have been
absent from the Employee's duties hereunder for either (i) one hundred and
eighty (180) days within any three hundred sixty five (365) day period, or (ii)
one hundred and twenty (120) consecutive days, and within thirty (30) days after
written notice of termination is given shall not have returned to the
performance of the Employee's duties hereunder on a full time basis, the Company
may terminate the Employee's employment hereunder for "Disability". In the
event, this Agreement is terminated by reason of the Employee's death or
Disability, the Company shall pay to the Employee (i) the

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Base Salary for a period of twelve (12) months, but in no event beyond May 19,
2007 unless Employment Period has been extended then to the end of such current
Employment Period, which Base Salary shall be paid commencing with such date of
termination at the times and in the amounts such Base Salary would have been
paid, and (ii) the amount of any Bonus payable under the Bonus Plan through such
date of termination, which Bonus, if any, shall be payable at the time provided
in the Bonus Plan. During any period that the Employee fails to perform the
Employee's duties hereunder as a result of incapacity due to physical or mental
illness (a "Disability Period"), the Employee shall continue to receive the
compensation and benefits provided by Section 5.4 hereof until the Employee's
employment hereunder is terminated; provided, however, that the amount of
compensation and benefits received by the Employee during the Disability Period
shall be reduced by the aggregate amounts, if any, payable to the Employee
pursuant to Section 5.4 hereof or under the Social Security or state disability
insurance programs.

                  11.4 Termination By the Company For Any Other Reason. In the
event that the Employee's employment hereunder is terminated by the Company
during the Employment Period for any reason other than as provided in Sections
11.2 or 11.3 hereof, then the Company shall pay to the Employee, (i) within
thirty (30) days of the date of such termination, the Base Salary through such
date of termination, (ii) the amount of any Bonus payable under the Bonus plan
through such date of termination, which Bonus, if any, shall be payable at the
time provided in the Bonus Plan; and (iii) in lieu of any further compensation,
benefits or other amounts for the balance of the Employment Period, severance
payment equal only to the Base Salary that Executive would have otherwise
received during the period beginning on such date of termination and ending on
the earlier of (i) the scheduled termination date of the Employment Period under
this Agreement or (ii) such time as Employee obtains other permanent employment,
which severance pay shall be paid commencing with such date of termination at
the times and in the amounts such Base Salary would have been paid.

         12. Assignment.

                  This Agreement, as it relates to the employment of the
Employee, is a personal contract and the rights, interests and obligations of
the Employee hereunder may not be sold, transferred, assigned, pledged or
hypothecated. Except as otherwise herein expressly provided, this Agreement
shall be binding upon and inure to the benefit of the Employee and his personal
representatives and shall inure to the benefit of and be binding upon the
Company and its successors and assigns, including without limitation, any
corporation or other entity into which the Company is merged or which acquires
all of the outstanding shares of the Company's capital stock, or all, or
substantially all of the assets of the Company. This Agreement may be assigned
by the Company to, any existing or future subsidiary or affiliate of the
Company, any purchaser of all or substantially all of the Company's business or
assets, any successor to the Company or any assignee thereof (whether direct or
indirect, by purchase, merger, consolidation or otherwise).

         13. Notices.

                  Any notice, request, consent or approval required or permitted
to be given under this Agreement or pursuant to law shall be sufficient if in
writing, and if and when sent by certified or registered mail, return receipt
requested, with postage prepaid, or by a nationally recognized overnight courier
service to the Employee's residence (as reflected in the Company's records or as
otherwise designated by the Employee on thirty (30) days' prior written notice
to the Company) or to the Company's principal executive office, attention: Chief
Operating Officer (with copies to the General Counsel), as the case may be. All
such notices, requests, consents and

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approvals shall be effective upon being deposited in the United States mail or
upon delivery to such overnight courier service. Rejection or other refusal to
accept, or the inability to deliver because of changed address of which no
notice was given as provided herein, shall be deemed to be receipt of the
notice, request, consent or approval sent.

         (a)      if to the Employee:

                  Douglas M. Boyle
                  P.O. Box 423
                  Dalton, Pennsylvania  18414

         (b)      if to the Company:

                  Diamond Triumph Auto Glass, Inc.
                  220 Division Street
                  Kingston, Pennsylvania  18704
                  Attn.:  Michael Sumsky, Chief Operating Officer

         With a copy to:

                  Green Equity Investors II, L.P.
                  C/O Leonard Green & Partners, L.P.
                  11111 Santa Monica Blvd., Suite 2000
                  Los Angeles, California  90025
                  Attn.:  Jonathan Seiffer

or to such other address as any such party shall designate by written notice to
the other party.

         14. Non-waiver.

                  Neither any course of dealing nor any failure or neglect of
either party hereto in any instance to exercise any right, power or privilege
hereunder or under law shall constitute a waiver of any other right, power or
privilege or of the same right, power or privilege in any other instance. All
waivers by either party hereto must be contained in a written instrument signed
by the party to be charged and, in the case of the Company, by its duly
authorized officer.

         15. Entire Agreement.

                  This Agreement contains the entire agreement of the parties
relating to the subject matter hereof and supersede all prior agreements and
understandings between them.

         16. Severability; Reasonableness of Agreement.

                  If any term, provision or covenant of this Agreement or part
thereof, or the application thereof to any person, place or circumstance shall
be held to be invalid, unenforceable or void by a court of competent
jurisdiction, the remainder of this Agreement and such term, provision or
covenant shall remain in full force and effect, and any such invalid,
unenforceable or void term, provision or covenant shall be deemed, without
further action on the part of the parties hereto, modified, amended and limited,
and the court shall have the power to modify, amend and

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<PAGE>
limit any such term, provision or covenant, to the extent necessary to render
the same and the remainder of this Agreement valid, enforceable and lawful. In
this regard, the Employee understands that the provisions of Sections 7, 8, 9,
and 10 may limit his ability to earn a livelihood in a business similar or
related to the business of the Company, but nevertheless agrees and acknowledges
that (i) the provisions of Sections 7, 8, 9, and 10 hereof are reasonable and
necessary for the protection of the Company, and do not impose a greater
restraint than is necessary to protect the goodwill or other business interests
of the Company and (ii) such provisions contain reasonable limitations as to the
time and the scope of activity to be restrained. In consideration of the
foregoing and in light of the Employee's education, skills and abilities, the
Employee agrees that all defenses by the Employee to the strict enforcement of
such provisions are hereby waived by the Employee.

         17. Headings.

                  The headings of the sections of this Agreement are provided
for convenience only and are intended to have no effect in construing or
interpreting this Agreement.

         18. Governing Law.

                  This Agreement, including the validity, interpretation,
construction and performance of this Agreement, shall be governed by and
construed in accordance with the internal laws of the State of New York, without
regard to principles of conflicts of law. All actions and proceedings relating
directly or indirectly to this Agreement shall be litigated in any state court
or federal court located in New York, New York. The parties hereto expressly
consent to the jurisdiction of any such court and to venue therein and consent
to the service of process in any such action or proceeding by certified or
registered mailing of the summons and complaint therein directed to the Employee
or the Company at the address as provided in Section 13 hereof.

         19. Amendment.

                  This Agreement may be amended only by a writing which makes
express reference to this Agreement as the subject of such amendment and which
is signed by the Employee and, on behalf of the Company, by its duly authorized
officer.

         20. Costs and Expenses

                  Each party shall pay all of its own costs and expenses,
including reasonable legal fees, in connection with the execution, delivery,
performance and compliance with this Agreement by such party. If an action or
proceeding is commenced by a party to enforce or interpret any provision of this
Agreement, the non-prevailing party shall promptly reimburse the prevailing
party for the prevailing party's reasonable costs and expenses of such action or
proceeding, including reasonable attorney's fees.

         21. Counterparts

                  This Agreement may be executed in one or more counterparts,
all of which together shall be deemed one original.

             (THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)

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         IN WITNESS WHEREOF, the undersigned has duly executed this Agreement as
of the date and year first written above.

                            DIAMOND TRIUMPH AUTO GLASS, INC.

                            BY:       _______________________________
                                      NAME:     NORMAN HARRIS
                                      TITLE:    CHIEF EXECUTIVE OFFICER

                                      -------------------------------
                                      NAME:     DOUGLAS M. BOYLE

                                       10<PAGE>
                                                                     Exhibit 4.2

                    GLOBAL PHILIPS STOCK OPTION PROGRAM 2005

                                     4.2-1
<PAGE>
        TERMS AND CONDITIONS OF GLOBAL PHILIPS STOCK OPTION PROGRAM 2005

                                   ARTICLE 1
                                  DEFINITIONS

      In this Global Philips Stock Option Program 2005 the following definitions
shall apply:

<TABLE>
<S>                 <C>    <C>
                    :      the price of a Share with dividend, if any, at the
Closing                    Price closing of the Official Segment of Euronext Amsterdam
                           N.V.'s stock market ("Euronext Amsterdam") as published in
                           the Official Price List of this stock exchange.

                    :      a custody account maintained in the name of an Option
Custody Account            Holder other than a Nominee Account.

                    :      the date at which the Options shall be deemed granted to
Date of Grant              the Option Holder under the Program. The Dates of Grant
                           shall be the same dates as the dates of publication of
                           the Philips' annual and/or quarterly results over the
                           financial year 2005. The relevant Date of Grant with
                           respect to any grant hereunder shall be determined by
                           Philips.

                    :      any company within the Philips group of companies and
Employing                  Company such other company as Philips may from time to
                           time designate or approve.

                    :      the price to be paid by the Option Holder to acquire a
Grant Price                Share upon exercising an Option. Such price will be equal
                           to the Closing Price on the applicable Date of Grant.

                    :      a custody account maintained in the name of an Option
Nominee                    Account Holder established by
                           an administrator designated by
                           Philips.

                    :      a right granted by Philips under the Program to acquire
Option                     one Share subject to the terms and conditions hereof.

                    :      a person holding any Options.
Option Holder

                    :      the term for which an Option is granted as specified in
Option Period              Article 3.

                    :      Koninklijke Philips Electronics N.V.
Philips

                    :      this Global Philips Stock Option Program 2005.
Program

                    :      a common share of Philips.
Share
</TABLE>

                                     4.2-2
<PAGE>
                                   ARTICLE 2
                             ACQUISITION OF OPTIONS

      Options may be granted to an eligible individual, subject to the
(acceptance by such individual of the) terms and conditions of this Program and
any other Philips' policies or guidelines that may apply to such individual. Any
Options offered to any such individual and the terms and conditions governing
such Options shall be deemed accepted by such individual with effect from the
applicable Date of Grant in case Philips has not received, in accordance with a
procedure established by Philips, a notice of rejection of such Options within
fourteen (14) days of the notice of grant of the Options or such later date as
may be determined by Philips.

                                   ARTICLE 3
                   RESTRICTIONS ON EXERCISE AND OPTION PERIOD

      1.    Options shall not be exercisable before the third anniversary of the
Date of Grant. Unvested or lapsed Options cannot be exercised.

      2.    The Option Period is in principle ten (10) years commencing on the
Date of Grant, subject to this Article 3.2 and Article 4. Upon request of an
Option Holder exercising Options pursuant to Article 6, the Option Period for
the Options being exercised will be limited to the period from the Date of Grant
up to, and including, the date Philips receives the above request in accordance
with a procedure established by Philips, provided that the Option Period is at
least three (3) years.

      3.    Options may in principle only be exercised (subject to a minimum of
ten (10) units) at the last day of the prevailing Option Period, subject to this
Article 3 and Article 4.

      4.    Subject to this Article 3 and Article 4, Members of the Group
Management Committee of Philips, the Head of Corporate Control and the Head of
Corporate Treasury, may only exercise Options during the period which commences
on the date of publication of Philips' annual or quarterly results and ends ten
business days thereafter.

                                   ARTICLE 4
                           TERMINATION OF EMPLOYMENT

      1.    Except as otherwise provided in Article 4.2, 4.3 and 4.4 hereof, in
case an Option Holder is no longer employed by any Employing Company as a result
of the termination of such Option Holder's employment with an Employing Company
for any reason whatsoever during the applicable Option Period, any Options held
by such Option Holder at the date of such termination shall be forfeited
effective as of the date of termination of such Option Holder's employment with
the Employing Company without the Option Holder being entitled to any
compensation or any obligation on the part of Philips or any of its subsidiaries
unless Philips determines, in its sole discretion, otherwise in writing. Any
such determination shall be final, conclusive and binding and may be subject to
such conditions as Philips may determine appropriate.

      2.    In case an Option Holder is no longer employed by any Employing
Company during the applicable Option Period as a result of the termination of
such Option Holder's employment with an Employing Company for reasons of (i)
disablement, (ii) retirement or (iii) the expiration of a temporary contract of
employment, provided such temporary contract of employment has not been extended
one or more times, any Options held by such Option Holder at the date of
termination shall

                                     4.2-3
<PAGE>
remain exercisable in accordance with Article 3, provided that in such case the
Option Period will expire upon the earlier of (a) ten (10) years from the Date
of Grant or (b) five (5) years from the date of such termination. For the
purpose of this Program, an Option Holder's employment shall be deemed
terminated as a result of "retirement" if such Option Holder's employment is
terminated and such Option Holder satisfies at the date of such termination the
eligibility requirements to receive an immediate (early) retirement benefit
under an (early) retirement plan of an Employing Company under which such Option
Holder was covered, provided (i) payment of such (early) retirement benefit
commences immediately following such termination, and provided further (ii) that
if such Option Holder is covered by an US retirement plan, such Option Holder
must have at least five years of service with an US Employing Company and have
attained the age of fifty-five (55) years.

      3.    In case an Option Holder is no longer employed by any Employing
Company during the applicable Option Period as a result of the termination of
such Option Holder's employment with an Employing Company for reasons of (i)
death or (ii) legal incapacity of the Option Holder, the Options shall remain
exercisable during the Option Period in accordance with Article 3, provided that
in such case the Option Period will expire upon the earlier of (a) ten (10)
years from the Date of Grant or (b) five (5) years from the date of such
termination. In the event that the remaining Option Period as from the date of
termination is less than twelve (12) months, then such Options shall be
exercisable for a period of twelve (12) months as of the date of such
termination and the Option Period shall be deemed extended accordingly, provided
that the Options shall only be exercisable in the manner as set forth in Article
9.

      4.    In case the employment of an Option Holder with any Employing
Company is terminated as a result of the sale or other divestment of a business,
subsidiary, division or other business unit of Philips or subsidiary or any part
thereof ("Divested Business") and the Option Holder remains employed by the
Divested Business upon such transfer, any Options held by such Option Holder at
the date of such termination shall remain exercisable in accordance with the
terms and conditions of this Program, provided that the Option Period will
expire upon the earlier of (a) ten (10) years as from the Date of Grant or (b)
five (5) years as from the date of such termination.

      Upon termination of the employment of the Option Holder with the Divested
Business, the terms of Article 4.1, 4.2 and 4.3 shall apply mutatis mutandis, it
being expressly understood that in case such Option Holder becomes re-employed
by any Employing Company immediately upon such termination, any Options held by
the Option Holder at such time shall not be forfeited, but shall remain
exerciseable for the remainder of the term of such Options as determined
pursuant to this Article 4.4, subject to the terms and conditions of this
Program.

                                   ARTICLE 5

                              NON-TRANSFERABILITY

      The Options are strictly personal, and may not be assigned, transferred
(except that, in case of death of the Option Holder during the Option Period,
any Options held by the Option Holder at the date of his death shall pass to his
heirs or legatees), pledged, hypothecated, or otherwise encumbered or disposed
of in any manner. The Option Holder may not engage in any transactions on any
exchange on the basis of any Options. Any violation of the terms of this Article
5 will cause the Options to become immediately null and void without further
notice and without the Option Holder being entitled to any compensation.

                                     4.2-4
<PAGE>
                                   ARTICLE 6

                              EXERCISE OF OPTIONS

      1.    In order to exercise Options, which are exercisable in accordance
with this Program, the Option Holder must notify Philips in accordance with a
procedure determined by Philips.

      The notice shall state:

      (a)   the Date of Grant of the Options he wishes to exercise;

      (b)   if applicable, the confirmation that the Option Holder wants to
limit the Option Period pursuant to Article 3.2;

      (c)   the number of Options to be exercised; and

      (d)   whether Shares to be obtained upon such exercise:

      (i)   be sold, on behalf of the Option Holder as soon as possible. Upon
such sale, the aggregate revenue of the Shares sold upon exercise of the Options
less the Grant Price multiplied by the number of such Options, and further
costs, will be paid to the Option Holder in accordance with a procedure
determined by Philips; or

      (ii)  be delivered to the Option Holder as provided for in the Articles
6.3, 6.4 and 6.5.

      In case the Option Holder elects to have the Shares to be delivered to
him, his notice shall be accompanied by the payment in full of the Grant Price,
multiplied by the number of Options so being exercised. Such payment shall be
made: (a) in cash, (b) through simultaneous sale through a broker of Shares
acquired on exercise, subject to it being permitted under the applicable
regulations, (c) through additional methods prescribed by Philips or (d) by a
combination of any such method.

      2.    Philips may require an Option Holder to maintain a Nominee Account
in connection with this Program. Nothing contained in this Program shall
obligate Philips to establish or maintain or cause to establish or maintain a
Nominee Account for any Option Holder.

      3.    Subject to the terms and conditions of this Program, if the Option
Holder elects the Share to be delivered to him upon exercise as provided in
Article 6.1.d (ii), Philips will deliver a Share to an Option Holder on or as
soon as reasonably practicable after the exercise of an Option. In no event
shall Philips have any obligation to deliver any Shares to an Option Holder
prior to the exercise of any Options.

      4.    If the Option Holder elects to have Shares to be delivered to him
pursuant to Article 6.1.d (ii), such Shares will be credited to the Nominee
Account except if an Option Holder (i) requests Philips to credit such Shares to
a Custody Account or (ii) does not maintain a Nominee Account at the date of
delivery of such Shares. In case (i) or (ii) as described in the foregoing
sentence applies, the Option Holder shall be responsible to notify Philips in
accordance with a procedure (including the period for notification) established
by Philips on the details relating to such Custody Account. In case Philips
determines in its sole discretion that the Option Holder has failed to notify
Philips in accordance with such procedure, then the Option Holder shall be
deemed to have requested Philips to sell or cause to sell such Shares.

                                     4.2-5
<PAGE>
      5.    Except as may be approved otherwise in writing by Philips in its
sole discretion, in case an Option Holder is no longer employed by any Employing
Company for any reason whatsoever, the Option Holder (or his or her legal
representatives) shall withdraw all Shares credited to the Option Holder's
Nominee Account within two (2) months of the date of such termination. In case
the Option Holder (or his or her legal representatives, as the case may be)
fails to comply with the foregoing obligation, then the Option Holder (or his or
her legal representatives) shall be deemed to have requested Philips to sell or
cause to sell such Shares.

      6.    Each Option Holder shall comply with any applicable "insider
trading" laws and regulations and the Philips' Rules of Conduct with respect to
Inside Information.

                                   ARTICLE 7

                                CAPITAL DILUTION

      Philips may make equitable adjustment or substitution of (a) the number or
kind of Shares subject to the Options, and/or (b) the Grant Price, as it, in its
sole discretion, deems equitable to reflect any significant corporate event of
or by Philips, for example a change in the outstanding Shares by reason of any
stock dividend or split, recapitalization, merger, consolidation, spin-off,
combination or exchange of shares or other corporate change, or any distribution
to holders of Shares other than regular cash dividends.

      The effect of the adjustment or substitution shall be to preserve both the
aggregate difference and the aggregate ratio between the Grant Price and the
fair market value of the Shares to be acquired upon exercise of the Options. The
Option Holder shall be notified promptly of such adjustment or substitution.

                                   ARTICLE 8

                                COSTS AND TAXES

      1.    All costs of delivering any Shares to the Option Holder's Nominee
Account upon exercise of any Options shall be borne by Philips. All costs of
delivering any Shares under this Program to an Option Holder's Custody Account
and any other costs connected with the Shares shall be borne by the Option
Holder.

      2.    Any and all taxes, duties, levies, charges or social security
contributions ("Taxes") which arise under any applicable national, state, local
or supra-national laws, rules or regulations, whether already effective on the
Date of Grant or becoming effective thereafter, and any changes or modifications
therein and termination thereof which may result for the Option Holder in
connection with this Program (including, but not limited to, the grant, the
ownership and/or the exercise of the Options, and/or the delivery, ownership
and/or the sale of any Shares acquired under this Program) shall be for the sole
risk and account of the Option Holder.

      3.    Philips and its subsidiaries shall have the right to deduct or cause
to be deducted from any salary payment or other sums due by Philips or any of
its subsidiaries to an Option Holder, or requiring the Option Holder or
beneficiary of the Option Holder, to pay to Philips an amount necessary to
settle any Taxes determined by Philips necessary to be withheld in connection
with this Program (including, but not limited to, the grant of the Options or
the delivery of any Shares under this Program).

                                     4.2-6
<PAGE>
      4.    Philips shall not be required to deliver any Shares and Philips may
delay (or cause to be delayed) the transfer of any Shares from a Nominee Account
to a Custody Account, until Philips has received an amount, or the Option Holder
has made such arrangements, required by Philips necessary to satisfy any
withholding of any Taxes and any costs to be borne by the Option Holder in
connection with this Program as determined by Philips.

                                   ARTICLE 9

                                CASH ALTERNATIVE

      Upon receipt of a notice, as referred to in Article 6.1 hereof to exercise
any Option, Philips may advise an Option Holder resident outside the Netherlands
to request in writing an amount in cash as an alternative to Shares. Upon such
request the Option Holder is entitled to receive an amount in Euros or in U.S.
Dollars, as indicated by the Option Holder, equal to the Closing Price on the
date of receipt of such request minus the Grant Price, multiplied by the number
of Options so being exercised. Further, any costs to be paid and any applicable
Taxes shall be deducted from the amount to be received by the Option Holder. If
on the date of receipt of the notice Shares have not been traded on Euronext
Amsterdam the Closing Price will be that of the first subsequent trading day on
Euronext Amsterdam. The same method is being used for calculating the cash
amount to which heirs and legatees of an Option Holder are entitled in
accordance with Article 4.3.

                                   ARTICLE 10

                               GENERAL PROVISIONS

      1.    Philips shall have the authority to interpret this Program, to
establish, amend, and rescind any rules and regulations relating to this
Program, to determine the terms and conditions of any agreements entered into
hereunder, and to make all other determinations necessary or advisable for the
administration of this Program. Philips may delegate the authority to practice
administrative and operational functions with respect to the Program to officers
or employees of subsidiaries of Philips and to service providers.

      2.    No Option Holder shall have any rights or privileges of shareholders
(including the right to receive dividends and to vote) with respect to Shares to
be delivered pursuant to the exercise of any Options until such Shares are
actually delivered to such Option Holder in accordance with Article 6 of this
Program. The Shares delivered shall carry the same rights as common shares of
Philips traded on Euronext Amsterdam or the New York Stock Exchange, as
applicable, on the day on which these Shares are delivered.

      3.    The (value of) Options granted to, or Shares acquired by, an Option
Holder pursuant to such Options under this Program shall not be considered as
compensation in determining an Option Holder's benefits under any benefit plan
of an Employing Company, including but not limited to, group life insurance,
long-term disability, family survivors, or any retirement, pension or savings
plan.

      4.    Nothing contained in this Program or in any grant made or agreement
entered into pursuant hereto shall confer upon any Option Holder any right to be
retained employed with any Employing Company, or to be entitled to any
remuneration or benefits not set forth in this Program or interfere with or
limit in any way with the right of any Employing Company or any of its
subsidiaries to terminate such Option Holder's employment or to discharge or
retire any Option Holder at any time.

                                     4.2-7
<PAGE>
      5.    If a provision of this Program is deemed illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of this Program,
this Program shall be construed as if the illegal or invalid provisions had not
been included in this Program.

      6.    Where the context requires, words in either gender shall include
also the other gender.

      7.    This Program shall be governed by and construed in accordance with
the laws of The Netherlands, without regard to its principles of conflict of
laws.

                                   - - - - -

                                     4.2-8

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