Document:

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                                                                    Exhibit 10-K

                              HERCULES INCORPORATED
                      LONG TERM INCENTIVE COMPENSATION PLAN
                            (AS AMENDED AND RESTATED)

                                                       [HERCULES LOGO]
                                                       Hercules Plaza
                                                       Wilmington, DE 19894-0001
                                                       April 29, 1999
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                                TABLE OF CONTENTS

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ARTICLE I       PURPOSE .........................................................................               1

ARTICLE II      DEFINITIONS AND CONSTRUCTION ....................................................               1
                  Section 2.1 Definitions .......................................................               1
                           (1) Accelerated Date .................................................               1
                           (2) Act...............................................................               1
                           (3) APD Election .....................................................               1
                           (4) Attributable Shares ..............................................               1
                           (5) Award.............................................................               1
                           (6) Award Commitment .................................................               1
                           (7) Award Items.......................................................               2
                           (8) Base Salary.......................................................               2
                           (9) Beneficiary.......................................................               2
                           (10) Board............................................................               2
                           (11) Bonus............................................................               2
                           (12) Cash Value Award or CVA..........................................               2
                           (13) CEO..............................................................               2
                           (14) Change in Control................................................               2
                           (15) Code.............................................................               2
                           (16) Committee .......................................................               2
                           (17) Common Stock.....................................................               2
                           (18) Company .........................................................               2
                           (19) Date of Grant ...................................................               2
                           (20) Designated Retirement Date ......................................               2
                           (21) Disability ......................................................               2
                           (22) Fair Market Value ...............................................               3
                           (23) Grantee .........................................................               3
                           (24) Grantor .........................................................               3
                           (25) Hercules Incorporated Deferred Compensation Plan ................               3
                           (26) Hercules Incorporated Non-Qualified Savings Plan ................               3
                           (27) Hercules Pension Plan ...........................................               3
                           (28) Hercules Pension Restoration Plan ...............................               3
                           (29) Incentive Stock Option or ISO ...................................               3
                           (30) Management Incentive Compensation Plan ..........................               3
                           (31) Maximum Award ...................................................               3
                           (32) Minimum Award ...................................................               3
                           (33) Nonqualified Option .............................................               4
                           (34) Nonreporting Person .............................................               4
                           (35) Normal Retirement Date ..........................................               4
                           (36) Normal Vesting Date .............................................               4
                           (37) Option or Stock Option ..........................................               4
                           (38) Optionee ........................................................               4
                           (39) Option Period ...................................................               4
                           (40) Option Price ....................................................               4
                           (41) Other Market-Based Awards .......................................               4
                           (42) Other Performance-Based Awards ..................................               4
                           (43) Participating Subsidiary ........................................               4
                           (44) PASO Period .....................................................               4
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                           (45) Payout Schedule .................................................               4
                           (46) Performance Accelerated Stock Option or "PASO" ..................               4
                           (47) Performance Goal ................................................               4
                           (48) Performance Period ..............................................               4
                           (49) Performance Share ...............................................               5
                           (50) Performance Share Award .........................................               5
                           (51) Performance Share Fair Market Value .............................               5
                           (52) Phantom Unit ....................................................               5
                           (53) Phantom Unit Award ..............................................               5
                           (54) Phantom Unit Fair Market Value ..................................               5
                           (55) Reduction in Force ..............................................               5
                           (56) Related Entity ..................................................               5
                           (57) Reporting Person ................................................               5
                           (58) Restricted Stock ................................................               5
                           (59) Restricted Stock Award ..........................................               5
                           (60) Restricted Stock Unit............................................               5
                           (61) Restricted Stock Unit Award......................................               5
                           (62) Restricted Period ...............................................               5
                           (63) Restriction Range ...............................................               5
                           (64) Retirement ......................................................               6
                           (65) Rule 16b-3 ......................................................               6
                           (66) SAR .............................................................               6
                           (67) SAR Fair Market Value ...........................................               6
                           (68) Stock Appreciation Right.........................................               6
                           (69) Stock Appreciation Right Award...................................               6
                           (70) Stock Option Award...............................................               6
                           (71) Subsidiary ......................................................               6
                           (72) Substitution Awards .............................................               6
                           (73) Suspension Period ...............................................               6
                           (74) Target Award ....................................................               6
         Section 2.2 Construction ...............................................................               6

ARTICLE III       STOCK AVAILABLE FOR AWARDS ....................................................               7
         Section 3.1       Common Stock .........................................................               7
         Section 3.2       Number of Shares Deliverable .........................................               7
         Section 3.3       Reusable Shares ......................................................               7
         Section 3.4       Shares Not Charged Against Available Shares ..........................               7

ARTICLE IV        AWARDS AND AWARD AGREEMENTS ...................................................               7
         Section 4.1       General...............................................................               7
         Section 4.2       Eligibility ..........................................................               8
         Section 4.3       Terms and Conditions; Award Commitments ..............................               8
                 4.3.1     Terms And Conditions..................................................               8
                 4.3.2     Award Commitments.....................................................               8

ARTICLE V        OPTIONS AND STOCK APPRECIATION RIGHTS...........................................               8
         Section 5.1       Award of Options......................................................               8
                 5.1.1     Grants................................................................               8
                 5.1.2     Types of Options .....................................................               9
                 5.1.3     Substantial Stockholder ..............................................               9
                 5.1.4     Maximum Award ........................................................               9
         Section 5.2       Option Price .........................................................               9
         Section 5.3       Option Periods .......................................................               9
         Section 5.4       Exercise of Options ..................................................               9
                 5.4.1     Exercisability . .....................................................               9
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                 5.4.2     Certain Limitations. .................................................               9
                 5.4.3     Method of Exercise....................................................               9
         Section 5.5       Time and Method ......................................................              10
                 5.5.1     Form of Payment.......................................................              10
                 5.5.2     Time of Payment ......................................................              10
                 5.5.3     Methods for Tendering Shares .........................................              10
                 5.5.4     ISO Limitation .......................................................              10
         Section 5.6       Delivery of Shares ...................................................              10
         Section 5.7       Stockholder Rights ...................................................              10
         Section 5.8       Incentive Stock Options ..............................................              10
                 5.8.1     Individual Limitation ................................................              10
                 5.8.2     Code Qualification....................................................              11
                 5.8.3     Notice of Disposition ................................................              11
         Section 5.9       Stock Appreciation Rights Awards......................................              11
                 5.9.1     Grants................................................................              11
                 5.9.2     SAR Exercise..........................................................              11
                 5.9.3     Value of SAR Payment .................................................              11
                 5.9.4     Time and Method of Payment ...........................................              11
                 5.9.5     Effect of SAR and Option Exercises....................................              12
                 5.9.6     Nature of SARs .......................................................              12
         Section 5.10      Performance Accelerated Stock Options Awards .........................              12
                 5.10.1    Grants ...............................................................              12
                 5.10.2    Accelerated Date .....................................................              12
                 5.10.3    PASO Period ..........................................................              12
                 5.10.4    Exercisability .......................................................              13
                 5.10.5    Corporate or Business Goals ..........................................              13
                 5.10.6    PASOs Treated Like Options ...........................................              13

ARTICLE VI       PERFORMANCE SHARE AWARDS .......................................................              13
         Section 6.1       Grants ...............................................................              13
         Section 6.2       Performance Period ...................................................              13
         Section 6.3       Performance Goals ....................................................              13
         Section 6.4       Payout Schedule ......................................................              14
         Section 6.5       Issuance of Stock and Stock Certificates .............................              14
                 6.5.1     Issuance..............................................................              14
                 6.5.2     Custody and Legends ..................................................              14
         Section 6.6       Restrictions and Forfeitures..........................................              14
         Section 6.7       Stockholder Rights....................................................              15
         Section 6.8       Delivery of Shares and Cash Payments..................................              15
                 6.8.1     Determination of Performance Results and
                           Award Settlement......................................................              15
                 6.8.2     Delivery of Shares and Payment of Cash ...............................              15
                 6.8.3     Revisions for Significant Events .....................................              16
                 6.8.4     Conditions Precedent..................................................              16
                 6.8.5     Performance Share Fair Market Value ..................................              16

ARTICLE VII      RESTRICTED STOCK AWARDS ........................................................              17
         Section 7.1       Grants ...............................................................              17
         Section 7.2       Restricted Period ....................................................              17
         Section 7.3       Restrictions and Forfeiture ..........................................              17
         Section 7.4       Issuance of Stock and Stock Certificate ..............................              17
                 7.4.1     Issuance .............................................................              17
                 7.4.2     Custody and Legends...................................................              18
         Section 7.5       Stockholder Rights ...................................................              18
         Section 7.6       Delivery of Shares ...................................................              18
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ARTICLE VIII     PHANTOM UNIT AWARDS.............................................................              18
         Section 8.1       Grants ...............................................................              18
         Section 8.2       Vesting of Awards ....................................................              19
         Section 8.3       Value of Phantom Units Payments ......................................              19
         Section 8.4       Time and Method of Payment ...........................................              19
         Section 8.5       Forfeiture of Phantom Units ..........................................              19
         Section 8.6       Nature of Phantom Units ..............................................              20

ARTICLE IX       CASH VALUE AWARDS ..............................................................              20
         Section 9.1       Grants ...............................................................              20
         Section 9.2       Performance Period ...................................................              20
         Section 9.3       Performance Goals ....................................................              20
         Section 9.4       Payout Schedule ......................................................              20
         Section 9.5       Form Of Payout........................................................              20
         Section 9.6       Calculation Of Payout ................................................              21

ARTICLE X        OTHER AWARDS ...................................................................              21
         Section 10.1      Other Market-Based Awards ............................................              21
         Section 10.2      Other Performance-Based Awards .......................................              21
         Section 10.3      Terms of Other Awards ................................................              21
         Section 10.4      Stock Option Dividend Equivalents.....................................              22
                 10.4.1    Grants ...............................................................              22
                 10.4.2    Interest .............................................................              22
                 10.4.3    Forfeiture............................................................              22

ARTICLE XI       SUBSTITUTION AWARDS.............................................................              22
         Section 11.1        Substitution of Performance Shares .................................              22
         Section 11.2        Substitution of Restricted Stock ...................................              22
         Section 11.3        Substitution Procedures ............................................              22
         Section 11.4        Substitutions in Contemplation of Retirement .......................              22

ARTICLE XII       TERMINATION OF EMPLOYMENT .....................................................              23
         Section 12.1        Retirement .........................................................              23
                 12.1.1      Stock Options and SARs .............................................              23
                 12.1.2      Performance Share, Restricted Stock, Phantom
                             Unit, and Cash Value Awards ........................................              23
                 12.1.3      Performance Accelerated Stock Options ..............................              23
                 12.1.4      Restricted Stock Unit...............................................              23
         Section 12.2        Reduction in Force .................................................              24
                 12.2.1      Stock Options and SARs .............................................              24
                 12.2.2      Performance Share, Restricted Stock, Restricted Stock Unit,
                             Phantom Unit and Cash Value Awards .................................              24
                 12.2.3      Performance Accelerated Stock Options...............................              24
         Section 12.3        Transfers to Certain Related Entities...............................              24
                 12.3.1      Stock Options and SARs .............................................              24
                 12.3.2      Performance Share, Restricted Stock, Restricted Stock Unit,
                             Phantom Unit and Cash Value Awards .................................              24
                 12.3.3      Performance Accelerated Stock Options...............................              24
         Section 12.4        Disability or Death.................................................              25
                 12.4.1      Stock Options and SARs .............................................              25
                 12.4.2      Performance Share, Restricted Stock, Restricted Stock Unit,
                             Phantom Unit and Cash Value Awards .................................              25
                 12.4.3      Performance Accelerated Stock Options...............................              25
         Section 12.5        Resignation ........................................................              25
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                 12.5.1      Stock Options, SARs and Performance Accelerated Stock Options ......              25
                 12.5.2      Performance Share, Restricted Stock, Restricted Stock Unit,
                             Phantom Unit and Cash Value Awards .................................              25
         Section 12.6        Decrease in Company Ownership ......................................              26
                 12.6.1      Stock Options and SARs .............................................              26
                 12.6.2      Performance Share, Restricted Stock,  Restricted Stock Unit,
                             Phantom Unit and Cash Value Awards .................................              26
                 12.6.3      Performance Accelerated Stock Options ..............................              26
         Section 12.7        Termination of Employment for Other Reasons ........................              26
                 12.7.1      Stock Options, SARs and Performance
                             Accelerated Stock Options ..........................................              26
                 12.7.2      Performance Share, Restricted Stock, Restricted Stock Unit,
                             Phantom Unit and Cash Value Awards..................................              26
         Section 12.8        Termination Date....................................................              27
         Section 12.9        Reporting Person Limitation ........................................              27

ARTICLE XIII     EXCHANGE AWARDS; ABOVE TARGET MICP AWARDS.......................................              27
         Section 13.1        Salary/Bonus Reductions.............................................              27
                 13.1.1      Restricted Stock ...................................................              27
                 13.1.2      Options.............................................................              27
         Section 13.2        Deferred Accounts ..................................................              28
                 13.2.1      Deferred Compensation Plan Accounts ................................              28
                 13.2.2      Non-Qualified Savings Plan Accounts ................................              28
         Section 13.3        Termination of Employment ..........................................              28
                 13.3.1      Death, Disability and Reduction in Force ...........................              28
                 13.3.2      Retirement..........................................................              29
                 13.3.3      Resignation or Termination for Cause ...............................              29
         Section 13.4        Avoidance of Pension Diminution ....................................              29
                 13.4.1      Governing Provisions ...............................................              29
                 13.4.2      Exchange Awards ....................................................              30
                 13.4.3      Designated Retirement Date .........................................              30
         Section 13.5        Irrevocability .....................................................              30
         Section 13.6        Equivalency ........................................................              30
         Section 13.7        MICP Awards ........................................................              31
         Section 13.8        Definition .........................................................              31

ARTICLE XIV      CERTAIN TERMS APPLICABLE TO ALL AWARDS .........................................              31
         Section 14.1        Withholding Taxes ..................................................              31
         Section 14.2        Adjustments to Reflect Capital Changes..............................              32
                 14.2.1      Recapitalization ...................................................              32
                 14.2.2      Sale or Reorganization .............................................              32
                 14.2.3      Options to Purchase Stock of Acquired Companies ...................               32
         Section 14.3        Failure to Comply With Terms and Conditions ........................              32
         Section 14.4        Forfeiture Upon Occurrence of Certain Events .......................              32
         Section 14.5        Regulatory Approvals and Listing ...................................              33
         Section 14.6        Restrictions Upon Resale of Stock ..................................              33
         Section 14.7        Reporting Person Limitation ........................................              33

ARTICLE XV       DISPUTES    ....................................................................              33

ARTICLE XVI      ADMINISTRATION OF THE PLAN .....................................................              34
         Section 16.1        Committee ..........................................................              34
         Section 16.2        Committee Actions ..................................................              34
         Section 16.3        No Liability of Committee Members ..................................              34
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ARTICLE XVII EFFECTIVE DATE, TERM OF THE PLAN AND STOCKHOLDER APPROVAL ..........................              34

ARTICLE XVIII  CHANGE IN CORPORATE CONTROL ......................................................              35
         Section 18.1        Options ............................................................              35
         Section 18.2        SARs ...............................................................              35
         Section 18.3        All Other Awards ...................................................              35
         Section 18.4        Definitions ........................................................              35

ARTICLE XIX       AMENDMENT AND TERMINATION .....................................................              36
         Section 19.1        Amendment ..........................................................              36
         Section 19.2        Suspension or Termination ..........................................              36
         Section 19.3        No Repricing of Options.............................................              36

ARTICLE XX       MISCELLANEOUS ..................................................................              37
         Section 20.1        Deferral Election ..................................................              37
         Section 20.2        Designation of Beneficiary .........................................              37
         Section 20.3        No Right to an Award or to Continued Employment ....................              37
         Section 20.4        Discretion of the Committee and the CEO ............................              37
         Section 20.5        Indemnification and Exculpation ....................................              38
                 20.5.1      Indemnification ....................................................              38
                 20.5.2      Exculpation ........................................................              38
         Section 20.6        Unfunded Plan.......................................................              38
         Section 20.7        Inalienability of Rights and Interests .............................              38
         Section 20.8        Awards Not Includable for Benefit Purposes .........................              39
         Section 20.9        No Issuance of Fractional Shares ...................................              39
         Section 20.10       Modification for Overseas Grantees .................................              39
         Section 20.11       Leaves of Absence ..................................................              39
         Section 20.12       Communications .....................................................              39
                 20.12.1     Communications by the Committee ....................................              39
                 20.12.2     Communications by the Participants and Others ......................              39
         Section 20.13       Parties in Interest ................................................              39
         Section 20.14       Severability .......................................................              40
         Section 20.15       Compliance with Laws ...............................................              40
         Section 20.16       No Strict Construction .............................................              40
         Section 20.17       Modification .......................................................              40
         Section 20.18       Governing Law ......................................................              40
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                              HERCULES INCORPORATED
                      LONG TERM INCENTIVE COMPENSATION PLAN

                                    ARTICLE I
                                     PURPOSE

         The Hercules Incorporated Long Term Incentive Compensation Plan, the
terms of which are herein set forth (as the same is now in effect or as
hereafter amended from time to time, the "Plan"), is intended to advance the
interests of Hercules Incorporated, a Delaware corporation (the "Company"), and
its stockholders by providing a means by which the Company and its participating
subsidiaries and affiliates shall be able to motivate selected key employees
(including officers and directors who are employees) to direct their efforts to
those activities that will contribute materially to the Company's success. The
Plan is also intended to serve the best interests of the stockholders by linking
remunerative benefits paid to employees who have substantial responsibility for
the successful operation, administration and management of the Company and/or
its participating subsidiaries and affiliates with the enhancement of
stockholder value while such key employees increase their proprietary interest
in the Company. Finally, the Plan is intended to enable the Company to attract
and retain in its employ highly qualified persons for the successful conduct of
its business.

         The Plan became effective as of April 1, 1991, and was amended and
restated as of June 30, 1993, April 27, 1995, April 24, 1997, and is hereby
further amended and restated as of April 29, 1999. Notwithstanding anything to
the contrary, the said amended and restated Plan shall not terminate or
adversely affect any Awards granted prior hereto.

                                   ARTICLE II
                          DEFINITIONS AND CONSTRUCTION

         SECTION 2.1 DEFINITIONS

         The following words and phrases when used in the Plan with an initial
capital letter, unless their context clearly indicates to the contrary, shall
have the respective meanings set forth below in this Section 2.1:

                           (1) Accelerated Date. As defined in Subsection
         5.10.2.

                           (2) Act. The Securities Exchange Act of 1934, as now
         in effect or as hereafter amended from time to time. References to any
         section or subsection of the Act are to such section or subsection as
         the same may from time to time be amended or renumbered and/or any
         comparable or succeeding provisions of any legislation that amends,
         supplements or replaces such section or subsection.

                           (3) APD Election. As defined in Subsection 13.4.2

                           (4) Attributable Shares. As defined in Subsection
         9.6.

                           (5) Award. A grant of Award Items in accordance with
         the provisions of the Plan. A grant of a particular Award Item may
         sometimes be referred to as follows: "Stock Option Award" for a grant
         of Stock Options; "Stock Appreciation Right Award" for Stock
         Appreciation Rights; "PASO Award" for Performance Accelerated Stock
         Options; "CVA Award" for Cash Value Awards; "Performance Shares Award"
         for Performance Shares; "Restricted Stock Award" for Restricted Stock;
         and "Phantom Unit Award" for Phantom Units.

                           (6) Award Commitment. The written commitment
         delivered by the Company to the Grantee evidencing an Award and setting
         forth such terms and conditions of the Award as may be deemed
         appropriate by the Committee. The Award Commitment shall be in a form
         approved by the Committee, and

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         shall be deemed amended from time to time to include such additional
         terms and conditions as the Committee may specify after the execution
         in the exercise of its powers under the Plan.

                           (7) Award Items. Individually and collectively, as
         the case may be, the items awarded to any Grantee in accordance with
         the provisions of the Plan in the form of Options, Stock Appreciation
         Rights, Performance Accelerated Stock Options, Cash Value Awards,
         Performance Shares, Restricted Stock, Phantom Units or other award, or
         any combination of the foregoing.

                           (8) Base Salary. The regular salary paid to an
         employee. Base salary shall not include bonuses or other forms of
         compensation which are not considered regular earnings by the
         Committee.

                           (9) Beneficiary. Any individual, estate or trust who
         or which by designation of the Grantee pursuant to Section 20.2 or
         operation of law succeeds to the rights and obligations of the Grantee
         under the Plan and Award Commitment upon the Grantee's death.

                           (10) Board. The Board of Directors of the Company.

                           (11) Bonus. An amount payable pursuant to the
         Management Incentive Compensation Plan or any other short term
         incentive compensation plan approved by the Committee.

                           (12) Cash Value Award or CVA. A grant in accordance
         with the provisions of the Plan in the form of a designated cash value
         payable in cash, Common Stock or Restricted Stock, or a combination
         thereof, all as determined by the Grantor at the Payout Date.

                           (13) CEO. The Chief Executive Officer of the Company.

                           (14) Change in Control. The occurrence of an event
         defined in Section 18.4, which event is of a nature that would be
         required to be reported in response to Item 6(e) of Schedule 14A
         promulgated under the Act as in effect on the date hereof or, if Item
         6(e) is no longer in effect, any regulations issued by the Securities
         and Exchange Commission pursuant to the Act which serves similar
         purposes.

                           (15) Code. The Internal Revenue Code of 1986, as now
         in effect or as hereafter amended from time to time, and as construed
         and interpreted by valid regulations issued by the United States
         Internal Revenue Service thereunder. References to any section or
         subsection of the Code are to such section or subsection as the same
         may from time to time be amended or renumbered and/or any comparable or
         succeeding provisions of any legislation that amends, supplements or
         replaces such section or subsection.

                           (16) Committee. The Compensation Committee of the
         Board or such other committee as may be designated by the Board to
         administer the Plan.

                           (17) Common Stock. Voting common stock authorized for
         issuance by the Company and issued and outstanding.

                           (18) Company. Hercules Incorporated and its
         successors and assigns.

                           (19) Date of Grant. The date designated by the
         Grantor as the date as of which the Grantor grants an Award, which
         shall not be earlier than the date on which the Grantor approves the
         granting of such Award.

                           (20) Designated Retirement Date. As defined in
         Section 13.4.3.

                           (21) Disability. A physical or mental impairment
         sufficient to make the individual eligible for benefits under the
         Long-Term Disability Plan of Hercules Incorporated or under a
         disability plan of one of the Participating Subsidiaries (whether or
         not a participant in such disability plan), so long as for

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         Incentive Stock Options such impairment also constitutes a disability
         within the meaning of Section 22(e)(3) of the Code.

                           (22) Fair Market Value. Unless otherwise indicated in
         the provisions of the Plan, as of any date the closing price for one
         share of Common Stock as reported on the Composite Tape for New York
         Stock Exchange Listed Companies and published in the Eastern Edition of
         The Wall Street Journal, or, if there is no trading on the date in
         question, the closing price of the Common Stock, as so reported and
         published, on the next preceding date on which there was trading in
         Common Stock.

                           (23) Grantee. An employee of the Company or any
         Participating Subsidiary to whom an Award is granted. At the time of
         award, such employee (including any director or officer who is also an
         employee) must be in the regular full-time employment of the Company or
         any Participating Subsidiary, without limitation as to length of
         service.

                           (24) Grantor. The Committee or the CEO, as the case
         may be, who grants an Award. The Committee shall (i) grant Awards to
         Reporting Persons and (ii) establish the maximum aggregate amount of
         particular Award Items to be granted to Nonreporting Persons as a group
         and (iii) establish the guidelines and oversight under which, pursuant
         to authorities granted by the Committee, the CEO may grant Awards to
         Nonreporting Persons. Notwithstanding anything to the contrary, the CEO
         is not intended to be nor shall be construed as a member of the
         Committee. In making awards to Nonreporting Persons, the CEO is acting
         as a delegee of the Committee and is at all times accountable to the
         Committee and authorized to act only in accordance with the provisions
         of the Plan and the guidelines and direction provided by the Committee
         from time to time.

                           (25) Hercules Incorporated Deferred Compensation
         Plan. The Hercules Incorporated Deferred Compensation Plan as the same
         is now in effect or as hereafter amended from time to time.

                           (26) Hercules Incorporated Non-Qualified Savings
         Plan. The Hercules Incorporated Non-Qualified Savings Plan (a portion
         of the Hercules Incorporated Deferred Compensation Plan) as the same is
         now in effect or as hereafter amended from time to time.

                           (27) Hercules Pension Plan. The Hercules Pension Plan
         as the same is now in effect or as hereafter amended from time to time.

                           (28) Hercules Pension Restoration Plan. The Hercules
         Employee Pension Restoration Plan as the same is now in effect or as
         hereafter amended from time to time.

                           (29) Incentive Stock Option or ISO. An Option granted
         pursuant to Section 5.1 which is intended to meet, and structured with
         a view to satisfying, the requirements of Section 422 of the Code and
         is designated by the Committee as an Incentive Stock Option. The Award
         of an Incentive Stock Option shall contain such provisions as are
         necessary to comply with such Section 422.

                           (30) Management Incentive Compensation Plan. The
         Hercules Incorporated Annual Management Incentive Compensation Plan as
         the same is now in effect or as hereafter amended from time to time.

                           (31) Maximum Award. The number or amount of
         Performance Accelerated Stock Options, Cash Value Awards, or
         Performance Shares, as the case may be, which vest when the maximum
         performance in the relevant Performance Range is achieved.

                           (32) Minimum Award. The number or amount of
         Performance Accelerated Stock Options, Cash Value Awards, or
         Performance Shares, as the case may be, which vest when the minimum
         performance in the relevant Performance Range is achieved.

                                       3
<PAGE>   11
                           (33) Nonqualified Option. An Option granted pursuant
         to Section 5.1 which does not qualify as, and is not designated by the
         Committee as, an Incentive Stock Option and is designated as a
         Nonqualified Option.

                           (34) Nonreporting Person. A Grantee who is not
         subject to Section 16 of the Act.

                           (35) Normal Retirement Date. Age 65.

                           (36) Normal Vesting Date. As defined in Subsection
         5.10.1.

                           (37) Option or Stock Option. A right granted pursuant
         to Article V that for a specified period of time entitles the holder
         thereof to purchase full shares of Common Stock at a stated price. At
         the discretion of the Committee, an Option may be an Incentive Stock
         Option or a Nonqualified Stock Option.

                           (38) Optionee. A Grantee to whom an Option or Stock
         Appreciation Right or Performance Accelerated Stock Option, as the case
         may be, is granted pursuant to Article V.

                           (39) Option Period. As defined in Section 5.3.

                           (40) Option Price. The per share price at which
         shares of Common Stock may be purchased upon exercise of a particular
         Option or Performance Accelerated Stock Option.

                           (41) Other Market-Based Awards. Awards granted in
         accordance with Section 9.1.

                           (42) Other Performance-Based Awards. Awards granted
         in accordance with Section 9.2.

                           (43) Participating Subsidiary. Any Subsidiary
         (existing from time to time) designated by the Board as a Participating
         Subsidiary; provided, however, for Incentive Stock Options only,
         "Participating Subsidiary" means any such Subsidiary which at the time
         such Option is granted qualifies as a "Subsidiary" of the Company under
         Section 424(b) of the Code.

                           (44) PASO Period. As defined in Subsection 5.10.3.

                           (45) Payout Schedule. The distribution scheme for
         applicable Award Items for a given Plan Year upon performance of
         varying goals, all as established by either the Committee with respect
         to the Company, or by the CEO (or his designee or designees) with
         respect to a given subsidiary, business unit, corporate staff group or
         individual.

                           (46) Performance Accelerated Stock Option or "PASO".
         Stock Option with a normal vesting date established by the Committee;
         provided, however, that under certain circumstances such vesting date
         may be accelerated by the Committee to an earlier date if the Committee
         determines that the applicable Performance Goal has been met.

                           (47) Performance Goal. The level of performance
         established by the Grantor, which must be achieved in order to earn or
         vest the applicable Minimum Award, Target Award, Maximum Award or
         intermediate level of Award Items.

                           (48) Performance Period. The period of time selected
         by the Committee during which the achievement of Performance Goals is
         measured for purposes of determining the extent to which an applicable
         Award Item has been earned or will vest.

                           (49) Performance Share. A contingent right to
         receive, when certain performance criteria have been attained, without
         payment to the Company, the amounts of Common Stock and cash

                                       4
<PAGE>   12
         determined under Article VI. Such rights are subject to forfeiture or
         reduction if the applicable Performance Goals are not met within the
         applicable Performance Period.

                           (50) Performance Share Award. A Performance Share
         Award under Article VI, settlement of which is contingent upon
         attainment during a Performance Period of Performance Goals.

                           (51) Performance Share Fair Market Value. As defined
         in Subsection 6.8.5.

                           (52) Phantom Unit. A right to receive, without
         payment to the Company, an amount of cash equal to the value of a share
         of Common Stock as of a future date, plus dividend equivalents and
         interest payments provided for in Article VIII. A "unit" of phantom
         units does not represent or entitle the recipient to any equity
         securities of the Company, but instead involves the creation of an
         unfunded account for the recipient, the value of which is measured by
         reference to the value of Common Stock.

                           (53) Phantom Unit Award. An Award of Phantom Units
         under Article VIII, subject to such forfeiture provisions as are set
         forth in the Award Commitment.

                           (54) Phantom Unit Fair Market Value. As defined in
         Section 8.3.

                           (55) Reduction in Force. Termination of employment by
         the Company or a Participating Subsidiary in such a manner that the
         employee so terminated is eligible to receive benefits under the
         Company or a Participating Subsidiary dismissal salary plan.

                           (56) Related Entity. A corporation, partnership,
         joint venture or other entity not more than 50% but at least 20% of
         whose outstanding voting stock or voting power for the election of
         directors is beneficially owned directly or indirectly by the Company.

                           (57) Reporting Person. A Grantee who is subject to
         Section 16 of the Act.

                           (58) Restricted Stock. Shares of Common Stock issued,
         without payment to the Company, pursuant to a Restricted Stock Award
         granted under Article VII. For a specific period of time such shares
         are subject to a substantial risk of forfeiture and to such
         restrictions against sale, transfer or other disposition, as determined
         by the Committee at the time of grant.

                           (59) Restricted Stock Award. An Award of Restricted
         Stock under Article VII.

                           (60) Restricted Stock Unit. A right to receive,
         without payment to the Company, a number of shares of Common Stock as
         of a future date, plus dividend equivalents and interest payments
         provided for in Article VIII. A unit of a Restricted Stock Unit does
         not represent or entitle the recipient to any equity securities of the
         Company until such future date. In the interim, the unit represents an
         unfunded account for the recipient, the value which is measured by
         reference to the value of Common Stock.

                           61) Restricted Stock Unit Award. An award of
         Restricted Stock Units under Article VIII, subject to such forfeiture
         provisions as are set forth in the Award Commitment.

                           (62) Restricted Period. As defined in Section 7.2.

                           (63) Restriction Range. As defined in Section 7.2.

                           (64) Retirement. Termination of employment at Normal
         Retirement Date or with consent of the Company with immediate
         eligibility for retirement benefits under a retirement or pension plan
         maintained by the Company, a Participating Subsidiary or Related
         Entity.

                           (65) Rule 16b-3. Rule 16b-3 of the General Rules and
         Regulations under the Act, or any law, rule, regulation or other
         provision that may hereafter replace such Rule.

                                       5
<PAGE>   13
                           (66) SAR. A Stock Appreciation Right, as defined
         below.

                           (67) SAR Fair Market Value. As defined in Subsection
         5.9.3.

                           (68) Stock Appreciation Right. A right granted
         pursuant to Article V pursuant to which the holder of a related Option,
         upon exercise of the Stock Appreciation Right and in lieu of exercising
         the related Option, is entitled to surrender the related Option, or any
         applicable portion thereof, to the extent unexercised, and to receive
         an amount equal to the appreciation in market value of a fixed number
         of shares of Common Stock from the Date of Grant. Stock Appreciation
         Rights may be payable in shares of Common Stock or cash, or a
         combination of both. Under the Plan, Stock Appreciation Rights are
         granted in tandem with Options.

                           (69) Stock Appreciation Right Award. An Award of
         Stock Appreciation Rights under Article V.

                           (70) Stock Option Award. An Award of Options under
         Article V.

                           (71) Subsidiary. Any corporation, partnership, joint
         venture or other entity in which the Company owns, directly or
         indirectly through one or more intermediaries, at least 50% of the
         outstanding voting stock or voting power for the election of directors
         or equivalent governing body. In the case of Incentive Stock Options,
         Subsidiary shall mean any corporation that qualifies as a "subsidiary
         corporation" of the Company under Section 424(f) of the Code.

                           (72) Substitution Awards. As defined in Section 11.

                           (73) Suspension Period. As defined in Article XIII.

                           (74) Target Award. The number or amount of
         Performance Accelerated Stock Options, Cash Value Awards or Performance
         Shares, as the case may be, which vest when the target performance in
         the relevant Performance Range is achieved.

         SECTION 2.2 CONSTRUCTION

         Whenever any words are used herein in the masculine gender, they shall
be construed as though they were also used in the feminine gender in all cases
where they would so apply, and wherever any words are used herein in the
singular form they shall be construed as though they were also used in the
plural form in all cases where they would so apply. Headings of sections and
subsections of this Plan are inserted for convenience of reference, are not a
part of this Plan, and are not to be considered in the construction hereof. The
words "hereof," "herein," "hereunder" and other similar compounds of the word
"here" shall mean and refer to the entire Plan, and not to any particular
provision or section. The words "includes", "including" and other similar
compounds of the word "include" shall mean and refer to including without
limitation. All references herein to specific Articles, Sections or Subsections
shall mean Articles, Sections or Subsections of this document unless otherwise
qualified.

                                       6
<PAGE>   14
                                   ARTICLE III
                           STOCK AVAILABLE FOR AWARDS

         SECTION 3.1 COMMON STOCK

         Only Common Stock may be delivered under this Plan, such shares to be
made available from authorized but unissued shares or from shares reacquired by
the Company, including shares purchased in the open market.

         SECTION 3.2 NUMBER OF SHARES DELIVERABLE

         Subject to adjustments as provided in Section 14.2: (i) during the
period of October 1, 1996, through April 30, 2002, the maximum aggregate number
of shares for all Award Items shall be 15,000,000; and (ii) of the maximum
15,000,000 shares available, no more than 8,200,000 shares may be granted for
Award Items which are other than Options.

         SECTION 3.3 REUSABLE SHARES

         In the event that shares of Common Stock underlying an Award are
returned to the Company for any reason (including forfeited or unexercised
items) other than the surrender of Options upon the exercise of a Stock
Appreciation Rights, the shares so affected shall be available for use under
this Plan to the same Grantee or other Grantee by way of any type or form of
Option or Award authorized under the Plan; provided, however, that shares
received by the Company upon the exercise of an ISO and shares subject to an ISO
surrendered upon exercise of a SAR shall not be available for the subsequent
award of ISOs under this Plan, and that shares received by the Company upon the
return (whether due to forfeiture or otherwise) of Restricted Stock or
Performance Shares shall not be available for a subsequent Award under this
Plan.

         SECTION 3.4 SHARES NOT CHARGED AGAINST AVAILABLE SHARES

         Shares of Common Stock issued in payment of Stock Appreciation Rights
shall not be charged against the number of shares of Common Stock available for
subsequent Awards. Shares of Common Stock substituted in accordance with Article
XI for shares previously awarded under this Plan or the Hercules Incorporated
Restricted Stock Plan of 1986 shall not be counted against the authorized
aggregate number of shares which may be issued under the Plan.

                                   ARTICLE IV
                          AWARDS AND AWARD COMMITMENTS

         SECTION 4.1 GENERAL

         4.1.1 Subject to the provisions of this Plan, the Committee may (i)
determine and designate at any time and from time to time those Reporting
Persons to whom Awards are to be granted; (ii) determine the time or times when
Awards shall be granted; (iii) determine the form or forms of Awards to be
granted to any Reporting Person or to Nonreporting Persons, as a group; (iv)
determine the number of Award Items subject to each Award to be granted to any
Reporting Person; (v) determine the maximum aggregate number of shares of Award
Items subject to Awards to be granted to Nonreporting Persons, as a group; (vi)
determine the terms and conditions of each Award; (vii) determine the number of
shares of Restricted Stock a Reporting Person may acquire by exchange pursuant
to Section 13.1 and the time or times of such acquisition; and (viii) determine
the number of Options a Reporting or Nonreporting Person may acquire by exchange
pursuant to Section 13.1 and the time or times of acquisition.

         4.1.2 The CEO shall, subject to the provisions of the Plan, (i)
determine and designate at any time and from time to time those Nonreporting
Persons to whom Awards are to be granted; (ii) determine the form or forms of
Award to be granted any Nonreporting Person and (iii) determine the number of
Award Items subject to each

                                       7
<PAGE>   15
Award to be granted to any Nonreporting Person. Awards may be granted singly, in
combination or in tandem and may be made in combination or in tandem with or in
replacement of, or as alternatives to awards or grants under any other employee
plan maintained by the Company or its present or future Participating
Subsidiaries. Unless this Plan is extended, no Awards shall be granted or
exchanges effected under the Plan after April 30, 2002, but any then-current
restrictions applicable to any Awards theretofore granted or exchanges
theretofore effected shall extend beyond that date in accordance with their
provisions and any shares of Common Stock used in payment of Cash Value Awards
and/or Performance Shares originally granted before April 30, 2002, may be
delivered after April 30, 2002, in accordance with the provisions of the
applicable Award. Notwithstanding the later delivery of such shares of Common
Stock, the number of such shares shall be credited against the maximum aggregate
number in effect under Section 3.2 at the date of such original grant.

         SECTION 4.2 ELIGIBILITY

         The persons who shall be eligible to receive Awards granted pursuant to
this Plan shall be such employees (including directors and officers who are also
employees) of the Company or any of the Participating Subsidiaries as the
relevant Grantor shall select from time to time from among those who contribute
or may be expected to contribute to the successful performance of the Company or
any Participating Subsidiary. Employees eligible for Phantom Unit Awards shall
include, in addition to employees of the Company or any of the Participating
Subsidiaries, any employees of any other Subsidiary or Related Entity.

         SECTION 4.3 TERMS AND CONDITIONS; AWARD COMMITMENTS

         4.3.1 Terms And Conditions. Each Award granted pursuant to this Plan
shall be subject to all of the terms, conditions and restrictions provided in
this Plan and such other terms, conditions and restrictions, if any, as may be
specified by the Committee with respect to the Award in question at the time of
the making of the Award or as may be specified thereafter by the Committee in
the exercise of its powers under the Plan. Without limiting the foregoing, it is
understood that the Committee may, at any time and from time to time after the
granting of an Award hereunder, specify such additional terms, conditions and
restrictions with respect to such Award as may be deemed necessary or
appropriate to ensure compliance with any and all applicable laws, including,
but not limited to, terms and conditions for compliance with Federal and state
securities laws and methods of withholding or providing for the payment of
required taxes. The terms, conditions and restrictions with respect to any
Award, Grantee or Award Commitment need not be identical with the terms,
conditions and restrictions with respect to any other Award, Grantee or Award
Commitment.

         4.3.2 Award Commitments. Each Award granted pursuant to the Plan shall
be subject to all the terms, conditions and restrictions provided in the Plan
and such other terms, conditions and restrictions, if any, as may be specified
by the Committee with respect to the Award in question at the time of the making
of the Award or as may be specified thereafter by the Committee in the exercise
of its powers under the Plan. Each Award granted pursuant to the Plan shall be
evidenced by an Award Commitment and shall comply with, and be subject to, the
provisions of the Plan. The Award Commitment shall not be a precondition to the
granting of Awards; however, no person shall have any rights under any Award
granted under the Plan unless and until the Company shall have executed and
delivered an Award Commitment to the Grantee to whom such Award shall have been
granted. An executed original of the Award Commitment shall be provided to both
the Company and the Grantee.

                                    ARTICLE V
                      OPTIONS AND STOCK APPRECIATION RIGHTS

         SECTION 5.1 AWARD OF OPTIONS

         5.1.1 Grants. From time to time and upon the recommendation of the CEO,
the Committee may grant Stock Option Awards in such number as it may determine
to such Reporting Persons as the Committee may select. From time to time, the
CEO may grant Stock Option Awards in such number as he may determine to such
Nonreporting Persons as he may select; provided, however, each and all such
grants shall be subject to any maximum

                                       8
<PAGE>   16
aggregate amount of Options established by the Committee for grants under the
Plan for Nonreporting Persons as a group. The Committee shall determine the
number of shares of Common Stock to which each Option relates; provided,
however, such number of shares of Common Stock shall automatically be reduced on
a share for share basis to the extent that shares are issued pursuant to the
exercise of the Option or shares subject to the Option are the basis for the
exercise of the related Stock Appreciation Right.

         5.1.2 Types of Options. Options granted pursuant to the Plan may be
either in the form of Incentive Stock Options or in the form of Nonqualified
Options. Incentive Stock Options and Nonqualified Options shall be granted
separately hereunder. The Committee shall determine whether and to what extent
Options granted under the Plan shall be Incentive Stock Options or Nonqualified
Options and the Option shall be so designated.

         5.1.3 Substantial Stockholder. No Option shall be granted hereunder to
any person who, at the time such Option is to be granted, owns stock of the
Company or of any of its Subsidiaries possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of any such
Subsidiary. For purposes of the preceding sentence, the attribution rules of
stock ownership set forth in Section 424(d) of the Code shall apply.

         5.1.4 Maximum Award To An Individual. During the period from April 29,
1999, through April 30, 2002, no person shall be granted or receive more than
1,500,000 Options and/or Performance Accelerated Stock Options in the aggregate.

         SECTION 5.2 OPTION PRICE

         The Option Price of Common Stock covered by each Option shall be
determined by the Committee but shall not be less than 100% of the Fair Market
Value of a share of Common Stock on the Date of Grant.

         SECTION 5.3 OPTION PERIODS

         The Committee shall determine the term of each Option. Subject to
earlier termination as provided in Articles XI, XII and XIII, the term shall not
exceed ten (10) years from the Date of Grant.

         SECTION 5.4 EXERCISE OF OPTIONS

         5.4.1 Exercisability. Subject to Subsection 5.4.2 and Articles XII and
XIII, each Option shall be exercisable at any time or times during the Option
Period and in such amount or amounts as the Committee may prescribe and specify
in the applicable Award Commitment (subject further in the case of Incentive
Stock Options, to such restrictions as may be imposed from time to time by the
Code).

         5.4.2 Certain Limitations. The Committee may provide that an Option may
not be exercised in whole or in part for any period or periods of time, from
zero to nine and one-half (9.5) years as specified in the Award Commitment.
Except as provided in Article XII, or as otherwise determined by the Committee,
an Option may be exercised only during the continuance of the Grantee's
employment with the Company or any of its Subsidiaries. Options granted to a
Reporting Person shall not be exercisable until at least six (6) months have
elapsed from the Date of Grant of the Option. No Option may be exercised after
the expiration of the applicable Option Period. No Option may be exercised for a
fractional share.

         5.4.3 Method of Exercise. A Grantee may exercise an Option, in whole or
from time to time in part, by giving written notice of exercise to the Company.
The notice of exercise shall be on a form approved by the Committee and shall
state the number of shares with respect to which the Option is being exercised.
Such notice must be received by the office of the Company designated in the
Award Commitment on or before the expiration date of the Option.

         SECTION 5.5 TIME AND METHOD OF PAYMENT

         5.5.1 Form of Payment. The Optionee shall pay the Option Price in cash
or, with the Committee's permission and according to such rules as they may
prescribe, by delivering shares of Common Stock already owned

                                       9
<PAGE>   17
by the Optionee for at least six months prior to the date of exercise and having
a Fair Market Value on the date of exercise equal to the Option Price, or a
combination of cash and shares. The Committee may also permit payment in
accordance with a cashless exercise program under which, if so instructed by the
Optionee, shares of Common Stock may be issued directly to the Optionee's broker
or dealer upon receipt of the purchase price in cash from the broker or dealer.

         5.5.2 Time of Payment. The Optionee shall pay the Option Price not
later than ten (10) days after the date of a statement from the Company
following exercise setting forth the Option Price, Fair Market Value of Common
Stock on the exercise date, the number of shares of Common Stock that may be
delivered in payment of the Option Price (if applicable) and the amount of
withholding tax due, if any. If the Optionee fails to pay the Option Price
within the ten (10) day period, the Committee shall have the right to take
whatever action it deems appropriate, including voiding the Option exercise.

         5.5.3 Methods for Tendering Shares. The Committee shall determine
acceptable methods for tendering shares of Common Stock as payment upon exercise
of an Option and may impose such limitations and restrictions on the use of
shares of Common stock to exercise an Option as it deems appropriate.

         5.5.4 ISO Limitation. Common Stock acquired by the Grantee which is
identified as having been obtained through an Incentive Stock Option under the
Plan and still subject to Incentive Stock Option holding requirements as defined
in the Code, may not be tendered in payment of the Option Price.

         SECTION 5.6 DELIVERY OF SHARES

         No shares of Common Stock shall be delivered pursuant to the exercise,
in whole or in part, of any Option, unless and until (i) payment in full of the
Option Price therefor is received by the Company and (ii) compliance with all
applicable requirements and conditions of this Plan, the Award Commitment and
such rules and regulations as may be established by the Committee that are
preconditions to delivery, including, but not limited to, the requirements and
conditions of Section 14.5. Promptly after exercise of the Option, payment in
full of the Option Price and compliance with the conditions described in the
preceding sentence, the Company shall effect the issuance to the Optionee of
such number of shares of Common Stock as are subject to the Option exercise.

         SECTION 5.7 STOCKHOLDER RIGHTS

         An Optionee shall have none of the rights or privileges of a
stockholder with respect to any shares of Common Stock covered by an Option
unless and until the Optionee has given written notice of exercise of the
Option, has paid in full the Option Price for such shares of Common Stock and
has otherwise complied with this Plan, the Award Commitment and such rules and
regulations as may be established by the Committee, and the shares are issued to
him. No adjustment shall be made for dividends in cash or property or other
distributions or rights with respect to any such shares of Common Stock for
which the record date is prior to the date on which the Optionee or a transferee
of the Option shall have become the holder of record of any such shares covered
by the Option. Notwithstanding anything to the contrary, an Option may include
dividend equivalents as described in Section 10.4.

         SECTION 5.8 INCENTIVE STOCK OPTIONS

         5.8.1 Individual Limitation. No Grantee may be granted an ISO under
this Plan (or any other plans of the Company or any Participating Subsidiary)
which would result in Common Stock with an aggregate Fair Market Value (measured
as of the Date of Grant) of more than $100,000 first becoming exercisable in any
one calendar year, or which would entitle such Grantee to purchase a number of
shares greater than the maximum number permitted by Section 422(d)(1) of the
Code as in effect on the Date of Grant.

         5.8.2 Code Qualification. Whenever possible, each provision in the Plan
and in every Option granted under this Plan which is designated by the Committee
as an ISO shall be interpreted in such a manner as to entitle the Option to the
tax treatment afforded by Section 422 of the Code. If any provision of the Plan
or any Option designated by the Committee as an ISO shall be held not to comply
with requirements necessary to entitle such Option to such tax treatment, then
(i) such provision shall be deemed to have contained from the outset such
language as shall be

                                       10
<PAGE>   18
necessary to entitle such Option to the tax treatment afforded under Section 422
of the Code, and (ii) all other provisions of this Plan and the Award Commitment
shall remain in full force and effect. If any Award Commitment covering an
Option designated by the Committee to be an ISO under the Plan shall not
explicitly include any terms required to entitle such ISO to the tax treatment
afforded by Section 422 of the Code, all such terms shall be deemed implicit in
the designation of such Option and such Option shall be deemed to have been
granted subject to all such terms.

         5.8.3 Notice of Disposition. An Optionee shall give prompt notice to
the Company of any disposition of shares of Common Stock acquired upon exercise
of an ISO if such disposition occurs within either two (2) years after grant or
one year after receipt of such shares by such Optionee. Such Optionee shall also
comply with any applicable withholding requirements.

         SECTION 5.9 STOCK APPRECIATION RIGHTS AWARDS

         5.9.1 Grants. The Committee may grant SARs at the same time as
Optionees are awarded Options under the Plan. Each SAR shall be in tandem with
and relate to a specific Option under the Plan and shall specify that the number
of Option Shares subject to the SAR shall be equal to the number of shares of
Common Stock that the Optionee is entitled to receive pursuant to the related
Option.

         5.9.2    SAR Exercise. A SAR may be exercised, in whole or in part,
                  within the period specified for the exercise of the Option in
                  the related Option grant only upon surrender of the related
                  Option (or portion thereof) by the Optionee. Each SAR shall be
                  exercisable at such time or times, on the conditions and to
                  the extent, but only to the extent, that the related Option is
                  exercisable, provided that no such SAR (except in the case of
                  death or physical or mental incapacity) shall be exercisable
                  prior to the expiration of six (6) months following the Date
                  of Grant and, provided further, that any SAR granted hereunder
                  may provide, at the election of the Committee, that the SAR
                  may be exercised only at a time when the Optionee to whom the
                  SAR has been granted is subject to the provisions of Section
                  16(b) of the Act. Each SAR and all rights and obligations
                  thereunder shall terminate and may no longer be exercised upon
                  the termination or exercise of the related Option. An Optionee
                  may exercise a SAR by giving written notice of exercise to the
                  Company stating the number of shares of Common Stock subject
                  to exercisable Options with respect to which the SARs are
                  being exercised. The date upon which such written notice is
                  received by the Company shall be the exercise date for the
                  SARs.

         An Option and SAR covering the same share of Common Stock may not be
exercised simultaneously.

         5.9.3 Value of SAR Payment. If an Optionee exercises a SAR, he shall
receive an amount equal to the product of (i) the amount by which the SAR Fair
Market Value on the exercise date of one share of Common Stock exceeds the
Option Price of the related Option, times (ii) the number of shares covered by
the Option, or portion thereof, which is surrendered. For purposes of this
Article V, "SAR Fair Market Value" of a SAR or share of Common Stock on any date
shall be the average of the daily closing prices of a share of Common Stock for
five (5) consecutive business days immediately preceding the day in question as
reported on the Composite Tape for New York Stock Exchange Listed Companies and
published in the Eastern Edition of The Wall Street Journal, subject to the
provisions of Section 5.9.4.

         5.9.4    Time and Method of Payment

         5.9.4.1 Any payment which may become due from the Company by reason of
an Optionee's exercise of a SAR may be paid to the Optionee all in cash, all in
shares of Common Stock or partly in shares and partly in cash, as determined by
the Committee. The Committee shall determine the timing of any payment made.

         5.9.4.2 If paid in cash, the amount thereof shall be the amount of
appreciation determined under Subsection 5.9.3. The payments to be made, in
whole or in part, in cash upon the exercise of SARs by any Reporting Person
shall be made in accordance with the provisions relating to the exercise of SARs
of Rule 16b-3 of the General Rules and

                                       11
<PAGE>   19
Regulations under the Act, as in effect at the time of such exercise, or any
law, rule, regulation or other provision that may hereafter replace such Rule.

         5.9.4.3 In the event that all or a portion of the payment is made in
shares of Common Stock, the number of shares of Common Stock received shall be
determined by dividing the amount of the appreciation determined under
Subsection 5.9.3 by the SAR Fair Market Value of a share of Common Stock on the
exercise date of the SAR. Cash will be paid in lieu of any fractional share of
Common Stock or, if the Committee should so determine, the number of shares of
Common Stock will be rounded downward to the next whole share of Common Stock.
All shares shall be valued at their SAR Fair Market Value as of the date of such
exercise; provided, however, that with respect to exercises of SARs by an
employee who is subject to the provisions of Section 16(b) of the Act during any
period commencing on the third business day following the date of release for
publication of the quarterly or annual summary statements of the Company's sales
and earnings and ending on the twelfth business day following such date (a
"window period"), the Committee may prescribe, by rule of general application,
such other measure of fair market value per share as the Committee may, in its
discretion, determine, but not in excess of the highest sale price of the Common
Stock reported on the Composite Tape for New York Stock Exchange Listed
Companies and published in the Eastern Edition of The Wall Street Journal during
such window period. Notwithstanding the foregoing, the fair market value (or SAR
Fair Market Value, if applicable) of SARs that relate to an ISO, shall not be in
excess of the maximum amount that would be permissible under Section 422 of the
Code without disqualifying such option as an ISO under such Section 422.

         5.9.5 Effect of SAR and Option Exercises. Upon exercise of a SAR, the
number of shares of Common Stock subject to exercise under the related Option
shall automatically be reduced by the number of shares of Common Stock
represented by the Option or portion thereof surrendered, as provided in
Subsection 5.1.1. Shares of Common Stock subject to Options or portions thereof
surrendered upon the exercise of SARs shall not be available for subsequent
awards under the Plan. The exercise of any number of Options shall result in an
equivalent reduction in the number of shares of Common Stock covered by the
related SAR and such shares may not again be subject to a SAR under this Plan.

         5.9.6 Nature of SARs. SARs shall be used solely as a device for the
measurement and determination of the amount to be paid to Grantees as provided
in the Plan. SARs shall not constitute or be treated as property or as a trust
fund of any kind. All amounts at any time attributable to the SARs shall be and
remain the sole property of the Company and all Grantees' rights hereunder are
limited to the rights to receive cash and shares of Common Stock as provided in
the Plan.

         SECTION 5.10 PERFORMANCE ACCELERATED STOCK OPTIONS AWARDS

         5.10.1 Grants. From time to time and upon the recommendation of the
CEO, the Committee may grant PASOs in such number as it may determine to such
Reporting Persons as the Committee may select. From time to time, the CEO may
grant PASOs in such number as he may determine to such Nonreporting Persons as
he may select; provided, however, each and all such grants shall be subject to
Subsection 5.1.4 and any maximum aggregate amount of PASOs established by the
Committee for grants under the Plan for Nonreporting Persons as a group. The
Committee shall determine the number of PASOs to be awarded; provided, however,
such number of PASOs shall automatically be reduced on a share for share basis
to the extent that shares are issued pursuant to the exercise of the PASO.
Subject to Subsection 5.10.2, each PASO shall specify a normal vesting date
("Normal Vesting Date") (which shall be less than the PASO Period).

         5.10.2 Accelerated Date. The date or event designated by the Grantor
(which shall be earlier than the Normal Vesting Date) at which the vesting of
some or all PASOs shall occur if the Grantor determines that the applicable
Performance Goals have been met.

         5.10.3 PASO Period. The Committee shall determine the term of each
PASO. Subject to earlier termination as provided in Article XII, the term shall
not exceed ten (10) years.

                                       12
<PAGE>   20
         5.10.4 Exercisability. Subject to Subsection 5.10.2 and Article XII, or
as otherwise determined by the Committee, each PASO shall be exercisable at any
time or times during the PASO Period and in such amount or amounts as the
Committee may prescribe and specify in the applicable Award Commitment.

         5.10.5 Corporate or Business Goals. From time to time, the Grantor
shall determine Performance Goals to be used for, among other things, purposes
of determining the Accelerated Date. If the Grantor shall determine minimum
target and/or maximum performance goals and (i) if the minimum performance goal
is not reached, then the Normal Vesting Date of the affected PASOs shall not be
accelerated, and the Grantor may either determine new goals on the PASOs or
allow the PASOs to vest at the Normal Vesting Date; (ii) if the minimum
performance goal is reached but the target performance goal is not reached, then
the Grantor may accelerate the Normal Vesting Date to an Accelerated Date for
part of the affected PASOs (as specified in the applicable Award Commitment),
and for the remainder of the PASOs, the Grantor may determine new goals or allow
the PASOs to vest at the Normal Vesting Date; (iii) if the performance goal is
reached and the maximum performance goal is not reached, then the Grantor may
accelerate the Normal Vesting Date to an Accelerated Date for part of the
affected PASOs, and for the remainder of the PASOs, the Grantor may determine
new goals or allow the PASOs to vest at the Normal Vesting Date; and (iv) if the
maximum performance goal is reached, then the Normal Vesting Date for all
affected PASOs shall be accelerated to the Accelerated Date.

         5.10.6 PASOs Treated Like Options. Except as otherwise provided in the
Plan, PASOs shall be treated identical to Options; provided, however, that if
there is a conflict between a provision specifically covering PASOs and one
generally covering Options, then the specific provision shall control as to
PASOs.

                                   ARTICLE VI
                            PERFORMANCE SHARE AWARDS

         SECTION 6.1 GRANTS

         From time to time and upon the recommendation of the CEO, the Committee
may grant Performance Share Awards in such number as it may determine to such
Reporting Persons as the Committee may select. From time to time, the CEO may
grant in such number as he may determine Performance Share Awards to such
Nonreporting Persons as he may select; provided, however, each and all such
grants shall be subject to any maximum aggregate number of Performance Shares
established by the Committee for grants under the Plan for Nonreporting Persons
as a group.

         SECTION 6.2 PERFORMANCE PERIOD

         At the time of a Performance Share Award grant, the Committee shall
establish a Performance Period of not less than one year nor more than five (5)
years, commencing the Date of Grant of the Award.

         SECTION 6.3 PERFORMANCE GOALS

         At the time of each grant, the Committee shall establish for all
Performance Share Awards the Performance Goals for the Company and any
Participating Subsidiary, while the CEO (or his designee or designees) shall
establish for each individual Performance Share Award the business unit,
corporate staff group and individual Performance Goals (other than his own which
will be the same as the Performance Goals for the Company), if any. All of the
designated Performance Goals must be met as a precondition to any distribution
or payment being made with respect to the Performance Share Award following the
end of the Performance Period. Except as provided in Article XII, these
Performance Goals (although their measurement, including adjustments, if any, as
permitted under Subsection 6.8.3, will not occur until after the expiration of
the applicable Performance Period) must be met during the continuance of the
Grantee's employment with the Company or any Participating Subsidiary, prior to
the expiration of the applicable Performance Period and prior to the lapse of
restrictions and delivery of any shares of Common Stock and/or the making of any
payment with respect to the Performance Share Award. Performance Goals may vary
among Grantees and among Awards to a Grantee. Performance Goals shall be based
upon such performance criteria

                                       13
<PAGE>   21
or combination of factors as the Grantor may deem appropriate, including, but
not limited to, specified levels of earnings per share, return on investment,
return on stockholders' equity and such other goals related to the Company's
performance as are deemed appropriate by the Committee.

         SECTION 6.4 PAYOUT SCHEDULE

         In tandem with the establishment of the Performance Goals, the Grantor
shall establish a Payout Schedule for that Performance Period for each
Performance Share Award. Each Payout Schedule shall establish for each
Performance Period minimum, target, maximum and intermediate performance and
distribution levels for determining the shares of Common Stock deliverable
and/or cash payable, if any, upon settlement of the Performance Share Award at
the conclusion of the Performance Period.

         SECTION 6.5 ISSUANCE OF STOCK AND STOCK CERTIFICATES

         6.5.1 Issuance. As soon as possible after the Date of Grant of a
Performance Share Award, the Company shall cause to be issued to the Grantee
such number of shares of Common Stock as prescribed by the applicable Payout
Schedule for attainment of target level of performance, that is, the Target
Award. Concurrently, the Company shall cause to be issued a stock certificate or
certificates, registered in the name of the Grantee and dated the Date of Grant,
evidencing such shares. Each such issuance (of shares and of a stock certificate
or certificates) shall be subject throughout the Performance Period to the
terms, conditions and restrictions (including forfeiture and restrictions
against transfer provisions of Section 6.6) contained in this Plan and/or the
Award Commitment entered into between the registered owner of such shares and
the Company, except as otherwise provided in this Plan. Although not a
precondition to the granting of a Performance Share Award, each such issuance
shall be subject to forfeiture to the Company as of the date of issuance if an
Award Commitment and a stock power endorsed by the Grantee in blank with respect
to the shares of Common Stock covered by the Performance Share Award under this
Article VI are not duly executed by the Grantee and timely returned to the
Company.

         6.5.2 Custody and Legends. Each certificate for shares of Common Stock
issued in respect of the Performance Share Award awarded under Subsection 6.5.1
shall be held in custody by the Company for the Grantee's account until the
expiration or termination of the applicable Performance Period (except as
provided in Article XII) and the satisfaction of any and all other conditions of
the Award Commitment applicable to Performance Shares covered by the Performance
Share Award. Such certificate shall be imprinted with a legend to indicate that
the transferability thereof and the shares of stock represented thereby are
subject to the terms, conditions and restrictions (including forfeiture and
restrictions against transfer) contained in this Plan and/or an Award Commitment
entered into between the registered owner of such shares and the Company, a copy
of which Plan and Award Commitment is on file in the office of the Company's
Corporate Secretary. Such legend shall not be removed from any stock certificate
evidencing Performance Shares until the lapse or release of the restrictions as
described in Section 6.8. Each certificate also shall be subject to appropriate
stop-transfer orders.

         SECTION 6.6 RESTRICTIONS AND FORFEITURES

         The shares of Common Stock issued to a Grantee pursuant to Section 6.5
shall be subject to the following restrictions until the expiration or
termination of the Performance Period established pursuant to Section 6.2: (i) a
Grantee shall not be entitled to delivery of a certificate evidencing the shares
of Common Stock covered by the Performance Share Award until the expiration or
termination of the Performance Period; (ii) none of such shares of Common Stock
may be sold, transferred, assigned, pledged or otherwise encumbered or disposed
of during the Performance Period and until the satisfaction of any and all other
conditions; and (iii) all such Common Stock shall be forfeited and returned to
the Company and all rights of the Grantee with respect to such Common Stock
(including, but not limited to, those specified in Section 6.7) shall terminate
without further obligation on the part of the Company unless (x) the Grantee has
remained a regular full time employee of the Company or any Participating
Subsidiary until the expiration or termination of the Performance Period (except
as provided in Article XII) and (y) the satisfaction of any and all other
conditions of the Award Commitment applicable to such Common Stock covered by
the Performance Share Award is completed. Upon the forfeiture of any shares of
Common Stock, ownership of such forfeited shares shall be transferred to the
Company without further acts by the Grantee.

                                       14
<PAGE>   22
         SECTION 6.7 STOCKHOLDER RIGHTS

         Following registration in the Grantee's name, and subject to execution
of the documents provided for in Section 6.5, during the Performance Period the
Grantee shall have the entire beneficial interest in, and all rights and
privileges of a stockholder as to, such shares of Common Stock awarded to him
with respect to the target level performance, including, but not limited to, the
right to vote and receive dividends, subject to the restrictions and forfeiture
risks set forth in Section 6.6. Any shares of Common Stock distributed as a
dividend or otherwise with respect to any shares issued under a Performance
Share Award as to which the restrictions have not yet lapsed shall be subject to
the same restrictions as such shares.

         SECTION 6.8 DELIVERY OF SHARES AND CASH PAYMENTS

         6.8.1 Determination of Performance Results and Award Settlement. As
soon as practicable after the Performance Period expires or otherwise terminates
with respect to each Performance Share Award, the Committee shall determine
whether and the extent to which any corporate Performance Goals were achieved
during the Performance Period; and the Grantor shall determine whether and the
extent to which applicable business unit, corporate staff and individual
Performance Goals, if any, were achieved during the Performance Period.
Following such determinations, a calculation shall be made of the number of
shares of Common Stock whose restrictions shall lapse and shall be deliverable
and the cash payable, if any, upon settlement of the Performance Share Award.
The computation shall be made by application of the Payout Schedule to the
degree of actual performance achieved against Performance Goals (determined as
provided in the preceding sentence).

         6.8.2    Delivery of Shares and Payment of Cash

         6.8.2.1 In the event the minimum level of performance established by
the Payout Schedule is not achieved, the entire Performance Share Award is
forfeited, including, without limitation, the shares of Common Stock held in
custody pursuant to Section 6.5.

         6.8.2.2 Should the minimum level of performance established by the
Payout Schedule be achieved, the Grantee shall have earned (subject to
adjustments as provided by Subsection 6.8.3) the applicable Minimum Award and in
settlement thereof the Section 6.6 restrictions on that number of shares of
Common Stock held in custody pursuant to Section 6.5 equal to the share number
specified by the Payout Schedule for performance at the minimum level shall
lapse and as promptly as administratively feasible thereafter, the Company shall
deliver to the Grantee a stock certificate or certificates for the number of
shares of Common Stock earned. Upon such delivery, shares remaining in custody
(which are the difference between the applicable Minimum Award and the
applicable Target Award) shall be forfeited and ownership transferred to the
Company without further acts by the Grantee.

         6.8.2.3 In the event the target level of the Payout Schedule is
achieved, the Grantee shall have earned (subject to adjustments as provided by
Subsection 6.8.3) the applicable Target Award and in settlement thereof the
Section 6.6 restrictions on all of the shares held in custody pursuant to
Section 6.5 shall lapse and as soon as administratively feasible thereafter the
Company shall deliver to the Grantee a stock certificate or certificates for the
number of shares of Common Stock earned.

         6.8.2.4 For performance at a level between the minimum performance
level of the Payout Schedule and the target level of the Payout Schedule the
Section 6.6 restrictions on that number of shares of Common Stock held in
custody pursuant to Section 6.5 equal to the share number specified by the
Payout Schedule for performance at the applicable intermediate level shall lapse
and as promptly as administratively feasible thereafter, the Company shall
deliver to the Grantee a stock certificate or certificates for the number of
shares of Common Stock earned. Upon such delivery, shares remaining in custody
(which are the difference between the number of shares prescribed for the level
of performance achieved and the Target Award) shall be forfeited and ownership
transferred to the Company without further acts by the Grantee.

         6.8.2.5 Should the maximum level of performance established by the
Payout Schedule be attained or exceeded, the Grantee shall have earned (subject
to adjustments as provided by Subsection 6.8.3) the applicable Maximum Award and
in settlement thereof (i) the restrictions on that number of shares of Common
Stock held in

                                       15
<PAGE>   23
custody pursuant to Section 6.5 equal to the share number specified by the
Payout Schedule for performance at the target level shall lapse and as promptly
as administratively feasible thereafter the Company shall deliver to the Grantee
a stock certificate or certificates for the number of shares of Common Stock
earned at the target level, and (ii) the share differential between the number
of shares specified by the Payout Schedule for performance at the target level
and the number of shares specified in the Payout Schedule for performance at the
maximum level of performance shall be paid in cash, shares of Common Stock or a
combination thereof, as determined by the Committee. Such share differential
shall have a value which is the product of the number of shares constituting the
share differential times the Performance Share Fair Market Value on the vesting
date.

         6.8.2.6 For performance between the target level and the maximum level
of performance specified in the Payout Schedule (i) the Section 6.6 restrictions
on that number of shares of Common Stock held in custody pursuant to Section 6.5
equal to the share number specified by the Payout Schedule for performance at
the target level shall lapse and as promptly as administratively feasible
thereafter, the Company shall deliver to the Grantee a stock certificate or
certificates for the number of shares of Common Stock earned at the target
level, and (ii) the share differential between the share number specified by the
Payout Schedule for performance at the target level and the share number
specified by the Payout Schedule for performance at the applicable intermediate
level shall be paid in cash, shares of Common Stock or a combination thereof, as
determined by the Committee. Such share differential shall have a value which is
the product of the number of shares constituting the share differential times
the Performance Share Fair Market Value on the vesting date.

         6.8.2.7 Cash payments normally will be made as soon as practicable
following the end of the Performance Period. All shares delivered to a Grantee
pursuant to this Subsection 6.8.2 shall be without the legend described in
Subsection 6.5.2 and shall be free of all restrictions and forfeitures, except
as otherwise provided by Article XII or imposed by law. No payment will be
required from the Grantee upon the delivery of any shares of Common Stock,
except that the amount necessary to satisfy applicable Federal, state or local
tax requirements shall be paid by the Grantee in accordance with the
requirements of Section 14.1.

         6.8.3 Revisions for Significant Events. When circumstances occur
(including, but not limited to, unusual or nonrecurring events, changes in tax
laws or accounting principles or practices) that cause any Performance Goal,
Payout Schedule and/or level of performance or distribution specified in a
Payout Schedule to be inappropriate in the judgment of the party initially
responsible for establishing the Performance Goal, Payout Schedule and/or
performance or distribution level, such party may make such changes as said
party deems equitable in recognition of any unforeseen events or changes in
circumstances or changed business or economic conditions.

         6.8.4 Conditions Precedent. Incentives shall be paid to the Grantee
only upon compliance by the Grantee with all obligations of such Grantee under
the Plan and/or the Award Commitment with respect to such Performance Share
Awards, including the requirement that, except as provided in Article XII, the
Performance Goals (although their measurement, including adjustments, if any,
required by the Committee or the CEO, as provided herein, will not occur until
after the expiration of the applicable Performance Period) must be met during
the continuance of the Grantee's employment with the Company or any of the
Participating Subsidiaries, prior to the expiration of the applicable
Performance Period and prior to the lapse of restrictions and delivery of any
shares of Common Stock and/or the making of any payment with respect to the
Performance Share Award.

         6.8.5 Performance Share Fair Market Value. As used in this Article VI,
"Performance Share Fair Market Value" of a Performance Share Unit or a share of
Common Stock on any date shall be the average of the daily closing prices for a
share of Common Stock for the five (5) consecutive trading days immediately
preceding the day in question as reported on the Composite Tape for New York
Stock Exchange Listed Companies and published in the Eastern Edition of The Wall
Street Journal.

                                       16
<PAGE>   24
                                   ARTICLE VII
                             RESTRICTED STOCK AWARDS

         SECTION 7.1 GRANTS

         From time to time and upon the recommendation of the CEO, the Committee
may grant Restricted Stock Awards in such number as it may determine to such
Reporting Persons as the Committee may select. From time to time, the CEO may
grant in such number as he may determine Restricted Stock Awards to such
Nonreporting Persons as he may select; provided, however, each and all such
grants shall be subject to any maximum aggregate number of shares of Restricted
Stock established by the Committee for grants under the Plan for Nonreporting
Persons as a group.

         SECTION 7.2 RESTRICTED PERIOD

         At the time of a Restricted Stock Award grant, the Committee shall
establish (for all Restricted Stock shares which are then being awarded to a
Participant or, if it is the intent that the total of such shares shall be
divided into separate parts, for each part of such total) a Restricted Period of
not less than one year or more than five (5) years (the "Restriction Range"),
commencing with the Date of Grant of the Award. Different Restricted Periods may
be fixed within the Restriction Range for different parts of the shares of
Restricted Stock which are being awarded to a Grantee.

         SECTION 7.3 RESTRICTIONS AND FORFEITURE

         The shares of Restricted Stock covered by the Restricted Stock Award
granted to a Grantee pursuant to Section 7.1 shall be subject to the following
restrictions until the expiration or termination of the Restricted Period
established pursuant to Section 7.2: (i) a Grantee shall not be entitled to
delivery of a certificate evidencing the shares of Restricted Stock covered by
the Restricted Stock Award until the expiration or termination of the Restricted
Period and the satisfaction of any and all other conditions specified in the
Award Commitment applicable to such Restricted Stock shares; (ii) none of the
shares of Restricted Stock may be sold, transferred, assigned, pledged or
otherwise encumbered or disposed of during the Restriction Period and until the
satisfaction of any and all other conditions specified in the Award Commitment
applicable to such Restricted Stock; and (iii) all of the shares of Restricted
Stock shall be forfeited and returned to the Company and all rights of the
Grantee with respect to such Restricted Stock shares (including, but not limited
to, those specified in Section 7.5) shall terminate without further obligation
on the part of the Company unless (x) the Grantee has remained a regular full
time employee of the Company or any Participating Subsidiary until the
expiration or termination of the Restricted Period or Periods and (y) the
satisfaction of any and all other conditions of the Award Commitment applicable
to such Restricted Stock shares. Upon the forfeiture of any shares of Restricted
Stock, such forfeited shares shall be transferred to the Company without further
acts by the Grantee.

         SECTION 7.4 ISSUANCE OF STOCK AND STOCK CERTIFICATE

         7.4.1 Issuance. As soon as practicable after the Date of Grant of a
Restricted Stock Award, the Company shall cause to be issued to the Grantee such
number of shares of Common Stock as constitutes the Restricted Stock shares
awarded under the Restricted Stock Award. Concurrently, the Company shall cause
to be issued a stock certificate or certificates, registered in the name of the
Grantee and dated as of the Date of Grant, evidencing such shares. Each such
issuance (of shares and of a stock certificate or certificates) shall be subject
throughout the Performance Period to the terms, conditions and restrictions
(including forfeiture and restrictions against transfer provisions of Section
7.3) contained in this Plan and/or the Award Commitment entered into between the
registered owner of such shares and the Company, except as otherwise provided in
this Plan. Although not a precondition to the granting of a Performance Share
Award, each such issuance shall be subject to forfeiture to the Company as of
the Date of Grant if an Award Commitment and a stock power endorsed by the
Grantee in blank with respect to the shares of Restricted Stock covered by the
Award under this Article VII are not duly exercised by the Grantee and timely
returned to the Company.

                                       17
<PAGE>   25
         7.4.2 Custody and Legends. Each certificate for shares of Common Stock
issued in respect of the Restricted Stock Award granted under Section 7.1 shall
be held in custody by the Company for the Grantee's account until the expiration
or termination of the applicable Restricted Period (except as provided in
Article XII) and the satisfaction of any and all other conditions of the Award
Commitment applicable to such shares of Restricted Stock covered by the
Restricted Stock Award. Such certificate shall be imprinted with a legend to
indicate that the transferability thereof and the shares of Common Stock
represented thereby are subject to the terms, conditions and restrictions
(including forfeiture and restrictions against transfer) contained in this Plan
and/or an Award Commitment entered into between the registered owner of such
shares and the Company, a copy of which Plan and Award Commitment is on file in
the office of the Company's Corporate Secretary. Such legend shall not be
removed from any stock certificate evidencing such Restricted Stock shares until
the lapse or release of the restrictions as described in Section 7.3. Each
certificate also shall be subject to appropriate stop-transfer orders.

         SECTION 7.5 STOCKHOLDER RIGHTS

         Following registration in the Grantee's name and subject to execution
of the documents provided for in Section 7.4, during the Restricted Period the
Grantee shall have the entire beneficial interest in, and all rights and
privileges of a stockholder as to, such shares of Common Stock covered by the
Restricted Stock Award, including, but not limited to, the right to vote such
shares and the right to receive dividends, subject to the restrictions and
forfeitures set forth in Section 7.3. Any shares of Common Stock distributed as
a dividend or otherwise with respect to any shares of Restricted Stock as to
which the restrictions have not yet lapsed shall be subject to the same
restrictions as such Restricted Stock shares.

         SECTION 7.6 DELIVERY OF SHARES

         Upon the expiration (without a forfeiture) or earlier termination of
the Restriction Period and the satisfaction of or release from any other
conditions by the Grantee under the Plan and/or the Award Commitment with
respect to such shares of Restricted Stock, or at such earlier time as provided
under the provisions of Article XII and/or Article XIII, all of such shares
shall be released from all restrictions and forfeiture provisions under Section
7.3, any similar restrictions and forfeiture provisions under the Award
Commitment applicable to such shares and all other restrictions and forfeiture
provisions of this Plan or such Award Commitment. As promptly as
administratively feasible thereafter the Company shall deliver or cause to be
delivered to such Grantee a stock certificate or certificates for the
appropriate number of shares of Common Stock, free of such restrictions and
forfeitures, except as otherwise provided by Article XIV or imposed by law. No
payment will be required from the Grantee upon the delivery of any shares of
Restricted Stock, except that amount necessary to satisfy applicable Federal,
state or local tax requirements shall be paid by the Grantee in accordance with
the requirements of Section 14.1.

                                  ARTICLE VIII
                               PHANTOM UNIT AWARDS

         SECTION 8.1 GRANTS

         From time to time and upon the recommendation of the CEO, the Committee
may grant Phantom Unit Awards in such number as it may determine to such
Reporting Persons as the Committee may select. From time to time, the CEO may
grant Phantom Unit Awards in such number as he may determine to such
Nonreporting Persons as he may select; provided, however, each and all such
grants shall be subject to any maximum aggregate number of Phantom Units
established by the Committee for grants under the Plan for Nonreporting Persons
as a group.

         Notwithstanding the above paragraph, the Committee may at its
discretion grant Phantom Units payable in one share of Hercules Common Stock for
each unit at the time of vesting pursuant to Section 8.2. In these cases, such
Phantom Units are referred to as Restricted Stock Units and during the period
that such Restricted Stock Units are awarded, shall be subject to all the
provisions of Section 8.2 except, however, such payment shall be made in shares
of Hercules Common Stock as contrasted to cash as provided above.

                                       18
<PAGE>   26
         SECTION 8.2 VESTING OF AWARDS

         The amounts credited with respect to each Phantom Unit shall become
vested on the date or dates determined and set forth in the applicable Award
Commitment at the time of grant unless vested sooner as described in Article XII
of the Plan. The vesting period shall be determined by the Committee, but in no
case shall such period be less than one year or more than five (5) years.
Vesting shall be subject to the terms, conditions and provisions hereinafter
with respect to forfeiture and termination of Awards or early vesting or
forfeiture of Awards in accordance with the provisions of Article XII.

         SECTION 8.3 VALUE OF PHANTOM UNITS PAYMENTS

         The amount payable with respect to each vested Phantom Unit Award shall
be the sum of (i) the dividends and interest credited to such account and (ii)
an amount determined by multiplying the number of Phantom Units posted to such
account by the Phantom Unit Fair Market Value on the date of vesting. For the
purpose of determining such amount the Company shall establish and maintain a
separate memorandum account for each Grantee granted a Phantom Unit Award
pursuant to Section 8.1. As of the Date of Grant of each grant of a Phantom Unit
Award the Company shall credit to the account of each Grantee who has been
granted a Phantom Unit Award such number of Phantom Units as is specified in the
Award. From the Date of Grant until the date that payments under the Plan
commence the account of each Grantee shall be credited quarterly with an amount
determined by multiplying the amount of Phantom Units credited to each account
by the per share dividend paid quarterly by the Company on its Common Stock. In
addition, each account (representing dividends and credited interest) shall be
credited quarterly with an amount determined by multiplying the account balance
at the close of each quarter by an amount representing one-fourth of the average
per annum rate of interest established by Morgan Guaranty Trust Company (or by
such other major New York commercial bank as the Committee shall designate) in
New York from time to time during such quarter as its prime lending rate. As
used in this Article VIII, "Phantom Unit Fair Market Value" of a Phantom Unit or
a share of Common Stock on any date shall be the average of the daily closing
prices for a share of Common Stock for the five (5) consecutive trading days
immediately preceding the day in question as reported on the Composite Tape for
New York Stock Exchange Listed Companies and published in the Eastern Edition of
The Wall Street Journal.

         SECTION 8.4 TIME AND METHOD OF PAYMENT

         Any payment which may become due from the Company upon the vesting of a
Phantom Unit shall be paid to the Grantee in cash. The date or dates upon which
amounts determined pursuant to Section 8.3 shall be paid to the Grantee shall be
determined by the Committee prior to the Date of Grant and set forth in the
applicable Award Commitment or in accord with such rules and regulations as may
be adopted by the Committee.

         SECTION 8.5 FORFEITURE OF PHANTOM UNITS

         Except as otherwise provided in Article XII, all of the Phantom Units
credited to a Grantee's account (including all dividend equivalents and interest
credited thereto) shall be forfeited and all rights of the Grantee with respect
to such Phantom Units (including any dividend equivalents and interest related
thereto) shall terminate without further obligation on the part of the Company
unless and until (i) the Grantee has remained a regular full time employee of
the Company or any Participating Subsidiary until vesting as described in
Section 8.2 and (ii) the satisfaction of any other conditions specified in the
Plan and/or Award Commitment applicable to such Phantom Units, except as may
otherwise be determined by the Committee.

         SECTION 8.6 NATURE OF PHANTOM UNITS

         Phantom Units shall be used solely as a device for the measurement and
determination of the amount to be paid to Grantees as provided in the Plan.
Phantom Units shall not constitute or be treated as property or as a trust fund
of any kind. All amounts at any time attributable to the Phantom Units shall be
and remain the sole property of the Company and all Grantees' rights hereunder
are limited to the rights to receive cash and shares of Common Stock as provided
in the Plan.

                                       19
<PAGE>   27
                                   ARTICLE IX
                                CASH VALUE AWARDS

         SECTION 9.1 GRANTS

         From time to time and upon the recommendation of the CEO, the Committee
may grant Cash Value Awards in such number as it may determine to such Reporting
Persons as the Committee may select. From time to time, the CEO may grant Cash
Value Awards in such number as he may determine to such Nonreporting Persons as
he may select; provided, however, each and all such grants shall be subject to
any maximum dollar value established by the Committee for grants under the Plan
for Nonreporting Persons as a group.

         SECTION 9.2 PERFORMANCE PERIOD

         At the time of a Cash Value Award grant, the Committee shall establish
a Performance Period of not less than one year nor more than five (5) years,
commencing on the Date of Grant of the Award.

         SECTION 9.3 PERFORMANCE GOALS

         At the time of each grant, the Committee shall establish for all Cash
Value Awards the Performance Goals for the Company and any Participating
Subsidiary, while the CEO (or his designee or designees) shall establish for
each individual Cash Value Award the business unit, corporate staff group and
individual Performance Goals (other than his own which will be the same as the
Performance Goals for the Company), if any. All of the designated Performance
Goals must be met as a precondition to any distribution or payment being made
with respect to the Cash Value Award following the end of the Performance
Period. Except as provided in Article XII, these Performance Goals (although
their measurement, including adjustments, if any, will not occur until after the
expiration of the applicable Performance Period) must be met during the
continuance of the Grantee's employment with the Company or any Participating
Subsidiary, prior to the expiration of the applicable Performance Period and
prior to the making of any payment with respect to the Cash Value Award.
Performance Goals may vary among Grantees and among Awards to a Grantee.
Performance Goals shall be based upon such performance criteria or combination
of factors as the Grantor may deem appropriate, including, but not limited to,
specified levels of earnings per share, return on investment, return on
stockholders' equity and such other goals related to the Company's performance
as are deemed appropriate by the Committee.

         SECTION 9.4 PAYOUT SCHEDULE

         In tandem with the establishment of the Performance Goals, the Grantor
shall establish a Payout Schedule for that Performance Period for each Cash
Value Award. Each Payout Schedule shall establish for each Performance Period
minimum, target, maximum and intermediate performance and distribution levels
for determining the payout of the Common Stock, if any, of the Cash Value Award
at the conclusion of the Performance Period.

         SECTION 9.5 FORM OF PAYOUT

         Payment of a Cash Value Award shall be made in cash, Common Stock,
Restricted Stock or any combination thereof as determined by the Grantor at the
time of the Payout. Restricted Stock shall be governed by Articles VII and XII;
provided, however, that Restricted Stock granted at less than Fair Market Value
shall also be governed by Section 9.6 and the Attributable Shares (defined
below) shall be governed by Section 13.3.

         SECTION 9.6 CALCULATION OF PAYOUT

         As soon as practicable after the Performance Period expires with
respect to the Cash Value Award, the Grantor shall determine whether and the
extent to which any Performance Goals were achieved during the Performance
Period. The Grantor may also determine the amount and form of the Payout. If the
Payout is to be paid in Restricted Stock, then the number of shares calculated
by the Grantor may be determined by using either 100% or 85% (as determined by
the Committee) of the Fair Market Value on the date of issue. If the Grantor
uses 85% of the Fair Market Value, then those shares attributable to the
discount (i.e., 100% minus 85%) (the "Attributable Shares")

                                       20
<PAGE>   28
shall be subject to the forfeiture provisions under Section 13.3; and otherwise,
the Restricted Stock shall be subject to forfeiture under Article XII.

                                    ARTICLE X
                                  OTHER AWARDS

         SECTION 10.1 OTHER MARKET-BASED AWARDS

         The Grantor may grant other Market-Based Awards, provided that the
purchase price or base price for the equity securities of the Company shall in
no event be less than 100% of the Fair Market Value of such security on the Date
of Grant. Such Other Market-Based Awards shall be in a form determined by the
Committee, and the Committee shall have complete authority to determine the
terms, conditions and restrictions of the awards, not inconsistent with the
terms of the Plan. The Committee, upon recommendation of the CEO, shall
determine the time or times at which such Other Market-Based Awards shall be
made. Any such Other Market-Based Award shall be confirmed by an Award
Commitment executed by the Company and the Grantee, which Agreement shall
contain such provisions as the Committee determines to be necessary or
appropriate to carry out the intent of the Plan with respect to such Award.

         SECTION 10.2 OTHER PERFORMANCE-BASED AWARDS

         The Grantor may grant Other Performance-Based Awards. Such Other
Performance-Based Awards shall be in a form determined by the Committee, and the
Committee shall have complete authority to determine the terms, conditions and
restrictions of the awards, not inconsistent with the terms of the Plan. The
Committee, upon recommendation of the CEO, shall determine the time or times at
which such Other Performance-Based Awards shall be made. Any such Other
Performance-Based Award shall be confirmed by an Award Commitment executed by
the Company and the Grantee, which Agreement shall contain such provisions as
the Committee determines to be necessary or appropriate to carry out the intent
of the Plan with respect to such Award.

         SECTION 10.3 TERMS OF OTHER AWARDS

         In addition to the terms and conditions specified in the Award
Commitment, awards made pursuant to this Article X shall be subject to the
following:

                  (a) Any shares of Common Stock subject to Awards made under
         this Article X may not be sold, assigned, transferred, pledged or
         otherwise encumbered prior to the date on which the shares are issued,
         or, if later, the date on which any applicable restriction or
         performance period lapses; and

                  (b) If specified by the Committee in the Award Commitment, the
         recipient of an Award under this Article X shall be entitled to
         receive, currently or on a deferred basis, interest or dividends or
         dividend equivalents with respect to the Common Stock covered by the
         Award; and

                  (c) The Award Commitment with respect to any Award shall
         contain provisions dealing with the disposition of such Award in the
         event of a termination of employment prior to the exercise, realization
         or payment of such Award, whether such termination occurs because of
         retirement, disability, death or other reason, with such provisions to
         take account of the specific nature and purpose of the Award.

         SECTION 10.4 STOCK OPTION DIVIDEND EQUIVALENTS.

         10.4.1 Grants. The Grantor may provide that a Grantee to whom an Option
has been granted which is exercisable in whole or in part at a future time for
shares of Common Stock (referred to in this subsection as "Share" or "Shares")
shall be entitled to receive an amount per Share equal in value to the cash
dividends, if any, paid per Share on issued and outstanding Shares, as of the
dividend record dates occurring during the period between the Date of Grant and
the time each such Share is delivered pursuant to exercise of such Stock Option
or the related Stock

                                       21
<PAGE>   29
Appreciation Right. Such amounts (herein called "Dividend Equivalents") shall be
paid in cash at the time of the delivery of such Shares.

         10.4.2 Interest. The Grantor may authorize payment of interest on
Dividend Equivalents. The interest will be payable in cash at the same time the
related Dividend Equivalents are paid.

         10.4.3 Forfeiture. To the extent the Stock Options to which Dividend
Equivalents and interest are related shall be forfeited all accrued Dividend
Equivalents and interest thereon shall also be forfeited.

                                   ARTICLE XI
                               SUBSTITUTION AWARDS

         SECTION 11.1 SUBSTITUTION OF PERFORMANCE SHARES

         Upon the request of the Grantee, the Committee may grant Restricted
Stock Awards in substitution for such numbers of shares of Common Stock of equal
value held in custody pursuant to Section 6.5 whose restrictions shall lapse
upon expiration or other termination of a Performance Period. The number of
Performance Shares available for substitution shall be determined by the method
described in Section 11.3. Such Substitution Awards shall be subject to such
Restricted Periods and other terms, conditions and restrictions as the Committee
may from time to time determine. No substitution shall be permitted after
termination of employment, regardless of the reason for termination. Once
substitution has been approved by the Committee, no payment will be made with
respect to an original Award.

         SECTION 11.2 SUBSTITUTION OF RESTRICTED STOCK

         Upon request of the Grantee, the Committee may grant Restricted Stock
Awards in substitution for shares of Restricted Stock previously awarded either
under this Plan or under the Hercules Incorporated Restricted Stock Plan of
1986. Such Awards shall be subject to such Restricted Periods and other terms,
conditions and restrictions as the Committee may from time to time determine. No
substitution shall be permitted after termination of employment, regardless of
the reason for termination.

         SECTION 11.3 SUBSTITUTION PROCEDURES

         Any request of a Grantee pursuant to Section 11.1 or 11.2 shall be
filed in writing with the Committee in accordance with such rules and
regulations, including any deadline for the making of such request, as the
Committee may provide. No substitution shall be permitted past any termination
of employment described in Article XII or past the occurrence of any of the
events specified in clauses (i), (ii) and (iii) of Section 14.4.

         SECTION 11.4 SUBSTITUTIONS IN CONTEMPLATION OF RETIREMENT

         Prior to the expiration of the Performance Period or Restricted Period
applicable to any Performance Shares or Restricted Stock Awards granted to a
Grantee prior to January 1, 1995, such Grantee may, with the consent of the
Committee, surrender all or a portion of his Award in substitution for Phantom
Unit Awards subject to the terms and conditions of Article VIII, and provided
that: (i) such surrender shall be treated as a forfeiture under the Plan; (ii)
such substitution shall be made for retirement planning purposes; (iii) such
substitution shall be made prior to December 31 of the year preceding the
Grantee's Normal Retirement Date but not more than one year prior to the
Grantee's Normal Retirement Date; or, in cases where Retirement with consent
occurs prior to the Grantee's Normal Retirement Date, not less than sixty (60)
nor more than three hundred and sixty (360) days before an announced Retirement
approved by the Company; and (iv) any Phantom Units shall be substituted as of
the expiration date of the applicable Performance Period in an amount consistent
with the number of shares calculated for each Award being substituted.

                                       22
<PAGE>   30
                                   ARTICLE XII
                            TERMINATION OF EMPLOYMENT

         12.1 RETIREMENT

         12.1.1 Stock Options and SARs. If prior to the expiration of the Option
Period a Grantee who has been given an Option or SAR under the Plan shall cease
to be employed by the Company, any Participating Subsidiary or Related Entity
because of his Retirement, (i) in the case of Nonqualified Options (except
PASOs) and their related SARs, each Option and SAR shall become immediately
exercisable and shall remain exercisable for a period of five (5) years from the
date of cessation of employment (with respect to options granted prior to May 1,
1994, the period shall be three (3) years from the date of cessation of
employment), but not beyond the end of the Option Period, and (ii) in the case
of ISOs and their related SARs, each Option and SAR shall, at such time as it
becomes exercisable under the Award Commitment covering such Option, remain
exercisable for a period of three (3) months from the cessation of employment,
but not beyond the end of the Option Period.

         12.1.2 Performance Share, Restricted Stock, Phantom Unit, and Cash
Value Awards. If prior to the expiration of the Performance or Restricted Period
a Grantee who has been given a Performance Share, Restricted Stock, Phantom Unit
or Cash Value Award under the Plan shall cease to be employed by the Company,
any Participating Subsidiary or Related Entity because of his Retirement, (i)
that Grantee shall be entitled to Performance Shares or Cash Value at the end of
the Performance Period based upon the extent to which the Performance Goals were
satisfied at the end of such period (provided, however, the Committee may
provide for an earlier payment in settlement of such Performance Shares in such
amount and under such terms and conditions as the Committee deems appropriate or
desirable); and (ii) all remaining restrictions with respect to such Grantee's
Restricted Stock and Phantom Unit Awards shall lapse as of the date of
termination.

         12.1.3 Performance Accelerated Stock Options. If prior to the
expiration of the PASO Period a Grantee who has been given a PASO Award under
the Plan shall cease to be employed by the Company, any Participating Subsidiary
or Related Entity because of his Retirement, that Grantee shall be entitled to
PASOs as follows: If the PASOs are exercisable on the date of Retirement, then
the PASOs will remain exercisable until the earlier of five (5) years or the end
of the PASO period; if the PASOs are not yet exercisable, then they shall become
exercisable at the earlier of (i) such time as the PASOs become exercisable
through acceleration due to performance, or (ii) four and one-half (4.5) years
after Retirement regardless of performance, or (iii) the end of nine and
one-half (9.5) years from the award date. Once the PASOs become exercisable,
they shall remain exercisable until the earlier of five (5) years after
Retirement or the end of the PASO period, provided, however, the Grantor may
provide for acceleration of the vesting date and/or an earlier settlement of
such PASOs under such terms and conditions as the Grantor deems appropriate or
desirable.

         12.1.4 Restricted Stock Unit. If prior to the expiration of the
restriction period for a Restricted Stock Unit, a grantee who has been granted a
Restricted Stock Unit under the Plan, shall cease to be employed by the Company,
any participating subsidiary or related entity because of his retirement, that
grantee at his election no less than 60 days prior to his designated retirement
date, be entitled to defer the payout of such Restricted Stock Units to a future
designated date and on such date all remaining restrictions with respect to such
grantee"s Restricted Stock shall lapse as of such designated date and shares
shall be distributed to such grantee plus accrued dividend equivalents, plus
interest thereon, or if no such election is filed, all remaining restrictions
with respect to such grantee"s Restricted Stock shall lapse on the date of
termination and such shares shall be distributed along with accrued dividend
equivalents, plus interest thereon.

         SECTION 12.2 REDUCTION IN FORCE

         12.2.1 Stock Options and SARs. If prior to the expiration of the Option
Period a Grantee who has been given a Option or SAR under the Plan shall cease
to be employed by the Company or any Participating Subsidiary because of a
Reduction in Force, (i) in the case of Nonqualified Options (except PASOs) and
their related SARs, each Option and SAR shall become immediately exercisable and
shall remain exercisable for a period of one year from the date of cessation of
employment, but not beyond the end of the Option Period, and (ii) in the case of
an ISO, each

                                       23
<PAGE>   31
Option and SAR shall, at such time as it becomes exercisable under the Award
Commitment covering such Option, remain exercisable for a period of three (3)
months from the cessation of employment, but not beyond the end of the Option
Period.

         12.2.2 Performance Share, Restricted Stock, Restricted Stock Unit,
Phantom Unit and Cash Value Awards. If prior to the expiration of the
Performance or Restricted Period a Grantee who has been given a Performance
Share, Restricted Stock, Restricted Stock Unit, Phantom Unit or Cash Value Award
under the Plan shall cease to be employed by the Company or any Participating
Subsidiary because of a Reduction in Force, (i) that Grantee shall be entitled
to a Minimum Award of Performance Shares or Cash Value at the end of the
Performance Period prorated for the portion of the Performance Period during
which the Grantee was employed by the Company, any Participating Subsidiary
(provided, however, the Committee may provide for an earlier payment in
settlement of such Performance Shares or Cash Value in such amount and under
such terms and conditions as the Committee deems appropriate or desirable); and
(ii) all remaining restrictions with respect to such Grantee's Restricted Stock,
Restricted Stock Unit and Phantom Unit Awards shall lapse, in an amount prorated
for the amount of time such Awards have remained under restriction, as of the
date of termination.

         12.2.3 Performance Accelerated Stock Options. If prior to the
expiration of the PASO Period a Grantee who has been given a PASO Award under
the Plan shall cease to be employed by the Company or any Participating
Subsidiary because of a Reduction in Force, the Grantor shall determine the
timing, terms and conditions of the exercise of the Award as the Grantor deems
appropriate or desirable except that no PASO may be exercised beyond the end of
the PASO Period.

         SECTION 12.3 TRANSFERS TO CERTAIN RELATED ENTITIES

         12.3.1 Stock Options and SARs. If prior to the expiration of the Option
Period a Grantee who has been given a Option or SAR under the Plan shall cease
to be employed by the Company or any Participating Subsidiary because of a
transfer to a Related Entity, (i) in the case of Nonqualified Options (except
PASOs) and their related SARs, each Option and SAR shall become immediately
exercisable and shall remain exercisable for a period of three (3) years from
the date of cessation of employment, but not beyond the end of the Option
Period, and (ii) in the case of an ISO, each Option and SAR shall, at such time
as it becomes exercisable under the Award Commitment covering such Option,
remain exercisable for a period of three (3) months from the cessation of
employment, but not beyond the end of the Option Period.

         12.3.2 Performance Share, Restricted Stock, Restricted Stock Unit,
Phantom Unit and Cash Value Awards. If prior to the expiration of the
Performance or Restricted Period a Grantee who has been given a Performance
Share, Restricted Stock, Restricted Stock Unit, Phantom Unit or Cash Value Award
under the Plan shall cease to be employed by the Company or any Participating
Subsidiary because of a transfer to a Related Entity, then all restrictions with
respect to such Performance Shares, Restricted Stock, Restricted Stock Unit or
Phantom Units shall remain in effect until the end of the Performance or
Restricted Period; provided, however, the Grantor may provide as the case may be
for an earlier payment in settlement of such Performance Shares, Restricted
Stock, Restricted Stock Units or Phantom Units and for payment of Cash Value
Awards, all in such amount and under such terms and conditions as the Grantor
deems appropriate or desirable.

         12.3.3 Performance Accelerated Stock Options. If prior to the
expiration of the PASO Period a Grantee who has been given a PASO Award under
the Plan shall cease to be employed by the Company or any Participating
Subsidiary because of a transfer to a Related Entity, the Grantor shall
determine the timing, terms and conditions of the exercise of the Award as the
Grantor deems appropriate or desirable except that no PASO may be exercised
beyond the end of the PASO Period.

         SECTION 12.4 DISABILITY OR DEATH

         12.4.1 Stock Options and SARs. If prior to the end of the Option Period
a Grantee who has been granted a Option shall cease to be employed by the
Company, any Participating Subsidiary or Related Entity by reason of Death or
Disability, (i) in the case of Nonqualified Options (excluding PASOs) and their
related SARs, each Option and SAR shall become immediately exercisable and shall
remain exercisable for a period of one year from the date

                                       24
<PAGE>   32
of cessation of employment, but not beyond the end of the Option Period, and
(ii) in the case of an ISO, each Option and SAR shall, at such time as it
becomes exercisable under the Award Commitment covering such Option, remain
exercisable for a period of one year from the cessation of employment, but not
beyond the end of the Option Period. Notwithstanding the foregoing, the
Committee may, in its sole discretion, on a case-by-case basis, determine for
new Options, or extend for outstanding Options, the period during which the
Options may be exercised after the Grantee dies or suffers a Disability,
provided that such post-termination exercise period may not extend beyond the
expiration of the stated Option Period.

         12.4.2 Performance Share, Restricted Stock, Restricted Stock Unit,
Phantom Unit and Cash Value Awards. If prior to the expiration of the
Performance or Restricted Period a Grantee who has been given a Performance
Share, Restricted Stock, Restricted Stock Unit, Phantom Unit and Cash Value
Award under the Plan shall cease to be employed by the Company, any
Participating Subsidiary or Related Entity by reason of Death or Disability, (i)
that Grantee shall be entitled to Performance Shares or Cash Value (paid in
cash) at the Target Award level on the date of termination; and (ii) all
remaining restrictions with respect to such Grantee's Restricted Stock,
Restricted Stock Unit, and Phantom Unit Awards shall lapse as of the date of
termination.

         12.4.3 Performance Accelerated Stock Options. If prior to the
expiration of the PASO Period, a Grantee who has been given a PASO Award under
the Plan shall cease to be employed by the Company, any Participating Subsidiary
or Related Entity because of Disability or Death, then such Grantee (or the
Beneficiary of such Grantee) shall be entitled to PASOs as follows: if the PASOs
are exercisable on the date of such Disability or Death, then the PASOs will
remain exercisable until the earlier of one (1) year or the end of the PASO
Period; if the PASOs are not yet exercisable, then they shall become exercisable
at the earlier of (i) such time as the PASOs become exercisable through
acceleration due to performance, or (ii) six (6) months after such Disability or
Death, or (iii) nine and one-half (9.5) years from the award date. Once the
PASOs become exercisable, they shall remain exercisable until the earlier of one
(1) year after or the end of the PASO Period. Notwithstanding the foregoing, the
Committee may, in its sole discretion, on a case-by-case basis, determine for
new PASOs, or extend for outstanding PASOs, the period during which the PASOs
may be exercised after the Grantee dies or suffers a Disability, provided that
such post-termination exercise period may not extend beyond the expiration of
the stated PASO Period.

         SECTION 12.5 RESIGNATION

         12.5.1 Stock Options, SARs and Performance Accelerated Stock Options.
If the Grantee shall voluntarily resign before eligibility for Retirement
(except for Retirement with approval of the Company), the Options (including
PASOs) and SARs granted in tandem shall be canceled coincident with the
effective date of the termination of employment.

         12.5.2 Performance Share, Restricted Stock, Restricted Stock Unit,
Phantom Unit and Cash Value Awards. If prior to the expiration of the
Performance or Restricted Period a Grantee who has been given a Performance
Share, Restricted Stock, Restricted Stock Unit, Phantom Unit or Cash Value Award
under the Plan shall voluntarily resign (except for Retirement with approval of
the Company), then all Performance Share, Restricted Stock, Restricted Stock
Unit, Phantom Unit and Cash Value Awards theretofore awarded to such Grantee as
to which there still remains an unexpired portion of the Performance or
Restricted Period or the vesting period shall, upon such termination of
employment, be forfeited by such Grantee to the Company, without the payment of
any consideration by the Company. Thereafter, neither the Grantee nor any heirs,
assigns or personal representatives of such Grantee shall have any further
rights or interest in such Performance Share, Restricted Stock, Restricted Stock
Unit, Phantom Unit or Cash Value Awards, and the Grantee's name shall thereupon
be deleted from the list of the Company's stockholders with respect to such
Performance Shares, Restricted Stock, Restricted Stock Units, Phantom Units or
Cash Value Award. Notwithstanding any other provisions of this Subsection
12.5.2, the value of any vested and deferred Phantom Units shall be paid to the
Grantee as soon as practicable.

         SECTION 12.6 DECREASE IN COMPANY OWNERSHIP

         12.6.1 Stock Options and SARs. If prior to the expiration of the Option
Period a Grantee who has been given an Option or SAR under the Plan shall cease
to be employed by any Participating Subsidiary because of a

                                       25
<PAGE>   33
decrease in the Company's ownership interest in a Participating Subsidiary to
below 50% but at or above 20%, (i) in the case of Nonqualified Options (except
PASOs) and their related SARs, each Option and SAR shall become immediately
exercisable and shall remain exercisable for a period of three (3) years from
the date of cessation of employment, but not beyond the end of the Option
Period, and (ii) in the case of an ISO, each Option and SAR shall, at such time
as it becomes exercisable under the Award Commitment covering such Option,
remain exercisable for a period of three (3) months from the cessation of
employment, but not beyond the end of the Option Period.

         12.6.2 Performance Share, Restricted Stock, Restricted Stock Unit,
Phantom Unit and Cash Value Awards. If prior to the expiration of the
Performance or Restricted Period a Grantee who has been given a Performance
Share, Restricted Stock, Restricted Stock Unit, Phantom Unit or Cash Value Award
under the Plan shall cease to be employed by any Participating Subsidiary
because of a decrease in the Company's ownership interest in a Participating
Subsidiary to below 50% but at or above 20%, then all restrictions with respect
to such Performance Shares, Restricted Stock, Restricted Stock Units or Phantom
Units shall remain in effect until the end of the Performance Period or
Restricted Period; provided, however, the Committee may provide, as the case may
be, for an earlier payment in settlement of such Performance Shares, Restricted
Stock, Restricted Stock Units or Phantom Units and for payment of Cash Value
Awards, all in such amount and under such terms and conditions as the Committee
deems appropriate or desirable or make any other adjustment deemed appropriate
due to the decrease in Company ownership.

         12.6.3 Performance Accelerated Stock Options. If prior to the
expiration of the PASO Period a Grantee who has been given a PASO Award under
the Plan shall cease to be employed by the Company or any Participating
Subsidiary because of a decrease in company ownership, the Grantor shall
determine the timing, terms and conditions of the exercise of the Award as the
Grantor deems appropriate or desirable except that no PASO may be exercised
beyond the end of the PASO Period.

         SECTION 12.7 TERMINATION OF EMPLOYMENT FOR OTHER REASONS

         12.7.1 Stock Options, SARs and Performance Accelerated Stock Options.
If the Grantee's employment terminates for any reason other than specified in
Sections 12.1, 12.2, 12.3, 12.4, 12.5 or 12.6, each Option, SAR and PASO shall
terminate; provided, however, the Grantor may provide for acceleration of the
vesting date and/or an earlier settlement of such PASOs in such amount and under
such terms and conditions as the Grantor deems appropriate or desirable.

         12.7.2 Performance Share, Restricted Stock, Restricted Stock Unit,
Phantom Unit and Cash Value Awards. If prior to the expiration of the
Performance or Restricted Period a Grantee who has been given a Performance
Share, Restricted Stock, Restricted Stock Unit, Phantom Unit or Cash Value Award
under the Plan shall cease to be employed by the Company, any Participating
Subsidiary or Related Entity because of any reason other than specified in
Sections 12.1, 12.2, 12.3, 12.4, 12.5 or 12.6, then all Performance Share,
Restricted Stock, Restricted Stock Unit, Phantom Unit and Cash Value Awards
theretofore awarded to such Grantee as to which there still remains an unexpired
portion of the Performance or Restricted Period shall, upon such termination of
employment, be forfeited by such Grantee to the Company, without the payment of
any consideration by the Company; provided, however, the Grantor may provide for
settlement of a Cash Value Award in such amount, at such time and under such
terms and conditions as the Grantor deems appropriate or desirable. Thereafter,
neither the Grantee nor any heirs, assigns or personal representatives of such
Grantee shall have any further rights or interest in such Performance Share,
Restricted Stock, Restricted Stock Unit, Phantom Unit or Cash Value Awards, and
the Grantee's name shall thereupon be deleted from the list of the Company's
stockholders with respect to such Performance Shares or Restricted Stock.
Notwithstanding any other provisions of this Subsection 12.7.2, the value of any
vested and deferred Phantom Units shall be paid to the Grantee as soon as
practicable.

         SECTION 12.8 TERMINATION DATE

         Termination of employment of a Grantee for any of the reasons
enumerated in this Article XII shall, for purposes of the Plan, be deemed to
have occurred as of the date which is recorded in the ordinary course in the
Company books and records in accordance with the then-prevailing procedures and
practices of the Company.

                                       26
<PAGE>   34
         SECTION 12.9 REPORTING PERSON LIMITATION

         Notwithstanding any other provision of this Article XII, a Grantee who
ceases to be a Reporting Person through retirement or any other termination of
employment shall not be entitled to exercise a SAR.

                                  ARTICLE XIII
                    EXCHANGE AWARDS; ABOVE TARGET MICP AWARDS

         SECTION 13.1 SALARY/BONUS REDUCTIONS

         13.1.1 Restricted Stock. A Grantee (including those described in
Section 13.8) may elect to reduce and defer his or her current or future Base
Salary and/or earned Bonus and, thereafter, exchange such deferred amounts for
Restricted Stock. Such elections shall direct deferrals and exchanges on a
one-time (annual) basis or, in the alternative in the case of Base Salary, on an
ongoing basis covering a period not exceeding five (5) years. Should a Grantee
elect a one-time (annual) exchange, the deferred amounts shall be credited to
his or her deferred compensation account under this Plan and, thereafter, on the
third (3rd) business day following the public announcement of the Company's
annual earnings, the deferred amounts shall be exchanged for that number of
shares of Restricted Stock that equals the number of whole shares determined by
dividing the deferred amount forgone by 85% of the Fair Market Value of one
share of Common Stock on the date of the exchange. Should a Grantee elect an
exchange of Base Salary on an ongoing basis for a period of one year or less,
the number of shares of Restricted Stock he or she shall acquire through such
exchanges, which shall be effected on the third (3rd) business day following the
public announcement of the Company's annual earnings, shall be determined by
dividing the total projected deferred amounts forgone for the designated period
by 85% of the Fair Market Value of one share of Common Stock on the date of the
exchange. When the elected period extends beyond one year, the number of shares
of Restricted Stock acquired through such exchanges, which shall be effected on
the third (3rd) business day following the public announcement of the Company's
annual earnings, shall equal that number of whole shares of Restricted Stock
determined by dividing the discounted present value of the total projected
deferred amounts forgone for the designated period (using the appropriate
Treasury Bill rates for the applicable period) by 85% of the Fair Market Value
of one share of Common Stock on the date of the exchange. Restricted Stock
acquired pursuant to exchanges under this Subsection 13.1.1 shall have a
Restricted Period of not less than three (3) years (such Restricted Period to be
extended up to five (5) years to coincide with a deferral election that extends
beyond three (3) years), as determined by the Committee, and shall be subject to
all of the terms, conditions and provisions of Article VII, except as may
otherwise be determined by the Committee prior to their acquisition.

         13.1.2 Options. A Grantee may elect to reduce and defer his or her
current or future Base Salary and/or earned Bonus and, thereafter, exchange such
deferred amounts for Nonqualified Options. Such elections shall direct deferrals
and exchanges on a one-time (annual) basis or, in the alternative in the case of
Base Salary, on an ongoing basis covering a period not exceeding five (5) years.
Should a Grantee elect a one-time (annual) exchange, the deferred amounts shall
be credited to his or her deferred compensation account under this Plan and,
thereafter, on the third (3rd) business day following the public announcement of
the Company's annual earnings, the deferred amounts shall be exchanged for that
number of Options as is determined by the Committee, in its discretion, to be
the equivalent in value of that number of whole shares of Restricted Stock
determined by dividing the deferred amount forgone by 85% of the Fair Market
Value of one share of the Common Stock on the date of the exchange. Should a
Grantee elect an exchange of Base Salary on an ongoing basis for a period of one
year or less, the number of Options he or she shall acquire through such
exchanges is that number of Options as is determined by the Committee, in its
discretion, to be the equivalent in value of that number of whole shares of
Restricted Stock determined by dividing the total projected deferred amount
forgone for the designated period by 85% of the Fair Market Value of one share
of Common Stock on the date of the exchange. When the elected period extends
beyond one year, the Options acquired through such exchanges, which shall be
effected on the third (3rd) business day following the public announcement of
the Company's annual earnings, shall be that number of Options determined by the
Committee, in its discretion, to be the equivalent in value of that number of
whole shares of Restricted Stock determined by dividing the discounted present
value of the total projected deferred amounts forgone for the designated period
(using the appropriate Treasury Bill rates for the applicable period) by 85% of
the Fair Market Value of one share of the Common Stock on the date of the
exchange. Options acquired pursuant to this Subsection 13.1.2 shall be
exercisable

                                       27
<PAGE>   35
according to the following three (3)-year schedule (unless the Grantee's
employment with the Company or a Participating Subsidiary is terminated, in
which case the provisions of Section 13.3 or Article XII, as apposite, shall
govern):

         40% of the Options will be exercisable beginning one year after the
         exchange, a second 40% of the Options will be exercisable beginning two
         (2) years after the exchange, and the final 20% of the Options will be
         exercisable beginning three (3) years after the exchange;

and shall be subject to all of the terms, conditions and provisions of Article V
(as modified as to exercisability by this Subsection 13.1.2), except as may
otherwise be determined by the Committee prior to their acquisition.

         SECTION 13.2 DEFERRED ACCOUNTS

         13.2.1 Deferred Compensation Plan Accounts. Subject to the Company's
approval, amounts accrued under the Hercules Incorporated Deferred Compensation
Plan (other than under the Hercules Incorporated Non-qualified Savings Plan
portion thereof) may, upon the Grantee's request for a one-time (annual)
exchange, be surrendered in exchange for Restricted Stock and/or Nonqualified
Options. The number of shares of Restricted Stock and Options acquired in this
manner shall be determined in the same manner as is specified in Subsections
13.1.1 and 13.1.2, respectively, and all Restricted Stock and Options so
acquired shall be subject to all of the terms, conditions and provisions of
Subsections 13.1.1 and 13.1.2, respectively. Exchanges under this Subsection
13.2.1 shall be effected the third (3rd) business day after the first public
announcement of the Company's annual earnings.

         13.2.2   Non-Qualified Savings Plan Accounts. Subject to the Company's
                  approval, amounts accrued under the Hercules Incorporated
                  Non-Qualified Savings Plan portion of the Hercules Deferred
                  Compensation Plan may, upon the Grantee's request for a
                  one-time (annual) exchange, be surrendered in exchange for
                  Restricted Stock and/or Nonqualified Options. The number of
                  shares of Restricted Stock and Options acquired in this manner
                  shall be determined in the same manner as is specified in
                  Subsections 13.1.1 and 13.1.2, respectively, except that the
                  computation in each case shall be based on 100% of the Fair
                  Market Value of one share of Common Stock rather than the 85%
                  of the Fair Market Value specified in Subsections 13.1.1 and
                  13.1.2. All Restricted Stock and Options so acquired shall be
                  subject to all of the terms, conditions and provisions of
                  Subsections 13.1.1 and 13.1.2, respectively. Exchanges under
                  this Subsection 13.2.2 shall be effected the third (3rd)
                  business day after the first public announcement of the
                  Company's annual earnings.

         SECTION 13.3 TERMINATION OF EMPLOYMENT

         13.3.1   Death, Disability and Reduction in Force. Notwithstanding any
provisions of Sections 12.2 and 12.4 to the contrary:

                  (a) If prior to the expiration of an applicable Restricted
         Period a Grantee who has received Restricted Stock pursuant to
         Subsections 13.1.1, 13.2.1 and/or 13.2.2 shall cease to be employed by
         the Company by reason of Death, Disability, Reduction in Force or
         Retirement directly attributable to a Reduction in Force, all
         restrictions and forfeiture provisions under this Plan with respect to
         the Restricted Stock exchanged pursuant to this Article XIII shall
         lapse as of the date of termination of employment and delivery of such
         shares shall be governed by the provisions of Section 7.6.

                  (b) If prior to the expiration of an applicable Option Period
         a Grantee who has received Options pursuant to Subsections 13.1.2,
         13.2.1 and/or 13.2.2 shall cease to be employed by the Company by
         reason of Death, Disability, Reduction in Force or Retirement directly
         attributable to a Reduction in Force, the Option Period shall be
         adjusted to the lesser of the remaining Option Period or one year from
         the date of employment termination. Notwithstanding the foregoing, the
         Committee may, in its sole discretion, on a case-by-case basis,
         determine for new Options, or extend for outstanding Options, the
         period during which the Options may be exercised after the Grantee dies
         or suffers a Disability, provided that such post-termination exercise
         period may not extend beyond the expiration of the stated Option
         Period.

                                       28
<PAGE>   36
         13.3.2 Retirement. Notwithstanding any provisions of Section 12.1 to
the contrary:

                  (a) In the event of Retirement (not directly attributable to a
         Reduction in Force) by a Grantee who has received Restricted Stock
         pursuant to Subsections 13.1.1, 13.2.1 and/or 13.2.2 prior to the
         expiration of an applicable Restricted Period, that number of shares of
         Restricted Stock equal to the amount attributable to the 15% discount
         made available under this Article XIII, and prorated for the length of
         time remaining in the Restricted Period, shall be forfeited and
         returned to the Company.

                  (b) If prior to the expiration of an applicable Option Period
         a Grantee who has received Options pursuant to Subsections 13.1.2,
         13.2.1 and/or 13.2.2 shall cease to be employed by the Company by
         reason of his or her Retirement (not directly related to a Reduction in
         Force), the Option Period shall be adjusted to the lesser of the
         remaining Option Period or five (5) years from the date of termination.
         In the event of Retirement (not directly attributable to a Reduction in
         Force) by a Grantee who has received Options pursuant to Subsections
         13.1.2, 13.2.1 and/or 13.2.2, a number of Options equal to the amount
         attributable to the 15% discount and prorated for the length of time
         remaining in the period during which Options may not be exercised shall
         be forfeited.

         13.3.3   Resignation or Termination for Cause. Notwithstanding any
provisions of Sections 12.5 and 12.7 to the contrary:

                  (a) In the event a Grantee who has received Restricted Shares
         pursuant to Subsections 13.1.1, 13.2.1 and/or 13.2.2 voluntarily
         resigns (except for retirement with approval of the Company) or
         terminates employment for reasons other than any of those specified in
         Sections 12.1, 12.2, 12.3, 12.4 and 12.6 prior to the expiration of an
         applicable Restricted Period, all shares of Restricted Stock shall be
         forfeited and returned to the Company and such Grantee shall receive a
         payment equal to the lower of the Fair Market Value of the Restricted
         Shares forfeited or the original amount exchanged.

                  (b) In the event a Grantee who has received Options pursuant
         to Subsections 13.1.2, 13.2.1 and/or 13.2.2 voluntarily resigns (except
         for retirement with approval of the Company) or terminates employment
         for reasons other than any of those specified in Sections 12.1, 12.2,
         12.3, 12.4 and 12.6 prior to the expiration of the applicable Option
         Period, all Options shall be forfeited and returned to the Company and
         such Grantee shall receive a payment equal to the lower of a value (as
         determined by the Committee) of the Options forfeited or the original
         amount exchanged.

         SECTION 13.4 AVOIDANCE OF PENSION DIMINUTION

         13.4.1 Governing Provisions. Grantees electing Base Salary and/or Bonus
reductions under Section 13.1 may suffer a permanent diminution of their
qualified pension entitlement under the Hercules Pension Plan. To offset this
diminution in part, exchange awards in respect of pensions otherwise payable as
nonqualified pensions (as measured from the date of the APD Election defined
next below) may be requested within five (5) years of anticipated retirement.
Subject to the Committee's approval of such a request, all such exchanges shall
be effected in accordance with the provisions of this Section 13.4.

         13.4.2 Exchange Awards. A Grantee who is within five (5) years (but not
less than one year) of his or her anticipated retirement date may elect ("APD
Election") to exchange the present value (as of the date of the APD Election) of
his or her projected benefits payable as of the Designated Retirement Date (as
defined below) under the Hercules Pension Restoration Plan (utilizing the method
and assumptions used to convert a pension to a partial cash payment under the
Hercules Pension Plan) for Restricted Stock issuable under Subsection 13.1.1
and/or Options granted under Subsection 13.1.2. Restricted Stock and/or Options
received in such an exchange shall be in substitution of any pension
entitlements under the Hercules Pension Restoration Plan, the rights to such
entitlements being forfeited and canceled in consideration of such exchange.

         13.4.3 Designated Retirement Date. As a part of his or her APD
Election, a Grantee shall designate a retirement date ("Designated Retirement
Date"). In the event of any termination of employment prior to the Designated
Retirement Date, the following will apply:

                                       29
<PAGE>   37
                  (a) If the Grantee elected Restricted Stock, that number of
         Restricted Stock shares shall be forfeited as has a value (on the date
         of his or her APD Election) equivalent to the present value determined
         for purposes of Subsection 13.4.2 minus the present value (as of the
         APD Election date) of the amount due under the Hercules Pension
         Restoration Plan as of the date of actual retirement, utilizing the
         method and assumptions used to convert a pension to a partial cash
         payment under the Hercules Pension Plan. Further, in the event that the
         Grantee's actual retirement date occurs within three (3) years of the
         APD Election, the Grantee shall forfeit that number of Restricted Stock
         shares (adjusted by the preceding sentence) attributable to the 15%
         discount made available under Subsection 13.1.1 and prorated for the
         length of time remaining in the three (3)- year period commencing with
         the date of the APD Election.

                  (b) If the Grantee elected Nonqualified Options, that number
         of Options shall be forfeited as the Committee in its discretion shall
         determine has a value (on the date of his or her APD Election)
         equivalent to the present value determined for purposes of Subsection
         13.4.2 minus the present value (as of the date of his or her APD
         Election) of the amount due under the Hercules Pension Restoration Plan
         as of the date of actual retirement, utilizing the method and
         assumptions used to convert a pension to a partial cash payment under
         the Hercules Pension Plan. Further, in the event that the Grantee's
         actual retirement date occurs within three (3) years of the APD
         Election, the Grantee shall forfeit that number of Options as the
         Committee in its discretion shall determine has a value equal to that
         number of Restricted Stock shares (adjusted by the preceding sentence)
         attributable to the 15% discount made available under Subsection 13.1.2
         and prorated for the length of time remaining in the period commencing
         with the date of the APD Election.

                  (c) Notwithstanding (a) and (b) next above, in the event of
         the Grantee's death, Disability or termination of employment with the
         consent of the Company, the Committee may, in its discretion, waive any
         forfeitures otherwise applicable under this Subsection 13.4.3.

         SECTION 13.5 IRREVOCABILITY

         Any election under Sections 13.1, 13.2 or 13.4 shall be irrevocable.

         SECTION 13.6 EQUIVALENCY

         Notwithstanding any provision in this Article XIII to the contrary, all
elections under this Article XIII that involve an exchange of future
compensation or pension benefit entitlement shall in each instance be equalized
(that is, recalculated using actual numbers) at the expiration of the period
elected or termination of employment and forfeiture shall be applied, if
appropriate.

         SECTION 13.7 MICP AWARDS

         Any payout under the Management Incentive Compensation Plan for
performance above the target level Performance Goals for any Performance Period
shall be in that number of whole shares of Restricted Stock obtained by dividing
the dollar value of the payout by 85% of the Fair Market Value of one share of
Common Stock on the date of such award. Restricted Stock acquired pursuant to
this Section 13.7 shall be subject to all of the terms, conditions and
provisions of Article VII and Article XIII, except as may otherwise be
determined by the Committee prior to the Date of Award.

         SECTION 13.8 DEFINITION

         For purposes of this Article XIII, the term "Grantee" includes all
employees of the Company or any Participating Subsidiary who are designated by
the CEO to be eligible for purposes of this Article XIII.

                                       30
<PAGE>   38
                                   ARTICLE XIV
                     CERTAIN TERMS APPLICABLE TO ALL AWARDS

         SECTION 14.1 WITHHOLDING TAXES

         The Company shall withhold (or secure payment from the Grantee in lieu
of withholding) the amount of any withholding or other tax required by law to be
withheld or paid by the Company with respect to any amount payable and/or shares
issuable under such Grantee's Award, or with respect to any income recognized
upon a disqualifying disposition of shares received pursuant to the exercise of
an ISO, and the Company may defer payment or issuance of the cash or stock upon
exercise or vesting of an Award unless indemnified to its satisfaction against
any liability for any such tax. The amount of such withholding or tax payment
shall be determined by the Committee and shall be payable by the Grantee at the
time of delivery or when payment is made [except as otherwise payable under
Section 14.1(c)] in accordance with the following rules:

                  (a) With respect to Awards payable in cash, the Company will
         withhold an amount sufficient to satisfy applicable Federal, state and
         local tax withholding requirements and remit the net award to the
         Grantee;

                  (b) With respect to Awards payable in stock, the Company will
         notify the Grantee of the amount due from such Grantee to satisfy the
         tax withholding requirements with respect to the stock. The Grantee
         shall pay the amount due to satisfy the tax withholding requirements in
         cash; provided, however, that the Grantee may elect to meet the tax
         withholding requirement by requesting the Company, in writing, to
         withhold from such Award and sell through a brokerage firm the
         appropriate number of shares of Common Stock, rounded up to the next
         whole number, which would result in proceeds equal to the tax
         withholding requirement. Any election by a Grantee to have shares
         withheld under this Section 14.1 shall be subject to such terms and
         conditions as the Committee may specify, which may include that the
         election shall be irrevocable and in the case of a Reporting Person,
         the election to have shares withheld under this Section 14.1 must be
         made either (i) not less than six (6) months prior to the date that the
         tax is to be withheld by the Company, or (ii) during the period
         beginning on the third business day following the date of the release
         for publication of the Company's quarterly or annual summary statements
         of earnings and ending on the twelfth business day following such date.
         If the cash required (whether paid directly or indirectly through the
         sale of stock election described above) is not received by the Company
         within sixty (60) days of notification by the Company of the tax
         withholding due, the Committee shall have the right to take whatever
         action it deems appropriate, including voiding the Award. The Company
         shall not deliver or pay the Award (net of the tax withholding) until
         the tax withholding obligation is satisfied. At the time that all other
         restrictions lapse (other than being subject to Section 16 of the Act)
         a Reporting Person shall make the election described in Subsection (c)
         below.

                  (c) If permitted under applicable Federal income tax laws, a
         Grantee may elect to include in gross income for Federal income tax
         purposes in the year in which a stock Award is made, an amount equal to
         the Fair Market Value of the Award on the Date of Grant. If the Grantee
         makes such an election, the Grantee shall promptly notify the Company
         in writing and shall provide the Company with a copy of the executed
         election form as filed with the Internal Revenue Service by no later
         than thirty (30) days from the Date of the Grant. Promptly following
         such notification, the Grantee shall pay directly to the Company, or
         make arrangements satisfactory to the Committee, the cash amount
         determined by the Company to be sufficient to satisfy applicable
         Federal, state or local withholding tax requirements. If the Grantee
         shall fail to make such payments, the Company and its Subsidiaries
         shall, to the extent permissible by law, have the right to deduct from
         any payment of any kind otherwise due to the Grantee any Federal, state
         or local taxes of any kind required by law to be withheld with respect
         to such Restricted Stock.

         SECTION 14.2 ADJUSTMENTS TO REFLECT CAPITAL CHANGES

         14.2.1 Recapitalization. In the event of any stock dividend, stock
split, combination or exchange of shares, merger, consolidation or other change
in capitalization with a similar substantive effect upon the Plan or the Awards
granted under the Plan, such adjustments shall be made in the number and kind of
shares subject to outstanding

                                       31
<PAGE>   39
Awards, the Option Price for such shares and the number and kind of shares
available for Awards subsequently granted under the Plan as may be determined
appropriate by the Committee.

         14.2.2 Sale or Reorganization. After any reorganization, merger or
consolidation in which the Company is the surviving corporation, each Grantee
shall, at no additional cost, be entitled upon any exercise of an Option or
receipt of other Award to receive (subject to any required action by
stockholders), in lieu of the number of shares of Common Stock receivable or
exercisable pursuant to such Award, the number and class of shares of stock or
other securities to which such Grantee would have been entitled pursuant to the
terms of the reorganization, merger or consolidation if, at the time of such
reorganization, merger or consolidation, such Grantee had been the holder of
record of a number of shares of stock equal to the number of shares receivable
or exercisable pursuant to such Award. Comparable rights shall accrue to each
Grantee in the event of successive reorganizations, mergers or consolidations of
the character described above.

         14.2.3 Options to Purchase Stock of Acquired Companies. After any
reorganization, merger or consolidation in which the Company or a Subsidiary
shall be a surviving corporation, the Committee may grant substituted options
under the provisions of the Plan, pursuant to Section 424 of the Code, replacing
old options granted under a plan of another party to the reorganization, merger
or consolidation whose stock subject to the old options that may no longer be
issued following such merger or consolidation. The foregoing adjustments and
manner of application of the foregoing provisions shall be determined by the
Committee in its sole discretion. Any such adjustments may provide for the
elimination of any fractional shares which might otherwise become subject to any
Options.

         SECTION 14.3 FAILURE TO COMPLY WITH TERMS AND CONDITIONS

         Notwithstanding any other provision of the Plan, no payment or delivery
with respect to any Award shall be made, and all rights of the Grantee who
receives such Award (or his designated Beneficiary or legal representative) to
such payment or delivery under the Plan shall be forfeited, at the discretion of
the Committee, if, prior to the time of such payment or delivery, the Grantee
breaches a restriction or any of the terms, restrictions and/or conditions of
the Plan and/or the Award Commitment.

         SECTION 14.4 FORFEITURE UPON OCCURRENCE OF CERTAIN EVENTS

         Notwithstanding any other provision of the Plan, no payment of any
Award shall be made and all rights of the Grantee who received such Award (or
his designated Beneficiary or legal representative) to the payment thereof under
the Plan shall be forfeited if, prior to the time of such payment, the Grantee
(i) without the Company's consent, shall be employed by a competitor of, or
shall be engaged in any activity in competition with, the Company or a
Subsidiary; (ii) divulges without the consent of the Company any secret or
confidential information belonging to the Company or a Subsidiary; or (iii) has
been dishonest or fraudulent in any matter affecting the Company or a Subsidiary
or has committed any act which, in the sole judgment of the Committee, has been
substantially detrimental to the interests of the Company or a Subsidiary. The
Company shall give a Grantee written notice of the occurrence of any such event
prior to making any such forfeiture. The determination of the Committee as to
the occurrence of any of the events specified in clauses (i), (ii), and (iii) of
this Section 14.4 shall be conclusive and binding upon all persons for all
purposes. Any Award shall be subject to forfeiture for the reasons provided in
this Section 14.4 in such manner as shall be provided by the Committee.

         SECTION 14.5 REGULATORY APPROVALS AND LISTING

         The Company shall not be required to issue any certificate or
certificates for shares of Common Stock under the Plan prior to (i) obtaining
any approval from any governmental agency which the Company shall, in its
discretion, determine to be necessary or advisable, (ii) the admission of such
shares to listing on any national securities exchange on which the Company's
Common Stock may be listed, and (iii) the completion of any registration or
other qualification of such shares of Common Stock under any state or Federal
law or ruling or regulations of any governmental body which the Company shall,
in its discretion, determine to be necessary or advisable.

                                       32
<PAGE>   40
         SECTION 14.6 RESTRICTIONS UPON RESALE OF STOCK

         If the shares of Common Stock that have been issued to a Grantee
pursuant to the terms of the Plan are not registered under the Securities Act of
1933, as amended ("Securities Act"), pursuant to an effective registration
statement, such Grantee, if the Committee shall deem it advisable, may be
required to represent and agree in writing (i) that any such shares acquired by
such Grantee pursuant to the Plan will not be sold except pursuant to an
effective registration statement under the Securities Act, or pursuant to an
exemption from registration under said Act and, (ii) that such Grantee is
acquiring such shares for his own account and not with a view to the
distribution thereof.

         SECTION 14.7 REPORTING PERSON LIMITATION

         Notwithstanding any other provision of the Plan, to the extent required
to qualify for the exemption provided by Rule 16b-3 under the Act, and any
successor provision, (1) any Common Stock or other equity security offered under
the Plan to a Reporting Person may not be sold for at least six (6) months after
the earlier of acquisition of the security or the date of grant of the
derivative security, if any, pursuant to which the Common Stock or other equity
security was acquired; and (2) any Option, SAR or other similar right related to
an equity security, issued under the Plan to a Reporting Person shall not be
transferable other than by will or the laws of descent and distribution, or
pursuant to a qualified domestic relations order and shall be exercisable during
the Grantee's lifetime only by the Grantee or the Grantee's guardian or legal
representative.

                                   ARTICLE XV
                                    DISPUTES

         If the employment of a Grantee with the Company or any Participating
Subsidiary shall terminate prior to the expiration of the Performance or
Restriction Period applicable to any Performance Share, Restricted Stock,
Restricted Stock Unit or Phantom Unit Award awarded to such Grantee and there
exists a dispute between such Grantee and the Company or the Committee as to the
satisfaction of the conditions to the release of such shares or units under the
Plan or the terms and conditions of the Performance Share, Restricted Stock,
Restricted Stock Unit, or Phantom Unit Award, the Performance Share, Restricted
Stock, Restricted Stock Unit or Phantom Unit Awards as to which such dispute
shall exist shall remain subject to the restrictions of the Plan until the
resolution of such dispute, regardless of any intervening expiration of the
Performance or Restriction Period originally applicable to such shares, except
that any dividends which may be declared and which may be payable to the
participant as of a date during the period from termination of such Grantee's
employment to the resolution of such dispute (the "Suspension Period") shall

                  (i) to the extent to which such dividends would have been
         payable to such Grantee on such Performance Share, Restricted Stock,
         Restricted Stock Unit or Phantom Unit Award, be held by the Company as
         part of its general funds and shall be paid to or for the account of
         such Grantee only upon, and in the event of, a resolution of such
         dispute in a manner favorable to such Grantee and then only with
         respect to such Performance Share, Restricted Stock, Restricted Stock
         Unit or Phantom Unit Award as to which such resolution shall be so
         favorable, and

                  (ii) in the event the dispute is resolved in a manner
         unfavorable to the Grantee, be canceled as dividends payable upon
         Performance Share, Restricted Stock, Restricted Stock Unit or Phantom
         Unit Award as to which such resolution shall be so unfavorable.

         In addition, to the extent that resolution of any such dispute shall be
unfavorable to the Grantee, the Performance Shares, Restricted Stock, Restricted
Stock Unit or Phantom Unit Award as to which such dispute shall have existed
shall be forfeited in accordance with the provisions of Article XII or Section
14.4.

                                       33
<PAGE>   41
                                   ARTICLE XVI
                           ADMINISTRATION OF THE PLAN

         SECTION 16.1 COMMITTEE

         The Plan shall be administered by or under the direction of the
Committee. No person shall be eligible or continue to serve as a member of the
Committee unless such person is a director of the Company and is a
"disinterested person" within the meaning of Rule 16b-3, and no person shall be,
or shall have been, eligible to receive an Award under the Plan to acquire
stock, stock options, stock appreciation rights, performance shares or
restricted stock of the Company or any Participating Subsidiary at any time
within the one (1) year immediately preceding the member's appointment to the
Committee.

         SECTION 16.2 COMMITTEE ACTIONS

         Except for matters required by the terms of this Plan to be decided by
the CEO or his designee or designees, the Committee shall have full power and
authority to interpret and construe the Plan, to prescribe, amend and rescind
rules, regulations, policies and practices, to impose such conditions and
restrictions on Awards as it deems appropriate and to make all other
determinations necessary or desirable in connection with the administration of,
or the performance of its responsibilities under, this Plan. Subject to the
limitations of provisions of Section 20.4, each decision, determination,
interpretation or other action of the Committee made or taken pursuant to grants
of authority under the Plan shall be final and shall be conclusive and binding
on all persons for all purposes. The Committee's decisions, determinations and
interpretations (including without limitations, the terms and provisions of such
awards and the agreements evidencing same) need not be uniform and may be made
selectively among Grantees who receive, or are eligible to receive, awards under
the Plan, whether or not such Grantees are similarly situated. The Committee
may, to the extent that any such action will not prevent the Plan from complying
with Rule 16b-3, delegate any of its powers and authority under the Plan as it
deems appropriate to designated officers or employees of the Company.

         SECTION 16.3 NO LIABILITY OF COMMITTEE MEMBERS

         As and to the extent provided by Section 20.5, no past, present or
future member of the Committee shall be personally liable by reason of any
contract or other instrument executed by him or on his behalf in his capacity as
a member of the Committee, nor for any mistake of judgment made in good faith,
and the Company shall indemnify and hold harmless each member of the Committee.

                                  ARTICLE XVII
            EFFECTIVE DATE, TERM OF THE PLAN AND STOCKHOLDER APPROVAL

         The Plan became effective as of April 1, 1991, and was amended and
restated as of June 30, 1993, April 27, 1995, April 24, 1997, and is hereby
further amended and restated as of April 29, 1999. The termination date of the
Plan shall be April 30, 2002. No Award shall be granted under the Plan after
such termination date. The Plan will continue in effect for existing Awards as
long as any such Awards are outstanding.

                                  ARTICLE XVIII
                           CHANGE IN CORPORATE CONTROL

         SECTION 18.1 OPTIONS AND PASOS

         In the event of a Change in Control, (i) all Options and PASOs
outstanding on the date of such Change in Control shall become immediately and
fully exercisable, and (ii) a Grantee who is an elected officer or director of
the Company will be permitted to surrender for cancellation within sixty (60)
days after such Change in Control any

                                       34
<PAGE>   42
Option or PASO or portion thereof to the extent not yet exercised (or with
respect to an Option or PASO or portion thereof granted less than six (6) months
prior to the date of the Change in Control, within sixty (60) days after the
expiration of a six (6)-month period following the Date of Grant) and to receive
a cash payment in an amount equal to the excess, if any, of (x) in the case of a
Nonqualified Stock Option or PASO, the adjusted Fair Market Value of the Common
Stock subject to the Option or PASO or a portion thereof surrendered or (y) in
the case of an ISO, the Fair Market Value of the Common Stock subject to the
Option or PASO or portion thereof surrendered over the Option Price. The
provisions of this Section 18.1 shall be applicable to Nonqualified Stock
Options, PASOs or ISOs. The provisions of this Section 18.1 shall not be
applicable to any Options granted to a Grantee if any Change in Control results
from such Grantee's beneficial ownership (within the meaning of Rule 13d(3)
under the Act) of Common Stock or Company voting securities.

         SECTION 18.2 SARS

         In the event of a Change in Control, all SARs shall become immediately
and fully exercisable but not before any related ISO is exercisable. Upon any
exercise of a SAR (other than a SAR granted in tandem with a related ISO) or any
portion thereof during the sixty (60)-day period following the Change in
Control, (or with respect to a SAR granted to an officer or director of the
Company less than six (6) months prior to the date of the Change in Control,
within sixty (60) days after the expiration of a six (6) month period following
the Date of Grant) the amount payable shall be determined by reference to the
SAR Fair Market Value of the Common Stock and shall be paid in cash. SARs
granted in connection with ISOs will be payable as determined by reference to
the Fair Market Value of the Common Stock on the date of such exercise and shall
be paid in cash. The provisions of this Section 18.2 shall not be applicable to
any SARs granted to a Grantee if any Change in Control results from such
Grantee's beneficial ownership (within the meaning of Rule 13d(3) under the Act)
of Common Stock or Company voting securities.

         SECTION 18.3 ALL OTHER AWARDS

         In the event of a Change of Control, all Performance Share Awards,
Restricted Stock Awards, Phantom Unit Awards, Cash Value Awards, Other
Market-Based Awards (if any) and Other Performance-Based Awards (if any) shall
immediately vest and become fully payable within thirty (30) days after a Change
in Control to all Grantees who have been granted an Award. In the case of
Performance Share Awards and Cash Value Awards, all Awards shall vest at the
Maximum Award.

         SECTION 18.4 DEFINITIONS

         A Change in Control of the Company shall occur when there is an
unsolicited Change in Control of the Company that is not initiated by the
Company, and is of a nature that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Act, as in
effect on the effective date of the Plan; provided, however, that no Change in
Control shall be deemed to have occurred unless and until a "person" (as such
term is used in Sections 13(d) and 14(d)(2) of the Act) together with all
"affiliates" and "associates" of such person (as such terms respectively, are
defined in Rule 12b-2 of the General Rules and Regulations under the Act) is or
becomes a beneficial owner, directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities.

                                   ARTICLE XIX
                            AMENDMENT AND TERMINATION

         SECTION 19.1 AMENDMENT

         The Board reserves the right at any time or times to modify, alter or
amend, in whole or in part, any or all of the provisions of the Plan to any
extent and in any manner that it may deem advisable, and no consent or approval
by the stockholders of the Company or by any other person, committee or entity
of any kind shall be required to make any modification, alteration or amendment;
provided, however, that the Board shall not, without the requisite

                                       35
<PAGE>   43
affirmative approval of the stockholders of the Company, make any modification,
alteration or amendment which (i) except as provided in Section 3, increases the
maximum number of shares of Common Stock available for Awards under this Plan,
(ii) decreases the Option Price to less than 100% of the Fair Market Value on
the Date of Grant of an Option, (iii) extends the period during which Awards may
be granted under the Plan beyond April 30, 2002, (iv) changes the employee (or
class of employees) eligible to receive Awards under the Plan, (v) materially
increase the benefits accruing to a Grantee under the Plan, or (vi) requires
stockholders' approval under Rule 16b-3 or the Code, unless such compliance is
no longer desired, or under any other applicable law. No modification,
alteration or amendment of the Plan may, without the consent of the Grantee
(Beneficiaries in case of his death) to whom any Award shall theretofore have
been granted under the Plan adversely affect any right of such Grantee under
such Award, except in accordance with the provisions of the Plan and/or any
Award Commitment applicable to any such Award. Subject to the provisions of this
Section 19.1, any modification, alteration or amendment of any provisions of the
Plan may be made retroactively.

         SECTION 19.2 SUSPENSION OR TERMINATION

         The Board reserves the right at any time to suspend or terminate, in
whole or in part, any or all of the provisions of the Plan for any reason and
without the consent of or approval by the stockholders of the Company, any
Grantee or Beneficiary or any other person, committee or entity of any kind;
provided, however, that no such suspension or termination shall affect any right
or obligation with respect to any Award theretofore made except as herein
otherwise provided.

         SECTION 19.3 NO REPRICING OF OPTIONS

         Notwithstanding any other provision in the Plan, the Board shall not
amend any outstanding Options to reduce the Option Price of such Option, nor
substitute new Options for previously granted Options having a higher Option
Price.

                                       36
<PAGE>   44
                                   ARTICLE XX
                                  MISCELLANEOUS

         SECTION 20.1 DEFERRAL ELECTION

         At the discretion of the Committee payment of Phantom Units or any
other cash award, or any portion thereof, may be deferred by a Grantee until
such time as the Committee may establish. All such deferrals shall be
accomplished by the delivery of a written, irrevocable election by the Grantee
at such times prior to the time payment would otherwise be made as the Committee
shall determine. All deferrals shall be made in accordance with such rules and
regulations established by the Committee to ensure that such deferrals comply
with all applicable requirements of the Code and its regulations. Deferred
payments shall be paid in a lump sum or installments, as determined by the
Committee. The Committee also may credit interest at such rates to be determined
by the Committee.

         SECTION 20.2 DESIGNATION OF BENEFICIARY

         Each Grantee shall file with the Company a written designation of one
or more persons as the Beneficiary who shall be entitled to receive the Award,
if any, payable under the Plan upon his death. A Grantee may from time to time
revoke or change his Beneficiary designation without the consent of any prior
Beneficiary by filing a new designation with the Company. The last such
designation received by the Company shall be controlling; provided, however,
that no designation, or change or revocation thereof, shall be effective unless
received by the Company prior to the Grantee's death, and in no event shall it
be effective as of a date prior to such receipt. If no such Beneficiary
designation is in effect at the time of a Grantee's death, or if no designated
Beneficiary survives the Grantee or if such designation conflicts with law, the
Grantee's estate shall be entitled to receive the Award, if any, payable under
the Plan upon his death. If the Committee is in doubt as to the right of any
person to receive such Award, the Company may retain such Award, without
liability for any interest thereon, until the Committee determines the rights
thereto, or the Company may pay such Award into any court of appropriate
jurisdiction and such payment shall be a complete discharge of the liability of
the Company therefor.

         SECTION 20.3 NO RIGHT TO AN AWARD OR TO CONTINUED EMPLOYMENT

         No Grantee or other person shall have any claim or right to be granted
an Award under the Plan. Neither the action of the Company in establishing this
Plan, nor any provisions hereof, nor any action taken by the Company, any
Participating Subsidiary, the Committee or the CEO (or his designee or
designees) pursuant to such provisions shall be construed as creating in any
employee or class of employees any right with respect to continuation of
employment by the Company or any of the Participating Subsidiaries, and they
shall not be deemed to interfere in any way with the Company's or any
Participating Subsidiary's right to employ, discipline, discharge, terminate,
lay off or retire any Grantee with or without cause, to discipline any Employee,
or to otherwise affect the Company's right to make employment decisions with
respect to any Grantee.

         SECTION 20.4 DISCRETION OF THE COMMITTEE AND THE CEO

         Whenever the terms of the Plan provide for or permit a decision to be
made or an action to be taken by a Grantor, such decision may be made or such
action taken in the sole and absolute discretion of such Grantor and shall be
final, conclusive and binding on all persons for all purposes; provided,
however, that the Board may review any decision or action of the Grantor and if
the Board determines that any Award or other decision or act of the Grantor is
inequitable or contrary to the provisions of this Plan, it may reverse or modify
such Award, decision or act. As provided in Section 16.2 in the case of the
Grantor's determinations under the Plan, including, without limitation the
determination of the person to receive awards and the amount of such awards,
need not be uniform and may be made by him selectively among persons who
receive, or are eligible to receive, awards under this Plan, whether or not such
persons are similarly retired.

                                       37
<PAGE>   45
         SECTION 20.5 INDEMNIFICATION AND EXCULPATION

         20.5.1 Indemnification. Each person who is or shall have been a member
of the Committee and each director, officer or employee of the Company or any
Participating Subsidiary to whom any duty or power related to the administration
or interpretation of this Plan may be delegated, shall be indemnified and held
harmless by the Company against and from any and all loss, cost, liability or
expense that may be imposed upon or reasonably incurred by him in connection
with or resulting from any claim, action, suit or proceeding to which he may be
or become a party or in which he may be or became involved by reason of any
action taken or failure to act under this Plan and against and from any and all
amounts paid by him in settlement thereof (with the Company's written approval)
or paid by him in satisfaction of a judgment in any such action, suit or
proceeding, except a judgment in favor of the Company based upon a finding of
his bad faith; subject, however, to the condition that upon the institution of
any claim, action, suit or proceeding against him, he shall in writing give the
Company an opportunity, at its own expense, to handle and defend the same before
he undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other right to which such person
may be entitled under the Company's Restated Certificate of Incorporation, as a
matter of law or otherwise, or any power that the Company may have to indemnify
him or hold him harmless.

         20.5.2 Exculpation. Each member of the Committee, and each director,
officer and employee of the Company or of any Participating Subsidiary shall be
fully justified in relying or acting upon in good faith any information
furnished in connection with the administration of this Plan by any appropriate
person or persons other than himself. In no event shall any person who is or
shall have been a member of the Committee, or a director, officer or employee of
the Company or any Participating Subsidiary be liable for any determination made
or other action taken or any omission to act in reliance upon such report or
information, for any action (including the furnishing of information) taken or
any failure to act, if in good faith.

         SECTION 20.6 UNFUNDED PLAN

         This Plan is intended to constitute an unfunded, long-term incentive
compensation plan for certain selected employees. No special or separate fund
shall be established and no segregation of assets shall be made to assure
payment of such amounts, except as expressly set forth in the Plan with respect
to Restricted Stock or Performance Shares held in custody accounts. The Company
may, but shall not be obligated to, acquire shares of its Common Stock from time
to time in anticipation of its obligations under the Plan, but no Grantee shall
have any right in or against any shares of stock so acquired. All such stock
shall constitute general assets of the Company and may be disposed of by the
Company at such time and for such purposes as it may deem appropriate. No
obligation or liability of the Company to any Grantee with respect to any right
to receive a distribution or payment under the Plan shall be deemed to be
secured by any pledge or other encumbrance on any property of the Company.

         SECTION 20.7 INALIENABILITY OF RIGHTS AND INTERESTS

         The rights and interests of a Grantee under this Plan are personal to
the Grantee and to any person or persons who may become entitled to distribution
or payments under the Plan by reason of death of the Grantee, and the rights and
interests of the Grantee or any such person (including, without limitation, any
Award distributable or payable under the Plan) shall not be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge, and any such attempted action shall be void and no such
benefit or interest shall be any manner liable for or subject to debts,
contracts, liabilities, engagements or torts of any Grantees. If any Grantee
shall attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber
or charge any of his rights or interests under the Plan, (including without
limitation, any Award payable under the Plan) then the Committee may hold or
apply such benefit or any part thereof to or for the benefit of such Grantee or
his Beneficiary, his spouse, children, blood relatives or other dependents, or
any of them, in such manner and in such proportions as the Committee may
consider proper.

                                       38
<PAGE>   46
         SECTION 20.8 AWARDS NOT INCLUDABLE FOR BENEFIT PURPOSES

         Payments received by a Grantee pursuant to the provisions of the Plan
shall not be included in the determination of benefits under any pension, group
insurance or other benefit plan applicable to the Grantee which are maintained
by the Company or any of its Subsidiaries, except as may be determined by the
Board.

         SECTION 20.9 NO ISSUANCE OF FRACTIONAL SHARES

         The Company shall not be required to deliver any fractional share of
Common Stock but, as determined by the Committee, may pay in lieu thereof,
except as otherwise provided in this Plan, the Fair Market Value (determined as
of the date of payment the restrictions terminate) of such fractional share to
the Grantee or the Grantee's beneficiary, as the case may be.

         SECTION 20.10 MODIFICATION FOR OVERSEAS GRANTEES

         Notwithstanding any provision to the contrary, the Committee may
incorporate such provisions, or make such modifications or amendments in Award
Commitments of Grantees who reside or are employed outside of the United States
of America, or who are citizens of a country other than the United States of
America, as the Committee deems necessary or appropriate to accomplish the
purposes of the Plan with respect to such Grantee in light of differences in
applicable law, tax policies or customs, and to ascertain compliance with all
applicable laws.

         SECTION 20.11 LEAVES OF ABSENCE

         The Committee shall be entitled to make such rules, regulations and
determinations as it deems appropriate under the Plan in respect of any leave of
absence taken by the recipient of any Award. Without limiting the generality of
the foregoing, the Committee shall be entitled to determine (a) whether or not
any such leave of absence shall constitute a termination of employment within
the meaning of the Plan and, (b) the impact, if any, of any such leave of
absence on awards under the Plan theretofore made to any recipient who takes
such leave of absence.

         SECTION 20.12 COMMUNICATIONS

         20.12.1 Communications by the Committee. All notices, statements,
reports and other communications made, delivered or transmitted to a Grantee,
Beneficiary or other person under this Plan shall be deemed to have been duly
given, made or transmitted when delivered to, or when mailed by first-class
mail, postage prepaid and addressed to, such Grantee, Beneficiary or other
person at his address last appearing on the records of the Committee.

         20.12.2 Communications by the Participants and Others. All elections,
designations, requests, notices, instructions and other communications made,
delivered or transmitted by the Company, a Participating Subsidiary, Grantee,
Beneficiary or other person to the Committee required or permitted under this
Plan shall be in such form as is prescribed from time to time by each such
Committee, shall be mailed by first-class mail or delivered to such location as
shall be specified by each such Committee, and shall be deemed to have been
given and delivered only upon actual receipt thereof by such Committee at such
location.

         SECTION 20.13 PARTIES IN INTEREST

         The provisions of the Plan and the terms and conditions of any Award
shall, in accordance with their terms, be binding upon, and inure to the benefit
of, all successors of each Grantee, including, without limitation, such
Grantee's estate and the executors, administrators, or trustees thereof, heirs
and legatees, and any receiver, trustee in bankruptcy or representative of
creditors of such Grantee. The obligations of the Company under the Plan shall
be binding upon the Company and its successors and assigns.

         SECTION 20.14 SEVERABILITY

         Whenever possible, each provision in the Plan and every Award at any
time granted under the Plan shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of the Plan or
any

                                       39
<PAGE>   47
Award at any time granted under the Plan shall be held to be prohibited by or
invalid under applicable law, then (a) such provision shall be deemed amended to
accomplish the objectives of the provision as originally written to the fullest
extent permitted by law, and (b) all other provisions of the Plan and every
other Award at any time granted under the Plan shall remain in full force and
effect.

         SECTION 20.15 COMPLIANCE WITH LAWS

         The Plan and the grant of Awards shall be subject to all applicable
Federal and state laws, rules and regulations and to such approvals by any
government or regulatory agency as may be required. It is intended that the Plan
be applied and administered in compliance with Rule 16b-3. If any provision of
the Plan would be in violation of Rule 16b-3 if applied as written, such
provision shall not have effect as written and shall be given effect so as to
comply with Rule 16b-3, as determined by the Committee. The Board is authorized
to amend the Plan and to make any such modifications to Award Commitments to
comply with Rule 16b-3, and to make any such other amendments or modifications
as it deems necessary or appropriate to better accomplish the purposes of the
Plan in light of any amendments made to Rule 16b-3.

         SECTION 20.16 NO STRICT CONSTRUCTION

         No rule of strict construction shall be implied against the Company,
the Committee, the CEO or any other person in the interpretation of any of the
terms of the Plan, any Award granted under the Plan or any rule or procedure
established by the Committee.

         SECTION 20.17 MODIFICATION

         This document contains all of the provisions of the Plan and no
provisions may be waived, modified or otherwise altered except in a writing
adopted by the Board.

         SECTION 20.18 GOVERNING LAW

         All questions pertaining to validity, construction and administration
of the Plan and the rights of all persons hereunder shall be determined with
reference to, and the provisions of the Plan shall be governed by and shall be
construed in conformity with, the internal laws of the State of Delaware.

                                       40<PAGE>   1
                                                                    Exhibit 10-L

                                BETZDEARBORN INC.
                    EMPLOYEE STOCK OWNERSHIP AND 401(K) PLAN

               (As Amended and Restated Effective January 1, 1998)
<PAGE>   2
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                  Page
                                                                                                                  ----
<S>             <C>                                                                                               <C>
SECTION 1       DEFINITIONS......................................................................................  2

   1.1          ACCOUNTS.........................................................................................  2
   1.2          ACCRUED BENEFIT..................................................................................  2
   1.3          AFFILIATE........................................................................................  2
   1.4          APPROPRIATE FORM.................................................................................  2
   1.5          BOARD OF DIRECTORS...............................................................................  2
   1.6          CODE.............................................................................................  2
   1.7          COMMITTEE........................................................................................  2
   1.8          COMMON STOCK.....................................................................................  2
   1.9          COMPANY..........................................................................................  2
   1.10         COMPANY STOCK....................................................................................  2
   1.11         COMPANY STOCK ACCOUNT............................................................................  2
   1.12         COMPENSATION.....................................................................................  2
   1.13         COMPENSATION DEFERRAL CONTRIBUTION...............................................................  3
   1.14         COMPENSATION DEFERRAL PERCENTAGE.................................................................  3
   1.15         DIVERSIFICATION ACCOUNT..........................................................................  3
   1.16         EFFECTIVE DATE...................................................................................  3
   1.17         ELIGIBLE EMPLOYEE................................................................................  3
   1.18         EMPLOYEE.........................................................................................  3
   1.20         EXEMPT LOAN......................................................................................  3
   1.21         401(K) ACCOUNT...................................................................................  3
   1.22         INVESTMENT FUND..................................................................................  4
   1.23         INVESTMENT VEHICLE...............................................................................  4
   1.24         LEASED EMPLOYEE..................................................................................  4
   1.25         MATCHING ACCOUNT.................................................................................  4
   1.26         MATCHING CONTRIBUTIONS...........................................................................  4
   1.27         MATCHING PERCENTAGE..............................................................................  4
   1.28         MAXIMUM COMPENSATION DEFERRAL MATCHING PERCENTAGE................................................  4
   1.29         NORMAL RETIREMENT AGE............................................................................  4
   1.30         NORMAL RETIREMENT DATE...........................................................................  4
   1.31         OTHER INVESTMENTS ACCOUNT........................................................................  4
   1.32         PARTICIPANT......................................................................................  4
   1.33         PAYSOP ACCOUNT...................................................................................  4
   1.34         PLAN.............................................................................................  4
   1.35         PLAN ADMINISTRATOR...............................................................................  4
   1.36         PREFERRED STOCK..................................................................................  5
   1.37         QUALIFIED ELECTION PERIOD........................................................................  5
   1.38         QUALIFIED PARTICIPANT............................................................................  5
   1.39         ROLLOVER ACCOUNT.................................................................................  5
   1.40         STOCK BONUS ACCOUNT..............................................................................  5
   1.41         STOCK BONUS PLAN.................................................................................  5
   1.42         SUSPENSE SUBFUND.................................................................................  5
   1.43         TRUST............................................................................................  5
   1.44         TRUST AGREEMENT..................................................................................  5
   1.45         TRUST FUND.......................................................................................  5
</TABLE>

                                         i
<PAGE>   3
<TABLE>
<CAPTION>
<S>             <C>
   1.46         TRUSTEE.........................................................................................  5
   1.47         VALUATION DATE..................................................................................  5
   1.48         VOLUNTARY ACCOUNT...............................................................................  5

SECTION 2       SERVICE.........................................................................................  6

   2.1          HOUR OF SERVICE.................................................................................  6
   2.2          ELIGIBILITY COMPUTATION PERIOD..................................................................  8
   2.3          YEAR OF ELIGIBILITY SERVICE.....................................................................  8
   2.4          YEAR OF VESTING SERVICE.........................................................................  8
   2.5          ONE-YEAR BREAK IN SERVICE.......................................................................  8
   2.6          NO PARITY BREAK.................................................................................  8
   2.7          SERVICE WITH A FOREIGN AFFILIATE................................................................  8

SECTION 3       PARTICIPATION...................................................................................  9

   3.1          CONTINUED PARTICIPATION OF PARTICIPANTS AS OF DECEMBER 31, 1997.................................  9
   3.2          ELIGIBILITY AND PARTICIPATION...................................................................  9
   3.3          PARTICIPATION AFTER BREAK IN SERVICE............................................................  9
   3.4          LEASED EMPLOYEES................................................................................  9

SECTION 4       COMPANY CONTRIBUTIONS...........................................................................  9

   4.1          COMPANY CONTRIBUTIONS...........................................................................  9
   4.2          TIME OF PAYMENT.................................................................................  9
   4.3          CONTRIBUTIONS IRREVOCABLE....................................................................... 10

SECTION 5       PARTICIPANTS' ACCOUNTS AND INVESTMENT THEREOF; EXEMPT LOANS..................................... 10

   5.1          ACCOUNTS........................................................................................ 10
   5.2          INVESTMENT OF TRUST FUND........................................................................ 10
   5.3          EXEMPT LOAN..................................................................................... 10
   5.4          DIVERSIFICATION OF INVESTMENTS.................................................................. 11

SECTION 6       ALLOCATION OF CONTRIBUTIONS..................................................................... 12

   6.1          PARTICIPANTS ENTITLED TO ALLOCATION............................................................. 12
   6.2          ALLOCATION OF COMPANY STOCK CONTRIBUTIONS....................................................... 12
   6.3          ALLOCATION OF OTHER CONTRIBUTIONS............................................................... 12
   6.4          ALLOCATION OF COMPANY STOCK ACQUIRED WITH EXEMPT LOAN........................................... 12
   6.5          RELEASE FROM SUSPENSE SUBFUND................................................................... 13
   6.6          ALLOCATION OF SHARES RELEASED FROM SUSPENSE SUBFUND............................................. 14
   6.7          ALLOCATION OF FORFEITURES....................................................................... 14

SECTION 7       VALUATION....................................................................................... 14

   7.1          VALUATION....................................................................................... 14
   7.2          ALLOCATION OF GAINS AND LOSSES.................................................................. 15
   7.3          DIVIDENDS ON COMPANY STOCK...................................................................... 15

SECTION 8       401(K) PLAN..................................................................................... 16

   8.1          DEFINITIONS..................................................................................... 16
   8.2          PARTICIPANT COMPENSATION DEFERRALS.............................................................. 17
   8.3          COMPANY MATCHING CONTRIBUTIONS.................................................................. 17
   8.4          DESIGNATION OF ACCOUNT.......................................................................... 18
   8.5          CHANGING RATES OF CONTRIBUTION.................................................................. 18
</TABLE>

                                       ii
<PAGE>   4
<TABLE>
<CAPTION>
<S>             <C>
   8.6          WITHDRAWALS OF COMPENSATION DEFERRAL CONTRIBUTIONS.............................................. 18
   8.7          RESTRICTIONS.................................................................................... 19
   8.8          PERIODS OF ABSENCE.............................................................................. 19
   8.9          TERMINATION OF CONTRIBUTIONS.................................................................... 19
   8.10         LIMITATION ON COMPENSATION DEFERRAL CONTRIBUTIONS............................................... 19
   8.11         LIMITATIONS ON MATCHING CONTRIBUTIONS........................................................... 20
   8.12         ELECTION TO USE CURRENT PLAN YEAR............................................................... 21
   8.13         DISTRIBUTION OF EXCESS DEFERRALS................................................................ 22
   8.14         DISTRIBUTION OF EXCESS CONTRIBUTIONS............................................................ 22
   8.15         DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS.................................................. 23
   8.16         DESIGNATION AS PROFIT-SHARING PLAN.............................................................. 24
   8.17         PARTICIPANT ROLLOVER CONTRIBUTION............................................................... 24
   8.18         LOANS........................................................................................... 24

SECTION 9       BENEFITS AND DISTRIBUTIONS...................................................................... 26

   9.1          VESTING......................................................................................... 26
   9.2          AMOUNT, METHOD, FORM OF BENEFIT PAYMENTS........................................................ 26
   9.3          NORMAL AND LATE RETIREMENT...................................................................... 27
   9.4          VESTED DEFERRED BENEFITS........................................................................ 27
   9.5          DISABILITY RETIREMENT........................................................................... 28
   9.6          DEATH........................................................................................... 28
   9.7          DESIGNATION OF BENEFICIARY AND FORM OF PAYMENT OF DEATH BENEFIT;
                SPOUSE'S CONSENT TO NON-SPOUSE BENEFICIARY...................................................... 28
   9.8          SPECIAL PROVISION AS TO TIMING OF DISTRIBUTIONS................................................. 29
   9.9          REQUIREMENTS CONCERNING DISTRIBUTIONS........................................................... 29
   9.10         PUT OPTIONS ON DISTRIBUTED SHARES OF CERTAIN COMPANY STOCK...................................... 30
   9.11         DIRECT ROLLOVERS OF ELIGIBLE ROLLOVER DISTRIBUTIONS MADE FROM THIS PLAN......................... 31
   9.12         PARTICIPANT'S CONSENT TO DISTRIBUTION OF BENEFITS............................................... 31

SECTION 10      LIMITATIONS ON CONTRIBUTIONS.................................................................... 32

   10.1         DEFINITIONS FOR LIMITATIONS ON CONTRIBUTIONS.................................................... 32
   10.2         BASIC LIMITATION................................................................................ 33
   10.3         COMBINED LIMIT WITH PENSION PLAN................................................................ 34
   10.4         COMBINING AND AGGREGATING PLANS................................................................. 34

SECTION 11      TOP-HEAVY PROVISIONS............................................................................ 34

   11.1         TOP-HEAVY PREEMPTION............................................................................ 34
   11.2         TOP-HEAVY DEFINITIONS........................................................................... 34
   11.3         TOP-HEAVY RULES................................................................................. 36
   11.4         IMPACT ON MAXIMUM BENEFITS...................................................................... 37
   11.5         CHANGE IN TOP-HEAVY STATUS...................................................................... 37
   11.6         DUPLICATION OF MINIMUM CONTRIBUTIONS NOT REQUIRED............................................... 37
   11.7         REPEAL OF LIMITATION............................................................................ 37

SECTION 12      NONALIENATION OF BENEFITS....................................................................... 37

   12.1         NONALIENATION RULE.............................................................................. 37

SECTION 13      FIDUCIARY RESPONSIBILITY........................................................................ 38

   13.1         FIDUCIARY DUTIES................................................................................ 38
   13.2         ALLOCATION OF RESPONSIBILITY.................................................................... 38
   13.3         NO JOINT RESPONSIBILITY......................................................................... 39
</TABLE>

                                      iii
<PAGE>   5
<TABLE>
<CAPTION>
<S>             <C>
   13.4         NO CO-FIDUCIARY LIABILITY.......................................................................39
   13.5         ACT IN INTEREST OF PARTICIPANTS.................................................................39
   13.6         EMPLOYMENT OF ADVISORS..........................................................................39
   13.7         TRANSFER OR MAINTENANCE OF INDICIA OF OWNERSHIP OF PLAN ASSETS
                OUTSIDE UNITED STATES PROHIBITED................................................................40
   13.8         PROHIBITED TRANSACTIONS.........................................................................40

SECTION 14      ADMINISTRATION OF PLAN 00 STOCK BONUS PROFIT SHARING/RETIREMENT
                COMMITTEE AND PLAN ADMINISTRATOR................................................................42

   14.1         MEMBERS OF COMMITTEE............................................................................42
   14.2         OFFICERS AND EMPLOYEES OF THE COMMITTEE.........................................................42
   14.3         ACTION OF COMMITTEE.............................................................................42
   14.4         DISQUALIFICATION OF COMMITTEE MEMBER............................................................43
   14.5         EXPENSES OF COMMITTEE...........................................................................43
   14.6         POWERS OF THE COMMITTEE.........................................................................43
   14.7         ALLOCATION OF FIDUCIARY RESPONSIBILITY..........................................................43
   14.8         PLAN ADMINISTRATOR AND HIS GENERAL POWERS.......................................................43
   14.9         GENERAL DUTIES OF THE PLAN ADMINISTRATOR........................................................43
   14.10        INFORMATION TO BE SUBMITTED BY COMPANY TO THE PLAN ADMINISTRATOR................................44
   14.11        CLAIM PROCEDURE.................................................................................44
   14.12        SERVICE OF LEGAL PROCESS........................................................................46
   14.13        DISCRETIONARY AUTHORITY.........................................................................46

SECTION 15      THE TRUSTEE AND TRUST...........................................................................46

   15.1         THE TRUST.......................................................................................46
   15.2         ACTIONS AND RESPONSIBILITY OF TRUSTEE...........................................................46
   15.3         PAYMENTS........................................................................................46
   15.4         RESIGNATION AND REMOVAL OF TRUSTEE..............................................................46
   15.5         VOTING RIGHTS AND TENDER OFFERS.................................................................46

SECTION 16      PLAN AMENDMENT, MERGER OR CONSOLIDATION.........................................................48

   16.1         AMENDMENT.......................................................................................48

SECTION 17      PLAN TERMINATION................................................................................49

   17.1         DISCONTINUANCE OF CONTRIBUTIONS OR TERMINATION..................................................49

SECTION 18      TRANSFERS OF 401(K) ACCOUNTS, MATCHING, STOCK BONUS, VOLUNTARY, AND DIVERSIFICATION ACCOUNTS
                FROM THE STOCK BONUS PLAN.......................................................................49

   18.1         TRANSFERS OF 401(K), MATCHING, STOCK BONUS, VOLUNTARY, AND DIVERSIFICATION
                 ACCOUNTS FROM THE STOCK BONUS PLAN.............................................................49
   18.2         DISTRIBUTIONS AND WITHDRAWALS OF AMOUNTS ATTRIBUTABLE TO AMOUNTS TRANSFERRED....................50
   18.3         TRANSFER TO DIVERSIFICATION ACCOUNT.............................................................51
   18.4         PROTECTED FORMS OF DISTRIBUTION.................................................................51

SECTION 19      TRANSFERS OF PAYSOP ACCOUNTS FROM THE STOCK BONUS PLAN..........................................51

   19.1         TRANSFERS OF PAYSOP ACCOUNTS FROM THE STOCK BONUS PLAN..........................................51
   19.2         INCOME ON PAYSOP ACCOUNTS.......................................................................51
   19.3         NONFORFEITABLE RIGHT TO ALLOCATED COMMON STOCK..................................................52
   19.4         ADMINISTRATIVE EXPENSES.........................................................................52
   19.5         DIVERSIFICATION WITHDRAWALS.....................................................................52
</TABLE>

                                       iv
<PAGE>   6
<TABLE>
<CAPTION>
<S>             <C>
   19.6         DISTRIBUTIONS OF PAYSOP ACCOUNTS................................................................53

SECTION 20      MISCELLANEOUS...................................................................................53

   20.1         PARTICIPATION BY AFFILIATES WITH CONSENT OF BETZDEARBORN INC....................................53
   20.2         APPLICATION OF PLAN.............................................................................53
   20.3         NO EMPLOYMENT RIGHTS CREATED....................................................................53
   20.4         INCAPACITATED PARTICIPANT OR BENEFICIARY........................................................54
   20.5         PAYMENT OF PLAN EXPENSES........................................................................54
   20.6         UNCLAIMED BENEFITS..............................................................................54
   20.7         TREATMENT OF LEASED EMPLOYEES...................................................................54
   20.8         CONSTRUCTION....................................................................................54

SECTION 21      SPECIAL PROVISIONS CONCERNING CERTAIN FORMER EMPLOYEES
                OF THE GRACE GROUP..............................................................................54

   21.1         DEFINITIONS.....................................................................................54
   21.2         PARTICIPATION BY CERTAIN EMPLOYEES OF THE DEARBORN BUSINESS.....................................55
   21.3         YEARS OF VESTING SERVICE........................................................................55
   21.4         ALLOCATION OF COMPANY STOCK CONTRIBUTION FOR 1996...............................................55
</TABLE>

                                       v
<PAGE>   7
                                BETZDEARBORN INC.
                    EMPLOYEE STOCK OWNERSHIP AND 401(k) PLAN

                    (As Amended and Restated January 1, 1998)

                  WHEREAS, BETZDEARBORN INC. (the "Company") (formerly named
"Betz Laboratories, Inc."), a Pennsylvania corporation, established the
BetzDearborn Inc. Employee Stock Ownership and 401(k) Plan (the "Plan")
(formerly named the "Betz Laboratories, Inc. Employee Stock Ownership and 401(k)
Plan"), effective as of January 1, 1989, for the purpose of providing the
employees eligible to participate in the Plan the opportunity to share in the
success of the Company through stock ownership;

                  WHEREAS, the Plan was most recently amended and restated
effective January 1, 1995 and has been amended on three occasions thereafter;

                  WHEREAS, in Section 16.1 of the Plan, the Company has reserved
the right to amend the Plan, with certain inapplicable limitations;

                  WHEREAS, the Company desires to amend and restate the Plan to
consolidate such three amendments and to make certain other changes;

                  WHEREAS, the ESOP will continue to be maintained for the
exclusive benefit of eligible employees and their beneficiaries (within the
meaning of section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code")), and is intended to continue to qualify as an "employee stock ownership
plan," as defined in section 4975(e)(7) of the Code and as a stock bonus plan
under section 401(a) of the Code with a cash or deferred arrangement under
section 401(k) of the Code;

                  NOW, THEREFORE, effective January 1, 1998, the BetzDearborn
Inc. Employee Stock Ownership and 401(k) Plan is hereby amended and restated;

                                       1
<PAGE>   8
                                    SECTION 1
                                   DEFINITIONS

         The following words and phrases, as used herein, shall have the
following meanings, unless the context clearly indicates otherwise:

         1.1 "Accounts" shall mean a Participant's Company Stock Account, 401(k)
Account, Matching Account, Rollover Account and Other Investments Account.
"Accounts" shall also include a Participant's 401(k), Matching, PAYSOP, Stock
Bonus, Voluntary, and Diversification Account, if any, transferred from the
Stock Bonus Plan.

         1.2 "Accrued Benefit" shall mean the sum of the amounts credited to a
Participant's Accounts.

         1.3 "Affiliate" shall mean any corporation which is a member of a
controlled group of corporations, as defined in section 414(b) of the Code, of
which the Company is a member; any other trade or business which is under common
control, as defined in section 414(c) of the Code, with the Company; any trade
or business which is a member of an affiliated service group, as defined in
section 414(m) of the Code, of which the Company is a member; and any entity
required to be aggregated with the Company pursuant to section 414(o) of the
Code. For purposes of applying sections 414(b) and 414(c) of the Code to the
limitations on contributions set forth in Section X, the phrase "more than 50
percent" shall be substituted for the phrase "at least 80 percent" each place it
appears in section 1563(a)(1) of the Code.

         1.4 "Appropriate Form" shall mean the form provided or prescribed by
the Plan Administrator for the particular purpose.

         1.5 "Board of Directors" shall mean the Board of Directors of
BetzDearborn Inc., as such Board may be constituted from time to time.

         1.6 "Code" shall mean the Internal Revenue Code of 1986, as amended.

         1.7 "Committee" shall mean the Stock Bonus Profit Sharing/ Retirement
Plan Committee appointed by the Board to establish the guidelines for
administration and operation of the Plan and to perform such other duties as are
prescribed in Section XIV.

         1.8 "Common Stock" shall mean voting common shares issued by
BetzDearborn Inc. (formerly named "Betz Laboratories, Inc."), its being intended
that such Common Stock constitute "qualifying employer securities" within the
meaning of section 4975(e)(8) of the Code.

         1.9 "Company" shall mean BetzDearborn Inc. (formerly named "Betz
Laboratories, Inc.") and any other corporation which adopts this Plan in
accordance with the provisions of Section 20.1.

         1.10 "Company Stock" shall mean Preferred Stock and/or Common Stock.

         1.11 "Company Stock Account" shall mean the account established by the
Plan Administrator for each Participant to which Company Stock allocated to the
Participant under Section 6.2, 6.6(a), or 6.6(b) is credited.

         1.12 "Compensation" shall mean an Eligible Employee's base salary or
wages, including any shift premium pay, overtime pay, incentive compensation,
commissions and bonuses paid pursuant to any

                                       2
<PAGE>   9
established plan, but excluding any special bonuses, deferred compensation or
compensation earned pursuant to the Company's Employee Stock Incentive Plan,
except that Compensation shall include the amount includable in the taxable
gross income of an employee making an election described in section 83 of the
Code. Compensation shall include an Eligible Employee's Compensation Deferral
Contribution, if any. Compensation shall include Compensation paid by an
Affiliate which is a controlled foreign corporation pursuant to section 957 of
the Code. The Plan Administrator may establish rules for translating foreign
compensation into U.S. dollars.

         The annual Compensation of each Participant taken into account under
the Plan shall not exceed $160,000, as adjusted by the Commissioner of Internal
Revenue for increases in the cost of living in accordance with section
401(a)(17)(B) of the Code. The cost-of-living adjustment in effect for a
calendar year shall apply to any period, not exceeding 12 months, beginning in
such calendar year over which Compensation is determined (the "determination
period"). If a determination period consists of fewer than 12 months, the
applicable limit (as adjusted) shall be multiplied by a fraction, the numerator
of which is the number of months in the determination period, and the
denominator of which is 12.

         1.13 "Compensation Deferral Contribution" shall mean the amount of the
deferred compensation contributed to the Plan in accordance with Section 8.2.

         1.14 "Compensation Deferral Percentage" shall mean any whole percentage
number by which a Participant may elect to have the Company reduce his
Compensation and make Compensation Deferral Contributions to the Plan.

         1.15 "Diversification Account" shall mean the account established in
the Investment Fund by the Plan Administrator for each applicable Participant to
which such Participant's Diversification Account under the Stock Bonus Plan is
transferred, as provided under Section 18.1, and to which diversifications under
Section 18.3 are credited.

         1.16 "Effective Date" shall mean January 1, 1989.

         1.17 "Eligible Employee" shall mean any person employed by the Company
other than (i) a nonresident alien who receives no earned income (as defined in
section 911(b) of the Code) which constitutes United States source income (as
defined in section 861(a)(3) of the Code), or (ii) a person who receives all or
a portion of his Compensation from a Foreign Affiliate (as described in Section
2.7 of the Plan). The term "Eligible Employee" shall not include any person who
is classified as an independent contractor or a Leased Employee by the Company,
regardless of how such individual is classified by the Internal Revenue Service,
by any other governmental agency or government, or by any court.

         1.18 "Employee" shall mean any individual employed by the Company or an
Affiliate.

         1.19 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.

         1.20 "Exempt Loan" shall mean any loan to the Trust not prohibited by
section 4975(c) of the Code, including a loan which meets the requirements set
forth in section 4975(d)(3) of the Code and the regulations promulgated
thereunder, the proceeds of which are used to finance the acquisition of Company
Stock or to refinance such a loan.

         1.21 "401(k) Account" shall mean the account established by the Plan
Administrator for each Participant to which Compensation Deferral Contributions
allocated to the Participant are credited.

                                       3
<PAGE>   10
         1.22 "Investment Fund" shall mean, in the aggregate, all of the 401(k)
Accounts, Other Investments Accounts, Rollover Accounts, Voluntary Accounts, and
Diversification Accounts established by the Plan Administrator.

         1.23 "Investment Vehicle" shall mean any separate options available for
the investment of amounts credited to accounts in the Investment Fund.

         1.24 "Leased Employee" shall mean a leased employee of the Company or
an Affiliate within the meaning of section 414(n)(2) of the Code.
Notwithstanding the foregoing, if all such leased employees constitute less than
twenty percent (20%) of the nonhighly compensated work force (within the meaning
of section 414(n)(5)(C)(ii) of the Code) of the Company and the Affiliates, the
term "Leased Employee" shall not include any leased employee covered by a plan
described in section 414(n)(5) of the Code.

         1.25 "Matching Account" shall mean the account established by the Plan
Administrator for each Participant to which Matching Contributions allocated to
the Participant are credited.

         1.26 "Matching Contributions" shall mean all amounts allocated to a
Participant's Matching Account.

         1.27 "Matching Percentage" shall mean the rate at which the Company
matches each Participant's Compensation Deferral Percentage.

         1.28 "Maximum Compensation Deferral Matching Percentage" shall mean the
greatest Compensation Deferral Percentage to be multiplied by the Matching
Percentage in the calculation of Matching Contributions.

         1.29 "Normal Retirement Age" shall mean age 65.

         1.30 "Normal Retirement Date" shall mean the first day of the month
following the month in which a Participant attains Normal Retirement Age.

         1.31 "Other Investments Account" shall mean the account established by
the Plan Administrator for each Participant to which assets allocated to the
Participant other than Company Stock and Compensation Deferral Contributions are
credited.

         1.32 "Participant" shall mean any Eligible Employee who meets or who
has met the eligibility requirements of Section 3 and who has commenced to
participate in the Plan pursuant to Section 3.2.

         1.33 "PAYSOP Account" shall mean the account established by the Plan
Administrator for each applicable Participant to which such Participant's PAYSOP
Account under the Stock Bonus Plan is transferred, as provided under Section
19.1.

         1.34 "Plan" shall mean the BetzDearborn Inc. Employee Stock Ownership
and 401(k) Plan (formerly named the "Betz Laboratories, Inc. Employee Stock
Ownership and 401(k) Plan"), as set forth in this document and as it may be
amended from time to time.

         1.35 "Plan Administrator" shall mean the person designated by the Board
of Directors to execute the administrative functions required by the Board of
Directors, the Committee, the Plan and the Trust Agreement.

                                       4
<PAGE>   11
         1.36 "Preferred Stock" shall mean Series A ESOP Convertible Preferred
Stock issued by BetzDearborn Inc., (formerly named "Betz Laboratories, Inc.")
which is convertible into Common Stock, its being intended that such Preferred
Stock constitute "qualifying employer securities" within the meaning of section
4975(e)(8) of the Code.

         1.37 "Qualified Election Period" shall mean the six-Plan-Year period
beginning with the first Plan Year in which the Participant becomes a Qualified
Participant.

         1.38 "Qualified Participant" shall mean a Participant who has attained
age 55 and who has completed at least 10 years of participation in the Plan.

         1.39 "Rollover Account" shall mean the account established by the Plan
Administrator for each applicable Participant to which assets rolled over to the
Plan by the Participant (including a direct rollover) to the Plan are credited.
A Participant's Rollover Account shall include a separate subaccount consisting
of the Participant's Matching Account, if any, transferred from the Stock Bonus
Plan.

         1.40 "Stock Bonus Account" shall mean the account established by the
Plan Administrator for each applicable Participant to which such Participant's
Stock Bonus Account under the Stock Bonus Plan was transferred, as provided
under Section 18.1.

         1.41 "Stock Bonus Plan" shall mean the Betz Laboratories, Inc. Stock
Bonus Profit Sharing and 401(k) Plan.

         1.42 "Suspense Subfund" shall mean the subfund established pursuant to
Section 6.4 as part of the Trust Fund to hold Company Stock purchased with the
proceeds of an Exempt Loan pending the allocation of such Company Stock to
Participants' Company Stock Accounts.

         1.43 "Trust" shall mean the BetzDearborn Inc. Employee Stock Ownership
and 401(k) Trust, created by the Trust Agreement.

         1.44 "Trust Agreement" shall mean the agreement by and between the
Company and the Trustee, as it may be amended from time to time.

         1.45 "Trust Fund" shall mean all cash and securities and all other
assets deposited with or acquired by the Trustee in its capacity as such
hereunder, together with accumulated income.

         1.46 "Trustee" shall mean Putnam Fiduciary Trust Company, or its duly
appointed successor.

         1.47 "Valuation Date" shall mean the date as of which the Investment
Vehicles are valued and Account balances are able to be determined under Section
5, which shall be each business day.

         1.48 "Voluntary Account" shall mean the account established by the Plan
Administrator for each applicable Participant to which such Participant's
Voluntary Account under the Stock Bonus Plan is transferred, as provided under
Section 18.1. (Contributions to the Voluntary Account under the Stock Bonus Plan
were employee after-tax contributions.)

                                       5
<PAGE>   12
                                   SECTION 2
                                     SERVICE

         2.1 "Hour of Service" shall mean each hour during the applicable
service computation period for which:

                  (a) an Employee is paid, or entitled to be paid, for the
performance of duties for the Company or an Affiliate;

                  (b) an Employee is paid, or is entitled to be paid, by the
Company or an Affiliate, on account of a period of time during which no duties
were performed (whether or not the employment relationship has terminated) due
to vacation, holiday, illness, incapacity (including disability, layoff, jury
duty, military duty or leave of absence); or

                  (c) back pay, determined without regard to mitigation of
damages, is either awarded, or agreed to be awarded, to an Employee by the
Company or an Affiliate, provided that no Hour of Service shall be credited
under this subsection (c) if such Hour of Service has been credited under either
subsection (a) or subsection (b).

         Notwithstanding subsection (b),

                  (1) no more than 501 Hours of Service shall be credited under
         subsection (b) to an Employee on account of any single continuous
         period during which the Employee performs no duties (whether or not
         such period occurs in a single computation period) except that during
         any period not to exceed six months during which the Employee is
         temporarily absent with the Company's or an Affiliate's authorization
         for reasons such as sickness, short-term disability, maternity leave,
         leave of absence, jury duty or layoff, such Employee shall be credited
         with the number of Hours of Service during such period of absence equal
         to those he would have received had he not been absent based on his
         customary period of work;

                  (2) no Hour of Service shall be credited under subsection (b)
         to an Employee indirectly paid, or entitled on account of a period
         during which no duties are performed if such payment is made or due
         under a plan maintained solely for the purposes of complying with any
         applicable worker's compensation, unemployment compensation or
         disability insurance laws;

                  (3) no Hour of Service shall be credited under subsection (b)
         to an Employee for any payment which solely reimburses him for medical
         or medically related expenses he has incurred; and

                  (4) no Hour of Service shall be credited under subsection (b)
         to an Employee for any payments made or due to him under this Plan or
         any other employee pension benefit plan maintained by the Company or an
         Affiliate.

                  For purposes of subsection (b), a payment shall be deemed to
be made by, or due from, the Company or an Affiliate regardless of whether such
payment is made by, or due from, the Company or an Affiliate directly, or
indirectly through, among others, a trust fund, insurer, or other entity to
which the Company or an Affiliate contributes or pays premiums and regardless or
whether contributions made or due to the trust fund, insurer or other entity are
for the benefit of particular Employees or are on behalf of a group of Employees
in the aggregate.

                                       6
<PAGE>   13
                  An authorized leave of absence for service in active duty in
the Armed Forces of the United States shall not constitute a One-Year Break in
Service and an Employee shall receive, upon his return, in addition to the
credit for Hours of Service to which he is entitled under the provisions of this
section, such other credit for such military service as may be prescribed by
Federal laws relating to military service and veteran's reemployment rights.

                  In the case of a payment which is made, or due, on account of
a period during which an Employee performs no duties, and which results in the
crediting of Hours of Service under subsection (b), or in the case of an award
or agreement for back pay, to the extent that such award or agreement is made
with respect to a period described in subsection (b) the number of Hours of
Service to be credited shall be determined in accordance with the applicable
regulations prescribed by the Secretary of Labor and set forth in 29 CFR
Section 2530.200b-2(b).

                  Hours of Service described in subsection (a), (b) and (c)
shall be credited to service computation periods in accordance with the
applicable regulations prescribed by the Secretary of Labor and set forth in 29
CFR Section 2530.200b-2(c).

                  The number of Hours of Service to be credited to an Employee
in a service computation period shall be determined in the following manner:

                  (a) In the case of an Employee for whom the Company or the
Affiliate maintains records of his hours worked and hours for which payment is
made or due, the number of Hours of Service to be credited to such Employee in a
service computation period shall be determined from such records.

                  (b) In the case of an Employee for whom the Company or the
Affiliate does not maintain records of his hours worked and hours for which
payment is made or due, the number of Hours of Service to be credited to such
Employee in a service computation period shall be determined on the basis of
periods of employment which shall be the payroll periods of the Company or the
Affiliate applicable to such Employee. An Employee shall be credited with a
number of Hours of Service, determined in accordance with the following table,
for each of his payroll periods in which he actually has at least one Hour of
Service;

                    PAYROLL PERIOD HOURS OF SERVICE CREDITED

<TABLE>
<CAPTION>
<S>                                                                       <C>
                     weekly                                               45
                     bi-weekly                                            90
</TABLE>

                  The nature and extent of credit for Hours of Service
recognized under this subsection shall be determined in accordance with any
applicable law or regulation.

                  (c) Solely for the purpose of determining whether a
Participant has incurred a One-Year Break in Service, an "Hour of Service" is
also, with respect to any Employee who is absent from work for maternity or
paternity reasons, each hour which would otherwise have been credited to such
Employee but for such absence, or, in any case in which such hours cannot be
determined, eight hours per day of such absence. An absence from work for
maternity or paternity reasons means a continuous absence:

                  (1) by reason of the pregnancy of the Employee;

                  (2) by reason of the birth of a child of the Employee;

                                       7
<PAGE>   14
                  (3) by reason of the placement of a child with the Employee in
         connection with the adoption of such child by such Employee; or

                  (4) for purposes of caring for such child for a period
         beginning immediately following such birth or placement. The Hours of
         Service credited under this subsection (c) shall be credited in the
         service computation period in which the absence begins if the crediting
         is necessary to prevent a One-Year Break in Service in that service
         computation period, or, in all other cases, in the following service
         computation period.

         2.2 "Eligibility Computation Period" shall mean any of the following
12-consecutive-month periods:

                  (a) the 12-consecutive-month period beginning on the date on
which an Employee first completes an Hour of Service (his "date of employment")
or the date on which an Employee first completes an Hour of Service following a
One-Year Break in Service (his "date of reemployment");

                  (b) any Plan Year beginning after an Employee's date of
employment or date of reemployment.

         2.3 "Year of Eligibility Service" shall mean an Eligibility Computation
Period during which an Employee completes 1,000 or more Hours of Service.

         2.4 Year of Vesting Service. An individual shall complete a Year of
Vesting Service in any Plan Year in which he completes 1,000 or more Hours of
Service, whether or not he is in the employ of the Company or an Affiliate at
the end of such Plan Year. In addition to Years of Vesting Service completed
pursuant to the preceding sentence, any individual who was a participant in the
BetzDearborn Inc. Employees' Retirement Plan (formerly named the "Betz
Laboratories, Inc. Retirement Plan") on December 31, 1988, shall be credited
with the number of Years of Vesting Service under this Plan with which he was
credited under such Retirement Plan on that date for purposes of vesting.

         2.5 One-Year Break in Service. An Employee shall be considered to have
incurred a "One-Year Break in Service" in any Plan Year beginning on or after
January 1, 1989 in which he does not have at least 501 Hours of Service.

         2.6 No Parity Break. All of a Participant's Years of Eligibility
Service and Years of Vesting Service shall be taken into account without regard
to how many One-Year Breaks in Service a Participant incurs.

         2.7 Service with a Foreign Affiliate. An Employee's service with a
Foreign Affiliate shall be counted for purposes of eligibility to participate in
the Plan and for determination of Years of Vesting Service. An Employee who is
21 and who has completed a Year of Eligibility Service by reason of employment
with a Foreign Affiliate shall commence participation upon his first Hour of
Service with the Company. "Foreign Affiliate" shall mean (i) any corporation
more than eighty percent (80%) owned by the Company which is incorporated in a
country other than the United States, and (ii) any Affiliate incorporated in the
United States to the extent it does business (and the Employee performs
services) in a country other than the United States.

                                       8
<PAGE>   15
                                    SECTION 3
                                  PARTICIPATION

         3.1 Continued Participation of Participants as of December 31, 1997.
Any Employee who was a Participant as of December 31, 1997, shall continue to
participate in the Plan, provided he is an Eligible Employee on that date.

         3.2 Eligibility and Participation. An Eligible Employee, other than an
indificual who is hired on a temporary basis (i.e., for a period expected to be
less than one year), shall become a Participant in the Plan on the later of (i)
the date he first completes an Hour of Service for the Company, or (ii) the date
he attains age 21, provided he is an Eligible Employee on such date. An Eligible
Employee who is hired on a temporary basis shall become a Participant in the
Plan on the January 1 or July 1 coincident with or immediately following the
later of (i) the date he completes one Year of Eligibility Service, or (ii) the
date he attains age 21, provided he is an Eligible Employee on such date. An
Employee who becomes an Eligible Employee after satisfying the foregoing
eligibility requirements shall become a Participant on the date on which he
becomes an Eligible Employee.

         3.3 Participation After Break in Service. If a Participant separates
from service and is thereafter reemployed by the Company, he shall resume
participation in the Plan immediately upon his return to the service of the
Company.

         3.4 Leased Employees. A Leased Employee shall not be eligible to
participate in the Plan.

                                    SECTION 4
                              COMPANY CONTRIBUTIONS

         4.1 Company Contributions

                  (a) For each of its fiscal years, the Company shall make a
contribution to the Trust in cash sufficient to pay any currently maturing
obligations under an Exempt Loan (to the extent such obligations will not be
paid by dividends on Company Stock under Section 7.3).

                  (b) In addition, for each of its fiscal years, the Company may
make a contribution to the Trust, in cash or in kind (including Company Stock).
The amount of such contribution (if any) for any year shall be determined by
appropriate action by the Board of Directors.

                  (c) All or any part of the cash contributions made pursuant to
subsection (a) or (b) may be applied to repay any outstanding Exempt Loan. The
Plan Administrator, subject to any pledge or similar agreement, shall direct the
Trustee as to the portion of such contributions to be applied to repay each such
Exempt Loan.

                  (d) The Company shall also contribute to the Trust in cash
each Participant's Compensation Deferral Contributions under Section 8.

         4.2 Time of Payment. The Company shall make payment of those cash
contributions to the Trust necessary to pay any currently maturing obligations
under an Exempt Loan in sufficient time to enable the Trustee to make timely
payment of the obligation to the lender under the Exempt Loan. The Company shall
make payment of a Participant's Compensation Deferral Contribution as soon as
practicable after the applicable deferral date. The Company shall make payment
of any other contributions to the Trust for any fiscal year for which it makes
other contributions within the time

                                       9
<PAGE>   16
prescribed by law, including extensions of time, for the filing of its Federal
income tax return for such year.

         4.3 Contributions Irrevocable

                  (a) General Rule. Except as provided in subsection (b), all
Company contributions to the Trust shall be irrevocable. Neither such
contributions nor any income therefrom shall be used for any purpose other than
the exclusive benefit of Participants or their beneficiaries under the Plan.

                  (b) Circumstances of Return of Company Contributions.

                  (1) In the case of a Company contribution made by a mistake of
         fact, such contribution may be returned to the Company within one year
         after the payment of the contribution.

                  (2) Company contributions are conditioned on their
         deductibility under section 404 of the Code, and, to the extent a
         deduction is disallowed, the affected contribution (to the extent
         disallowed) may be returned to the Company within one year after the
         disallowance of the deduction.

                                    SECTION 5
                      PARTICIPANTS' ACCOUNTS AND INVESTMENT
                              THEREOF; EXEMPT LOANS

         5.1 Accounts. A Participant's interest in the Trust Fund shall be
reflected in his Accounts. The Plan Administrator shall establish Account
records for each Participant. Notwithstanding the foregoing, the Trust Fund
shall be treated as a single trust for purposes of investment and
administration, and nothing contained herein shall require a physical
segregation of assets for any such Account.

         5.2 Investment of Trust Fund. Subject to Section 5.4, the Trust Fund
shall be invested primarily in Company Stock. Among other investments, cash or
cash equivalents may be held in the Trust Fund for the purposes of, inter alia,
making distributions to Participants, acquiring shares of Company Stock from
shareholders of BetzDearborn Inc. or directly from BetzDearborn Inc. or enabling
the Plan to repay an Exempt Loan. Neither the Company nor the Committee nor the
Plan Administrator nor the Trustee shall have any responsibility or duty to time
any transaction involving Company Stock in order to anticipate market conditions
or changes in stock value, nor shall any such person have any responsibility or
duty to sell Company Stock held in the Trust Fund (or otherwise to provide
investment management for Company Stock held in the Trust Fund) in order to
maximize return or minimize loss.

         5.3 Exempt Loan. The Board of Directors may direct the Trustee to have
the Plan enter into one or more Exempt Loans to finance the acquisition of
Company Stock. Notwithstanding any other provision of the Plan, all proceeds of
an Exempt Loan shall be used, within a reasonable time after receipt by the
Trustee, for the following purposes only:

                  (a) to acquire Company Stock;

                  (b) to repay the same Exempt Loan; or

                  (c) to repay any previous Exempt Loan.

                                       10
<PAGE>   17
                  An Exempt Loan shall be repaid only from amounts loaned to the
Trust, from Company cash contributions to the Trust and earnings attributable
thereto, from any collateral given for the Exempt Loan and from dividends paid
on Company Stock acquired with proceeds of an Exempt Loan.

                  An Exempt Loan shall be for a specific term, shall bear a
reasonable rate of interest and shall not be payable on demand except in the
event of default. An Exempt Loan may be secured by a pledge of the Company Stock
acquired with its proceeds (or acquired with the proceeds of a prior Exempt Loan
which is being refinanced). No other assets of the Trust Fund may be pledged as
collateral for an Exempt Loan, and no lender shall have recourse against assets
of the Trust Fund other than any Company Stock remaining subject to pledge.

                  Except as otherwise permitted by section 409(l) of the Code
and any regulations issued thereunder, no Company Stock acquired with the
proceeds of an Exempt Loan may be subject to a put, call or other option, or
buy-sell or similar arrangement while held in or when distributed from the Trust
Fund, whether or not the Plan continues to be an employee stock ownership plan
within the meaning of section 4975(e)(7) of the Code and whether or not the
Exempt Loan has been repaid. A Participant's protections in the preceding
sentence shall be nonterminable, within the meaning of Treas. Reg.
Section 4975-11(a)(3)(ii).

         5.4 Diversification of Investments.

                  (a) Election by Qualified Participant. Subject to subsection
(d), each Qualified Participant shall be permitted to direct the Plan, within 90
days after the last day of each Plan Year during the Participant's Qualified
Election Period, as to the investment of (i) twenty-five percent (25%) of the
total number of shares of Company Stock that have ever been allocated to the
Qualified Participant's Company Stock Account and Matching Account on or before
the most recent allocation date immediately preceding the applicable 90-day
period, less (ii) the number of shares of Company Stock previously directed
pursuant to a prior diversification election under this subsection (a). The
number of shares of Company Stock subject to direction shall be rounded to the
nearest whole integer. With respect to a Qualified Participant's diversification
election for the last Plan Year in his Qualified Election Period, "fifty percent
(50%)" shall be substituted for "twenty-five percent (25%)" where it appears in
this subsection (a).

                  Any such diversification election that requires a disposition
of Preferred Stock by the Trustee shall be effected by the Trustee only by the
tender of such Preferred Stock to the Company in exchange for shares of Common
Stock with a fair market value on the date of tender (net after commissions and
cost of sale) equal to the cash redemption price of such Preferred Shares. The
Company is obligated to make such exchange pursuant to Section 6 of the Trust
Agreement. For purposes of this subsection (a), "fair market value" shall have
the same meaning as in Section 6 of the Trust Agreement.

                  (b) Method of Directing Investment. The Participant's
direction shall be provided to the Plan Administrator in writing or in any other
manner acceptable to the Plan Administrator; shall be implemented no later than
180 days after the close of the Plan Year to which the direction applies; and
shall specify which, if any, of the options set forth in subsection (c) the
Participant selects.

                  (c) Investment Options.

                           (1) A fund invested principally in equity securities
         offering unusual opportunities for growth and capital appreciation, but
         which may also be invested in preferred stocks and other securities
         convertible into such equity securities.

                                       11
<PAGE>   18
                           (2) A fund invested principally in fixed income
         securities and other property which produces a fixed return.

                           (3) A fund invested principally in fixed income
         securities maturing in not over two years.

                  (d) De Minimis Rule. If the fair market value (determined on
the Valuation Date immediately preceding the applicable 90-day direction period)
of the Company Stock allocated to a Qualified Participant's Company Stock
Account and Matching Account is $500 or less, the Qualified Participant may not
direct the investment of any portion of his Company Stock Account and Matching
Account balance pursuant to this Section for the Plan Year ending on the
Valuation Date.

                                    SECTION 6
                           ALLOCATION OF CONTRIBUTIONS

         6.1 Participants Entitled to Allocation. Except as provided in Section
8, each contribution to the Trust Fund for a Plan Year (except for a
contribution to be used to amortize an Exempt Loan) and Company Stock released
from the Suspense Subfund pursuant to Section 6.5 for a Plan Year shall be
allocated by the Plan Administrator to and among each Participant (i) who in
such Plan Year completed 1,000 or more Hours of Service for the Company, and
(ii) who was an Eligible Employee on the last day of such Plan Year.
Notwithstanding the preceding clause (ii), a Participant or his beneficiary, as
the case may be, shall be entitled to an allocation for the Plan Year in which
the Participant's employment terminates, regardless of whether the Participant
was an Eligible Employee on the last day of such Plan Year, if the Participant
meets one or both of the following:

                  (a) the Participant's termination of employment occurs on or
after his Normal Retirement Date; or

                  (b) the Participant's termination of employment occurs by
reason of his death or by reason of his total and permanent disability (as
defined in Section 9.5(b)).

                  (c) the Participant elects Early Retirement under the
BetzDearborn Inc. Employees' Retirement Plan upon his termination of employment.

         6.2 Allocation of Company Stock Contributions. The Plan Administrator
shall, as of December 31 of each Plan Year for which the Company makes a Company
Stock contribution, allocate such contribution (including fractional shares to
1/1000 of a share) to the Company Stock Account of each Participant entitled to
an allocation for the Plan Year in the same proportion that such Participant's
Compensation for the Plan Year bears to the total Compensation of all
Participants entitled to an allocation for the Plan Year.

         6.3 Allocation of Other Contributions. The Plan Administrator shall, as
of December 31 of each Plan Year for which the Company makes a contribution in a
form other than Company Stock (except for a contribution to be used to amortize
an Exempt Loan or a contribution under Section 8), allocate such contribution to
the Other Investments Account of each Participant entitled to an allocation for
the Plan Year in the same proportion that such Participant's Compensation for
the Plan Year bears to the total Compensation of all Participants entitled to an
allocation for the Plan Year.

         6.4 Allocation of Company Stock Acquired with Exempt Loan. Company
Stock acquired by the Trust with the proceeds of an Exempt Loan shall be added
to and maintained in the Suspense Subfund

                                       12
<PAGE>   19
established within the Trust Fund and shall thereafter be released from the
Suspense Subfund as provided in Section 6.5 and allocated to the Company Stock
Accounts of Participants as provided in Section 6.6.

         6.5 Release from Suspense Subfund. Company Stock acquired by the Trust
with the proceeds of an Exempt Loan shall be released from the Suspense Subfund
as the Exempt Loan is repaid, in one of the alternative methods set forth in
subsection (a) and subsection (b) as elected by the Committee in its sole
discretion.

                  (a) First Alternative. The first alternative method is, for
each Plan Year until the Exempt Loan is fully repaid, to release a number of
shares of Company Stock from the Suspense Subfund (including fractional shares
to 1/1000 of a share) equal to the number of unreleased shares of Company Stock
in the Suspense Subfund immediately before such release multiplied by a
fraction. The numerator of the fraction is the amount of principal and interest
paid on the Exempt Loan for the Plan Year, and the denominator of the fraction
is the sum of the numerator plus the principal and interest to be paid on the
Exempt Loan for all future Plan Years during the term of the Exempt Loan
(determined without reference to any possible extensions or renewals thereof).
For purposes of computing the denominator of the fraction, if the interest rate
on the Exempt Loan is variable, the interest to be paid in future Plan Years
shall be calculated by assuming that the interest rate in effect as of the end
of the applicable Plan Year will be the interest rate in effect for the
remainder of the term of the Exempt Loan. Notwithstanding the foregoing, if the
Exempt Loan is repaid with the proceeds of a subsequent Exempt Loan, such
repayment shall not operate to release all the Company Stock in the Suspense
Subfund; rather, such release shall be effected pursuant to the foregoing
provisions of this section on the basis of payments of principal and interest on
such substitute loan.

                  (b) Second Alternative. The second alternative method is, for
each Plan Year until the Exempt Loan is fully repaid, to determine the number of
shares of Company Stock released from the Suspense Subfund as provided in
subsection (a) but basing such release upon only the amount of principal paid on
the Exempt Loan for the Plan Year (without regard to interest payments). This
method may be used only if the following three conditions are met:

                  (1) the Exempt Loan provides for annual payments of principal
         and interest at a cumulative rate that is not less rapid at any time
         than level annual payments of such amounts for 10 years;

                  (2) the interest portion of any payment is disregarded for
         purposes of determining the number of shares released only to the
         extent it would be treated as interest under standard loan amortization
         tables; and

                  (3) if the Exempt Loan is renewed, extended or refinanced, the
         sum of the expired duration of the Exempt Loan and the renewal period,
         the extension period or the duration of a new Exempt Loan does not
         exceed 10 years.

                  (c) More Than One Exempt Loan. If at any time there is more
than one Exempt Loan outstanding, separate accounts shall be established under
the Suspense Subfund for each Exempt Loan. Each Exempt Loan for which a separate
account is maintained shall be treated separately for purposes of subsections
(a) and (b) governing the release of shares from the Suspense Subfund.

                  (d) Treasury Regulations. It is intended that the provisions
of this section be applied and construed in a manner consistent with the
requirements and provisions of Treas. Reg. Section54.4975-7(b)(8), and any
successor regulation thereto.

                                       13
<PAGE>   20
         6.6 Allocation of Shares Released from Suspense Subfund.

                  (a) Company Stock released from the Suspense Subfund under
Section 6.5 shall first be allocated under this subsection (a). The number of
shares of Company Stock released from the Suspense Subfund as a result of the
cash dividends described in Section 7.3(a)(2) shall be determined. There shall
then be allocated to each Participant's Company Stock Account a sufficient
number of such shares (including fractional shares to 1/1000 of a share) such
that the fair market value of the shares allocated to the Participant's Company
Stock Account equals the amount of such dividends which would have been
allocated to the Participant's Other Investments Account but for the requirement
in Section 7.3(a)(2) that such dividends be used to repay an Exempt Loan. If the
foregoing rule is not met, the Plan Administrator shall notify the Company and
additional contributions to the Plan shall be made by the Company and used by
the Trustee to repay the Exempt Loan to the extent necessary to release
additional shares of Company Stock from the Suspense Subfund to meet the
foregoing rule.

                  (b) Allocations to Match Participants' Compensation Deferral
Contributions. After the allocations described in subsection (a) are made,
shares of Company Stock released from the Suspense Subfund for a Plan Year under
Section 6.5 (including fractional shares of 1/1000 of a share) shall be
allocated to Participants' Matching Accounts as described in Section 8.3(a).

                  (c) Allocation of Remainder. After the allocations described
in subsections (a) and (b) are made, any remaining shares of Company Stock
released from the Suspense Subfund for a Plan Year pursuant to Section 6.5
(including fractional shares to 1/1000 of a share) shall be allocated by the
Plan Administrator as of December 31 of the Plan Year to the Company Stock
Accounts of each Participant entitled to an allocation for the Plan Year in the
same proportion that such Participant's Compensation for the Plan Year bears to
the total Compensation for the Plan Year of all Participants entitled to an
allocation for the Plan Year.

         6.7 Allocation of Forfeitures. All forfeitures occurring under Section
9.4 shall be allocated in the manner described in Section 6.2 or Section 6.3 (as
applicable) as of December 31 of the Plan Year in which the event causing the
forfeiture occurs.

                                    SECTION 7
                                    VALUATION

         7.1 Valuation.

                  (a) The "Company Stock Subfund" established within the Trust
Fund consists of all of the Company Stock Accounts, Matching Accounts, Stock
Bonus Accounts, and PAYSOP Accounts of Participants. The "Other Investments
Subfund" established within the Trust Fund consists of the Investment Fund. As
of each Valuation Date, each such Subfund and the Suspense Subfund shall be
valued separately by the Trustee (or, if required by applicable law, the Trustee
shall cause the Subfund to be valued by an independent appraiser, as described
in the following paragraph), and any net increase or decrease in the fair market
value of the applicable Subfund, including earnings or losses realized or
sustained during the Plan Year or part of the Plan Year then ending, shall be
computed. For the purpose of determining such net increase or decrease, the
value of the applicable Subfund on the immediately preceding Valuation Date
shall be reduced by amounts paid out or due as benefits from such Subfund during
the Plan Year or part of the Plan Year then ending.

                  For purposes of the valuation described above, the fair market
value of shares of Company Stock held by the Trustee shall be determined as of
the Valuation Date coincident with the last

                                       14
<PAGE>   21
day of the Plan Year, and as of such other Valuation Dates as the Plan
Administrator so directs, and, in the case of Preferred Stock, by a recognized
independent firm of security analysts or appraisers meeting requirements similar
to those contained in Treasury regulations under section 170(a)(1) of the Code
(if any).

                  (b) Notwithstanding any other provision of the Plan, to the
extent that Participants' Accounts are invested in Investment Vehicles, the
value of which is priced daily ("Daily Pricing Media"), all amounts contributed
to the Trust Fund will be invested at the time of the actual receipt by the
Investment Vehicle, and the value of each Account shall reflect the results of
such daily pricing from the time of actual receipt until the time of
distribution. Investment elections and changes shall be effective upon receipt
of authorized transaction instructions. References elsewhere in the Plan to the
investment of contributions "as of" a date other than that described in this
Section shall apply only to the extent, if any, that assets of the Trust Fund
are not invested in Daily Pricing Media.

         7.2 Allocation of Gains and Losses. As of each Valuation Date, the net
increase or decrease in the market value of the Company Stock Subfund and of the
Other Investments Subfund, as calculated under Section 7.1, shall be separately
allocated (i) with respect to the Company Stock Subfund, among the Company Stock
Accounts, Matching Accounts, Stock Bonus Accounts, and PAYSOP Accounts of the
Participants in the proportion that each such Account bears to the total of all
such Accounts immediately prior to the valuation and before the allocations for
the current Plan Year pursuant to Section 6 and (ii) with respect to the Other
Investments Subfund, among the separate Accounts in the Investment Vehicles in
the proportion that an amount in each Account in the Investment Vehicle bears to
the total of all Accounts in the Investment Vehicle prior to the valuation and
before the allocations for the current Plan Year pursuant to Section 6.

         7.3 Dividends on Company Stock.

                  (a) Cash Dividends.

                  (1) Any cash dividends received which are attributable to
         shares of Company Stock held in Participants' Accounts which were not
         acquired with the proceeds of an Exempt Loan shall be credited to such
         Accounts as of the record date of the dividend.

                  (2) Any cash dividends received which are attributable to
         shares of Company Stock (i) acquired with the proceeds of an Exempt
         Loan and (ii) previously allocated to Participants' Company Stock
         Accounts or Matching Accounts shall be used by the Trustee to repay an
         Exempt Loan. Upon such repayment, shares of Company Stock shall be (i)
         released from the Suspense Subfund in accordance with Section 6.5(a) or
         Section 6.5(b) (as applicable) and (ii) allocated to Participants'
         Company Stock Accounts and Matching Accounts in accordance with Section
         6.6.

                  (3) Any cash dividends received which are attributable to
         shares of Company Stock (i) acquired with the proceeds of an Exempt
         Loan and (ii) held in the Suspense Subfund shall be used by the Trustee
         to repay an Exempt Loan. Upon such repayment, shares of Company Stock
         shall be (i) released from the Suspense Subfund in accordance with
         Section 6.5(a) or Section 6.5(b) (as applicable) and (ii) allocated to
         Participants' Company Stock Accounts and/or Matching Accounts in
         accordance with Section 6.6.

                  (b) Stock Dividends. Stock dividends paid (and stock received
by the Trustee as a result of a stock split, stock conversion or reorganization
or recapitalization of the Company) with respect to shares of Company Stock held
in the Trust Fund shall be credited (i) to the Accounts to which such Company
Stock was previously allocated or is otherwise held or (ii) in the case of
Company Stock still

                                       15
<PAGE>   22
maintained in the Suspense Subfund pursuant to Section 6 or otherwise
unallocated, to the Suspense Subfund or to the otherwise unallocated Company
Stock.

                                    SECTION 8
                                   401(k) PLAN

         8.1 Definitions. The following definitions shall apply for purposes of
this Section:

                  (a) "Actual Deferral Percentage" shall mean the ratio
(expressed as a percent) of Compensation Deferral Contributions on behalf of an
Eligible Participant for the relevant Plan Year to such Eligible Participant's
Statutory Compensation for such Plan Year. Actual Deferral Percentages shall be
calculated to the nearest 1/100th of one percent.

                  (b) "Average Actual Deferral Percentage" shall mean the
average (expressed as a percentage) of the Actual Deferral Percentages of the
Eligible Participants in a group. Average Actual Deferral Percentages shall be
calculated to the nearest 1/100 of one percent.

                  (c) "Average Contribution Percentage" shall mean the average
(expressed as a percentage) of the Contribution Percentages of the Eligible
Participants in a group. Average contribution Percentage shall be calculated to
the nearest 1/100 of one percent.

                  (d) "Contribution Percentage" shall mean the ratio (expressed
as a percent) of the Matching Contributions on behalf of an Eligible Participant
for the relevant Plan Year to such Eligible Participant's Statutory Compensation
for such Plan Year. Contribution Percentages shall be calculated to the nearest
1/100th of one percent.

                  (e) "Determination Year" shall mean the Plan Year for which a
determination of which Employees are Highly Compensated Employees is being made.

                  (f) "Eligible Participant" shall mean an Employee who is
authorized under the terms of the Plan to have Compensation Deferral
Contributions made to the Plan on his behalf for the relevant Plan Year.

                  (g) "Excess Aggregate Contributions" shall mean the amount
described in section 401(m)(6)(B) of the Code.

                  (h) "Excess Contributions" shall mean the amount described in
section 401(k)(8)(B) of the Code.

                  (i) "Excess Deferral Amount" shall mean the Amount of
Compensation Deferral Contributions for a calendar year which the Participant
allocates to this Plan pursuant to the claims procedure set forth in Section
8.13(b).

                  (j) "Highly Compensated Employee" shall mean, for Plan Years
beginning after December 31, 1996, an Employee described in either paragraph (1)
or paragraph (2). The determination of who is a Highly Compensated Employee
shall be made in accordance with section 414(q) of the Code and Treasury
regulations thereunder.

                                       16
<PAGE>   23
                  (1) An Employee is a Highly Compensated Employee for a Plan
         Year if he is a five percent (5%) owner (as defined in section
         416(i)(1)(B) of the Code) of the Company or an Affiliate at any time
         during the Determination Year or the Look-Back Year.

                  (2) An Employee is a Highly Compensated Employee for a Plan
         Year if he received "compensation" (as defined in section 414(q)(4) of
         the Code) from the Company and Affiliates in excess of $80,000 (as
         adjusted by the Secretary of the Treasury in accordance with section
         414(q)(1) of the Code) during the Look-Back Year, and (if the Committee
         so elects for any Determination Year) was in the Top-Paid Group for the
         Look-Back Year.

                  (k) "Non-Highly Compensated Employee" shall mean, for Plan
Years beginning after December 31, 1996, an Employee who is not a Highly
Compensated Employee.

                  (l) "Statutory Compensation" shall mean all compensation as
defined in Treas. Reg. Sections 1.415-2(d)(2) and (3) paid to or on behalf of an
Eligible Participant during the portion of the relEvant Plan Year during which
he is eligible to participate in the Plan, plus all amounts that are not
currently includable in the Eligible Participant's gross income during such
period by reason of the application of section 125, 402(e)(3) or 402(h)(1)(B) of
the Code. The annual Statutory Compensation of each Eligible Participant taken
into account under the Plan shall not exceed $150,000, as adjusted by the
Commissioner of Internal Revenue for increases in the cost of living in
accordance with section 401(a)(17)(B) of the Code.

                  (m) "Top-Paid Group" shall mean the top twenty percent (20%)
of the Employees when ranked on the basis of Compensation from the Company and
Affiliates. Employees described in section 414(q)(5) of the Code shall be
excluded for purposes of determining the number of employees in the Top-Paid
Group.

         8.2 Participant Compensation Deferrals.

                  (a) Deferral Percentages. Each Participant may direct the
Company to reduce his Compensation by 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14
or fifteen percent (15%). Compensation shall be reduced by means of payroll
deductions.

                  (b) Determination of Maximum Compensation Deferral Percentage.
Notwithstanding subsection (a), prior to the beginning of each Plan Year, for
the purpose of meeting the nondiscrimination requirements and limitations of
Sections 8.10 and 8.11, the Plan Administrator may establish a maximum
limitation of less than fifteen percent (15%) on the elective deferrals that may
be elected by Highly Compensated Employees.

         8.3 Company Matching Contributions.

                  (a) Matching Contributions. Shares of Company Stock that have
been released from the Suspense Subfund under Section 6.5 and that have not and
will not be transferred to the Company Stock Account of Participants under
Section 6.6(a) shall be allocated to a Participant's Matching Account. The
shares so allocated shall have a fair market value as of the immediately
preceding Valuation Date equal to the Matching Rate, multiplied by the lesser of
(i) the Participant's Compensation Deferral Percentage or (ii) the Maximum
Compensation Deferral Matching Percentage, multiplied by the Participant's
Compensation.

                  (b) Matching Rate. The Matching Rate shall be twenty-five
(25%). The Maximum Compensation Deferral Matching Percentage shall be four
percent (4%).

                                       17
<PAGE>   24
         8.4 Designation of Account. A Participant may designate in which
Investment Vehicles his Compensation Deferral Contributions (including
Compensation Deferral Contributions which were made under the Stock Bonus Plan
and are transferred to the Participant's 401(k) Account in this Plan) and his
Rollover Account (if any) shall be invested. Each Participant shall submit
instructions designating in multiples of five percent (5%) the Investment
Vehicles in which his Account balances in the Investment Fund shall be invested.
Allocations to the Accounts of the Participant in the Investment Fund shall
continue to be invested in the manner selected by the Participant until the
receipt of instructions changing the Participant's investment selection. The
Plan Administrator shall establish rules and procedures for the selection of
Investment Vehicles including rules for the designation of an investment
selection in the event any Participant fails to make a designation. The Plan
Administrator may limit the number of times per year that Participants may
change their investment selection.

                  A Participant's selection of his investment option shall be
effective as of any Valuation Date. The Participant's Account balances shall be
adjusted as of each Valuation Date, in accordance with Section 7.2, based on the
performance of the Investment Vehicles selected by the Participant. Each Account
shall be valued separately.

         8.5 Changing Rates of Contribution. A Participant shall establish,
suspend, increase or decrease his Compensation Deferral Percentage by filing an
Appropriate Form with the Plan Administrator or his designee, or in any other
manner acceptable to the Plan Administrator, which shall be made effective
within 30 days from day of receipt or other notification. A Participant's
Compensation Deferral Percentage shall continue in effect, notwithstanding any
change in Compensation, until the Participant elects to change it. The Plan
Administrator may limit the number of times per year each Participant may change
his Compensation Deferral Percentage.

         8.6 Withdrawals of Compensation Deferral Contributions. A Participant
may not withdraw any Matching Contributions (including Matching Contributions
which were made under the Stock Bonus Plan and are transferred to the
Participant's Rollover Account in this Plan) or earnings on his 401(k) Account.
A Participant may withdraw Compensation Deferral Contributions (including
Compensation Deferral Contributions which were made under the Stock Bonus Plan
and are transferred to the Participant's 401(k) Account in this Plan) in
accordance with subsections (a) and (b).

                  (a) The Plan Administrator may grant consent to a requested
withdrawal only to the extent of an immediate and heavy financial need of the
Participant for which funds are not reasonably available from other resources of
the Participant. The amount of an immediate and heavy financial need may include
any amounts necessary to pay any Federal, state, or local income taxes or
penalties reasonably anticipated to result from the withdrawal.

                  The circumstances which may warrant approval of a
Participant's application for a hardship withdrawal are:

                  (1) payment of tuition and related educational expenses for
         the next 12 months of post-secondary education for the Participant, his
         dependents, spouse or children;

                  (2) expenses for medical care described in section 213(d) of
         the Code previously incurred by the Participant, his spouse, or his
         dependents, or necessary for those persons to obtain medical care
         described in section 213(d) of the Code;

                  (3) costs directly related to the purchase of a principal
         residence for the Participant (excluding mortgage payments);

                                       18
<PAGE>   25
                  (4) the need to prevent the eviction of the Participant from
         his principal residence or foreclosure on the mortgage of the
         Participant's principal residence; or

                  (5) such other circumstances as may be deemed hardships
         pursuant to Treas. Reg. Section 1.401(k)-1(d)(2)(ii)(B).

                  A Participant may apply to withdraw from his 401(k) Account at
any time by submitting an Appropriate Form to the Plan Administrator specifying
the reason for the withdrawal and the amount of the withdrawal, or in any other
manner acceptable to the Plan Administrator.

                  The Plan Administrator shall review all requests for
withdrawal within 30 days. If approved by the Plan Administrator, withdrawals
shall equal the lesser of (i) the amount required to meet the need created by
the hardship, or (ii) the amount to the credit of the Participant's 401(k)
Account. The Plan Administrator must make the determination of the existence of
financial hardship in a uniform and nondiscriminating manner.

                  If the Plan Administrator consents to a request for a
withdrawal, then the sum approved to be withdrawn shall be paid to the
Participant as soon as administratively practicable after approval of the
request.

                  (b) A Participant may withdraw his Compensation Deferral
Contributions or any portion thereof without the consent of the Plan
Administrator at any time after he has attained age 59-1/2.

         8.7 Restrictions. A Participant may make one or more withdrawals, in
accordance with Section 8.6, in a Plan Year. All withdrawals will be based on
the value of the Participant's 401(k) Account as of the Valuation Date
immediately preceding the distribution. The Plan Administrator shall establish
guidelines for determining from which Investment Vehicles the withdrawal shall
be taken. In the event of a withdrawal of all or any part of his 401(k) Account
prior to the date he attains age 59-1/2, the Participant's Compensation Deferral
Contributions shall thereupon cease and the Participant shall not be eligible to
resume Compensation Deferral Contributions or elective contributions to any
other plan maintained by the Company or any Affiliate which is qualified under
section 401(a) of the Code, until the first payroll period following the
12-month period after the Participant's receipt of the hardship withdrawal. The
suspension described in the preceding sentence shall not apply if the withdrawal
occurs after the Participant attains age 59-1/2.

         8.8 Periods of Absence. A Participant who is on a leave of absence with
the consent of the Company may continue to have contributions made under the
Plan by salary reduction and payroll deductions when Compensation is being
continued by the Company.

         8.9 Termination of Contributions. Compensation Deferral Contributions
shall terminate coincident with the date the Participant terminates employment
for any reason, including retirement or death.

         8.10 Limitation on Compensation Deferral Contributions.

                  (a) Maximum Amount of Compensation Deferral Contributions. No
Participant shall be permitted to have Compensation Deferral Contributions made
under this Plan during any calendar year in excess of $10,000 as adjusted by the
Secretary of the Treasury for increases in the cost of living in accordance with
section 402(g)(5) of the Code.

                                       19
<PAGE>   26
                  (b) Average Actual Deferral Percentage. For Plan Years
beginning after December 31, 1996, Compensation Deferral Contributions for
Eligible Participants who are Highly Compensated Employees shall meet at least
one of the following two tests:

                  (1) The Average Actual Deferral Percentage for Eligible
         Participants who are Highly Compensated Employees for the Plan Year
         shall not exceed the Average Actual Deferral Percentage for the
         preceding Plan Year, for those Eligible Participants in such preceding
         Plan Year who were Non-Highly Compensated Employees for such preceding
         Plan Year, multiplied by 1.25.

                  (2) The Average Actual Deferral Percentage for Eligible
         Participants who are Highly Compensated Employees for the Plan Year
         shall not exceed the Average Actual Deferral Percentage for the
         preceding Plan Year, for those Eligible Participants in such preceding
         Plan Year who were Non-Highly Compensated Employees for such preceding
         Plan Year, multiplied by two; provided that the Average Actual Deferral
         Percentage for those Eligible Participants who are Highly Compensated
         Employees for the Plan Year does not exceed the Average Actual Deferral
         Percentage for Eligible Participants who were Non-Highly Compensated
         Employees for the preceding Plan Year by more than two percentage
         points.

                  (c) Special Rules.

                  (1) For purposes of this Section, the Actual Deferral
         Percentage for any Eligible Participant who is a Highly Compensated
         Employee for the Plan Year and who is eligible to have elective
         deferrals allocated to his account under two or more plans or
         arrangements described in section 401(k) of the Code that are
         maintained by the Company or an Affiliate shall be determined as if all
         such elective deferrals were made under a single arrangement.

                  (2) A Compensation Deferral Contribution shall be taken into
         account under subsection (b) for a Plan Year only if it relates to
         Compensation that would have been received by the Eligible Participant
         in the Plan Year, but for the Eligible Participant's election to defer
         a portion of his Compensation under Section 8.2.

                  (3) A Compensation Deferral Contribution shall be taken into
         account under subsection (b) for a Plan Year only if it is allocated to
         the Eligible Participant's 401(k) Account as of a date within that Plan
         Year. For this purpose, a Compensation Deferral Contribution shall be
         considered allocated as of a date within the Plan Year if the
         allocation is not contingent on participation in the Plan or the
         performance of services after the date and the Compensation Deferral
         Contribution is actually paid to the Trust Fund no later than 12 months
         after the end of the Plan Year to which the Compensation Deferral
         Contribution relates.

                  (4) The determination and treatment of the Compensation
         Deferral Contributions and Actual Deferral Percentage of any Eligible
         Participant shall satisfy such other requirements as may be prescribed
         by the Secretary of the Treasury.

         8.11 Limitations on Matching Contributions.

                  (a) Contribution Percentages. For Plan Years beginning after
December 31, 1996, the Matching Contributions for Eligible Participants who are
Highly Compensated Employees shall meet at least one of the following two tests:

                                       20
<PAGE>   27
                  (1) The Average Contribution Percentage for Eligible
         Participants who are Highly Compensated Employees for the Plan Year
         shall not exceed the Average Contribution Percentage for the preceding
         Plan Year, for those Eligible Participants in such preceding Plan Year
         who were Non-Highly Compensated Employees for such preceding Plan Year,
         multiplied by 1.25.

                  (2) The Average Contribution Percentage for Eligible
         Participants who are Highly Compensated Employees for the Plan Year
         shall not exceed the Average Contribution Percentage for the preceding
         Plan Year, for those Eligible Participants in such preceding Plan Year
         who were Non-Highly Compensated Employees for such preceding Plan Year,
         multiplied by two; provided that the Average Contribution Percentage
         for Eligible Participants who are Highly Compensated Employees for the
         Plan Year does not exceed the Average Contribution Percentage for
         Eligible Participants who were Non- Highly Compensated Employees for
         the preceding Plan Year by more than two percentage points, subject to
         Treas. Reg. Section 1.401(m)-2 (modified as necessary to reflect the
         Small Business Job Protection Act of 1996). If it is necessary to
         reduce the Average Contribution Percentage for Eligible Participants
         who are Highly Compensated Employees for the Plan Year to prevent the
         multiple use of the alternative limitation, the Contribution Percentage
         of all Highly Compensated Employees shall be subject to reduction to
         the extent necessary under Section 8.15.

                  (b) Special Rules.

                  (1) For purposes of this Section, the Contribution Percentage
         for any Eligible Participant who is a Highly Compensated Employee for
         the Plan Year and who is eligible to make after-tax contributions, or
         to have employer matching contributions allocated to his account, under
         two or more plans described in section 401(a) of the Code or
         arrangements described in section 401(k) of the Code that are
         maintained by the Company or an Affiliate shall be determined as if all
         such after-tax and employer matching contributions were made under a
         single plan.

                  (2) In the event that this Plan satisfies the requirements of
         section 410(b) of the Code only if aggregated with one or more other
         plans, or if one or more other plans satisfy the requirements of
         section 410(b) of the Code only if aggregated with this Plan, then this
         Section shall be applied by determining the Contribution Percentages of
         Eligible Participants as if all such plans were a single plan.

                  (3) A Matching Contribution shall be taken into account under
         subsection (a) for a Plan Year only if it is (i) made on account of the
         Eligible Participant's Compensation Deferral Contributions for the Plan
         Year, (ii) allocated to the Eligible Participant's Company Stock
         Account during the Plan Year, and (iii) paid to the Trust Fund on or
         before the last day of the 12th month following the end of the Plan
         Year.

                  (4) The determination and treatment of the Contribution
         Percentage of any Participant shall satisfy such other requirements as
         may be prescribed by the Secretary of the Treasury.

         8.12 Election to Use Current Plan Year. The Company may elect to apply
Section 8.10(b) and (c) and Section 8.11 by using the Plan Year rather than the
preceding Plan Year, as permitted under section 401(k)(3)(A) of the Code,
provided that if such an election is made, it may not be changed except as
provided by the Secretary of the Treasury.

                                       21
<PAGE>   28
         8.13 Distribution of Excess Deferrals.

                  (a) In General. Notwithstanding any other provision of the
Plan, Excess Deferral Amounts plus any income and minus any loss allocable
thereto shall be distributed no later than each April 15 to Participants who
claim allocable Excess Deferral Amounts for the preceding calendar year.

                  (b) Claims. A Participant's claim shall be in writing; shall
be submitted to the Plan Administrator no later than March 1; shall specify the
Participant's Excess Deferral Amount for the preceding calendar year; and shall
be accompanied by the Participant's written statement that if the Excess
Deferral Amount is not distributed, it, when added to amounts deferred under
other plans or arrangements described in section 401(k), 408(k) or 403(b) of the
Code, exceeds the limit imposed on the Participant by section 402(g) of the Code
for the year in which the deferral occurred.

                  (c) Determination of Income or Loss. A Participant's Excess
Deferral Amount shall be adjusted for income or loss up to December 31 of the
taxable year for which the Excess Deferral Amount was deferred or to the extent
that such Excess Deferral Amount is invested in Investment Vehicles the value of
which is priced daily, up to the date of distribution in accordance with Section
7.1(b). The income or loss allocable to a Participant's Excess Deferral Amount
shall be determined in accordance with Section 7.2.

                  (d) Accounting for Excess Deferral Amounts. Excess Deferral
Amounts distributed under this Section shall be distributed from the
Participant's 401(k) Account.

         8.14 Distribution of Excess Contributions.

                  (a) In General. Notwithstanding any other provision of the
Plan, Excess Contributions plus any income and minus any loss allocable thereto
shall be distributed within the 12-month period beginning on the earlier of the
last day of the Plan Year for which such Excess Contributions were made, or the
date of the complete termination of the Plan, to Participants on whose behalf
the Excess Contributions were made for such Plan Year. (If the Excess
Contributions are distributed after the first March 15, after the last day of
the Plan Year in which the Excess Contributions arose, the Company will be
subject to a ten percent (10%) excise tax under section 4979 of the Code with
respect to the Excess Contributions.)

                  (b) Determination and Distribution of Excess Contributions.
The amount of Excess Contributions for Plan Years beginning on or after January
1, 1997 shall be determined in the following manner. First, the Actual Deferral
Percentage for the ("ADP") of the Highly Compensated Employee(s) with the
highest ADP shall be reduced to the extent necessary to satisfy Section 8.10(b)
or to cause such ADP to equal the ADP of the Highly Compensated Employee(s) with
the next highest ADP. Second, this process shall be repeated until Section
8.10(b) is satisfied. The amount of Excess Contributions equals the total amount
of reductions in Compensation Deferral Contributions that would be required to
achieve the ADPs determined in the preceding sentences.

                  Then, the Compensation Deferral Contributions of the Highly
Compensated Employee(s) with the highest Compensation Deferral Contribution
amount for the Plan Year shall be reduced and distributed to such Employee(s) to
the extent necessary to equal the amount of Excess Contributions determined in
the preceding paragraph, or to cause the amount of such Compensation Deferral
Contributions to equal the amount of Compensation Deferral Contributions of the
Highly Compensated Employee(s) with the next highest amount for the Plan Year.
This process shall be repeated until an amount equal to the total Excess
Contributions determined in the preceding paragraph is distributed. The Average
Actual Deferral Percentage tests in Section 8.10(b) shall not be re-run.

                                       22
<PAGE>   29
                  (c) Determination of Income or Loss. The Excess Contributions
shall be adjusted for income or loss up to the last day of the Plan Year for
which such Excess Contributions were made, or, to the extent that such Excess
Contributions are invested in Investment Vehicles the value of which is priced
daily, up to the date of distribution in accordance with Section 7.1(b). The
income or loss allocable to a Participant's Excess Contributions shall be
determined in accordance with Section 7.2.

                  (d) Accounting for Excess Contributions. Excess Contributions
shall be distributed from the Participant's 401(k) Account in proportion to the
Participant's Compensation Deferral Contributions for the Plan Year.

                  (e) Reduction for Excess Deferrals Distributed. The Excess
Contributions which would otherwise be distributed under this Section shall be
reduced, in accordance with regulations issued under section 401(k) of the Code,
by the amount of Excess Deferrals distributed to the Participant under Section
8.13.

         8.15 Distribution of Excess Aggregate Contributions.

                  (a) In General. Excess Aggregate Contributions, plus any
income and minus any loss allocable thereto, shall be distributed within the
12-month period beginning on the earlier of the last day of the Plan Year for
which such Excess Aggregate Contributions were made or the date of the complete
termination of the Plan, to Participants on whose behalf the Excess Aggregate
Contributions were allocated for such Plan Year. (If the Excess Aggregate
Contributions are distributed after the first March 15 after the last day of the
Plan Year in which the Excess Aggregate Contributions arose, the Company will be
subject to a ten percent (10%) excise tax under section 4979 of the Code with
respect to the Excess Aggregate Contributions.)

                  (b) Determination of Excess Aggregate Contributions. The
amount of Excess Aggregate Contributions for a Highly Compensated Employee for
Plan Years beginning on or after January 1, 1997 shall be determined in the
following manner. First, the Average Contribution Percentage ("ACP") of the
Highly Compensated Employee(s) with the highest ACP shall be reduced to the
extent necessary to satisfy Section 8.11(a) or to cause such ACP to equal the
ACP of the Highly Compensated Employee(s) with the next highest ACP. Second,
this process shall be repeated until Section 8.11(a) is satisfied. The amount of
Excess Aggregate Contributions equals the total amount of reductions in Matching
Contributions that would be required to achieve the ACPs determined in the
preceding sentences.

                  Then, the Matching Contributions of the Highly Compensated
Employee(s) with the highest Matching Contribution amount for the Plan Year
shall be reduced and distributed to such Employee(s) to the extent necessary to
equal the amount of Excess Aggregate Contributions determined in the preceding
paragraph, or to cause the amount of such Matching Contributions to equal the
amount of Matching Contributions of the Highly Compensated Employee(s) with the
next highest amount for the Plan Year. This process shall be repeated until an
amount equal to the total Excess Aggregate Contributions determined in the
preceding paragraph is distributed. The Average Contribution Percentage tests in
Section 8.11(a) shall not be re-run.

                  (c) Determination of Income or Loss. The Excess Aggregate
Contributions shall be adjusted for income or loss up to the last day of the
Plan Year for which such Excess Aggregate Contributions were made, or, to the
extent that such Excess Aggregate Contributions are invested in Investment
Vehicles the value of which is priced daily, up to the date of distribution in
accordance with

                                       23
<PAGE>   30
Section 7.1(b). The income or loss allocable to a Participant's Excess Aggregate
Contributions shall be determined in accordance with Section 7.2.

         8.16 Designation as Profit-Sharing Plan. This Section, in conjunction
with the remainder of the Plan, constitutes a profit-sharing plan, within the
meaning of section 401(a)(27) of the Code.

         8.17 Participant Rollover Contribution.

                  (a) Rollovers. With the approval of the Committee, a
Participant may make a contribution to the Plan of any portion of an amount that
qualifies as an eligible rollover distribution under section 402(c)(4) or
403(a)(4) of the Code, or as a rollover contribution under section
408(d)(3)(A)(ii) of the Code. Any rollover contribution so authorized shall be
placed in the Participant's Rollover Account.

         8.18 Loans.

                  (a) General Rule. Upon receipt of a request for a loan, the
Plan Administrator shall direct the Trustee to make a loan to a Participant who
is an active employee (or to any terminated Participant or beneficiary who is a
"party in interest" to the Plan within the meaning of section 3(14) of ERISA),
provided such loan meets the requirements of this Section and the requirements
of such procedures and guidelines as may be adopted by the Plan Administrator
which are consistent with this Section. For purposes of this Section, the term
"Participant" shall be deemed to include any terminated Participant or
beneficiary to whom Plan loans are available, except where the context otherwise
requires. A Participant's loan request shall be made by means of a completed
application on a form supplied by the Plan Administrator, or in any other manner
acceptable to the Plan Administrator.

                  (b) Terms of Loan. Each loan granted or renewed under this
Section shall bear a rate of interest which is two percentage points greater
than the prime lending rate, as announced in The Wall Street Journal, on the
business day coincident with or first following the fifteenth calendar day of
the month in which the loan is made or such other rate as may be determined by
the Plan Administrator to be required by law. The interest rate and other
conditions for the repayment of the loan shall be fixed at the time the loan is
made. All loans shall be repayable by their terms within five years.

                  (c) Limitations. The amount of a loan to a Participant shall
not exceed the lesser of:

                  (1) one-half of the amount of the sum of the Participant's
         Rollover and 401(k) Accounts as of such date; or

                  (2) $50,000, reduced by the highest outstanding balance of the
         Participant's loans from the Plan during the one-year period ending on
         the day before such loan is made.

                  The minimum amount of any loan under this Section shall be
$1,000.

                  A Participant may not have more than one loan outstanding at
any time.

                  (d) Repayment Terms. Except as may be provided in regulations
issued by the Secretary of the Treasury, each loan shall require substantially
level amortization, with payments not less frequently than quarterly over the
term of the loan. A Participant shall be required to repay any loans through
payroll deduction, except that he may elect to prepay the entire outstanding
balance of the loan in a single lump sum.

                                       24
<PAGE>   31
                  Each loan shall be evidenced by a promissory note and shall be
secured by the vested balance of the Participant's Accounts; provided that,
immediately after the origination of such loan, not more than fifty percent
(50%) of the vested balance of the Participant's Accounts shall be used as
security for the loan. Each loan shall also be secured by such other collateral,
if any, as may be required by the Plan Administrator. If the Participant ceases
to be actively employed and receiving Compensation before absence or disability
leave, the Plan Administrator may permit the Participant to continue to make
loan repayments or may, in the Plan Administrator's discretion accelerate such
loan. If the Participant separates from service, and if, following such
separation, the Participant is no longer a party in interest to the Plan, the
loan shall be accelerated, and the unpaid balance of the loan, and accrued
interest thereon, shall be deducted from the amount of any benefits which become
payable to or on behalf of the Participant under the Plan.

                  (e) General Requirements. All loans shall (i) be available to
all eligible Participants on a reasonably equivalent basis, (ii) not be made
available to Highly Compensated Employees (as defined in Section 8.1(j) in an
amount (when calculated as a percentage of the borrower's Accrued Benefit under
the Plan) greater than the amount (similarly calculated) made available to other
Participants, and (iii) be made in accordance with this Section.

                  (f) Accounts Available for Loans.

                  (1) Order of Accounts. Any loan made to a Participant under
         this Section shall be considered an earmarked investment of such
         Participant's Accounts. Each loan shall be made from, and repayments
         shall be credited to, the Participant's Accounts in the order listed
         below:

                           (A) first, from the Participant's Rollover Account;
         and

                           (B) second, from the Participant's 401(k) Account.

                  (2) Investment of Participant's Accounts. Until a loan to a
         Participant is repaid, the outstanding balance of the loan shall be
         treated as an investment by such Participant for his Account(s) only,
         and the interest paid by such Participant shall be credited to his
         Account(s) only. The Participant's Account(s) shall not share in any
         other earnings of the Plan with respect to the amount of the loan.

                  (3) Loan Date. Each loan shall be made as soon as practicable
         following approval of the Participant's loan application by the Plan
         Administrator. To the extent any loan is made from a particular Account
         of a Participant which is invested partially in different investment
         media, such loan shall be made pro-rata from the investments of such
         Account in each such investment medium (other than Preferred Stock),
         valued as of the most recent Valuation Date or, to the extent that such
         loan is made from amounts invested in Investment Vehicles the value of
         which is priced daily, as of the date of the loan.

                  (4) Investment of Loan Repayments. Loan repayments which are
         credited to a Participant's Account(s) shall be reinvested in
         accordance with Sections 5.2, 5.4, or 8.4, as applicable.

                                       25
<PAGE>   32
                                    SECTION 9
                           BENEFITS AND DISTRIBUTIONS

         9.1 Vesting. A Participant shall at all times have a nonforfeitable
(vested) right to all amounts allocated to his 401(k) and Rollover Accounts. A
Participant shall have a nonforfeitable (vested) right to his entire Accrued
Benefit when he attains Normal Retirement Age. Before his Normal Retirement Age,
a Participant shall have a nonforfeitable (vested) right to the percentage of
his Company Stock, Matching, and Other Investments Accounts determined under the
following table:

<TABLE>
<CAPTION>
                        Years                                          Nonforfeitable
                  of Vesting Service                                     Percentage
                  ------------------                                     ----------
<S>                                                                   <C>
                    less than 5                                               0%
                    5 or more                                               100%
</TABLE>

         There shall be no divestment of a Participant's Accrued Benefit for
cause.

         9.2 Amount, Method, Form of Benefit Payments.

                  (a) Amount. The amount of any benefits payable under this
Section shall be the Participant's vested Accrued Benefit and based on the
Valuation Date immediately preceding distribution.

                  (b) Method. Except as otherwise required by Sections 9.8 and
9.9, benefits shall be paid as follows:

                  (1) with respect to any Participant who dies while in the
         service of the Company or an Affiliate, or any Participant whose
         Accrued Benefit does not exceed (and has not at the time of any prior
         distribution exceeded) $5,000, one lump sum payment paid as soon as
         practicable following the Participant's death or other event which
         requires the benefit payment, as applicable;

                  (2) with respect to any Participant whose vested Accrued
         Benefit exceeds (or at the time of any prior distribution exceeded)
         $5,000, one lump sum payment paid as soon as practicable after the
         event occurs which requires the benefit payment, provided any consent
         required by Section 9.4(b) is given.

                  (c) Form. Benefits from the Participant's Company Stock,
Matching, and Other Investments Accounts shall be paid in whole shares of
Company Stock. To the extent the Participant's Company Stock and Matching
Accounts hold Preferred Stock, benefits shall be paid in shares of Common Stock
derived from the sale to the Company or conversion of the Preferred Stock, plus
cash for any fractional shares. If the fair market value of Common Stock
(closing price) is equal to or greater than the value of the Preferred Stock,
both as determined under subsection (a), then shares of Common Stock derived
from the sale or conversion of the Preferred Stock to Common Stock shall be
distributed to the Participant. If the fair market value of Common Stock
(closing price), determined as of the date of distribution, is less than the
value of the Preferred Stock, determined under subsection (a), then, in addition
to the shares of Common Stock derived from the sale or conversion of the
Preferred Stock, there shall be contributed to the Plan by the Company and
distributed to the Participant additional whole shares of Common Stock with a
value as of the date of distribution as close as possible to equaling (but not
exceeding) the shortfall, with any remaining shortfall distributed to the
Participant in cash. Benefits from the Participant's 401(k) and Rollover
Accounts shall be paid in cash, except that, to the extent the Investment
Vehicle in which the Accounts are invested consists of Company Stock, such
benefits shall be paid in Company Stock.

                                       26
<PAGE>   33
                  Notwithstanding the foregoing, a Participant may elect to
receive all benefits from his Other Investments, 401(k) and Rollover Accounts in
cash.

         9.3 Normal and Late Retirement.

                  (a) A Participant may retire at any time on or after his
Normal Retirement Date.

                  (b) If a Participant continues in the service of the Company
after his Normal Retirement Date, he shall continue to participate in the Plan
until he actually retires. The benefits of a Participant who retires on or after
his Normal Retirement Date shall be paid in accordance with Section 9.2, but not
later than the time specified in Sections 9.8 and 9.9.

         9.4 Vested Deferred Benefits.

                  (a) If a Participant with a vested Accrued Benefit separates
from service before attaining Normal Retirement Age for any reason other than
death, benefits shall be paid to him in accordance with Section 9.2, but not
later than the time specified in Sections 9.8 and 9.9.

                  (b) In the case of any Participant whose vested Accrued
Benefit exceeds (or at the time of any prior distribution exceeded) $5,000, the
Plan Administrator shall not direct that all or any part of such vested Accrued
Benefit be distributed, or commence to be distributed, before the Participant
attains Normal Retirement Age, unless the Participant consents in writing to
such distribution, or unless the benefit becomes distributable under Section 9.6
upon the death of the Participant.

                  (c) If a Participant without a vested right to his Accrued
Benefit (other than his 401(k) and Rollover Accounts) separates from service,
his Accrued Benefit (other than his 401(k) and Rollover Accounts) shall be
immediately forfeited and allocated as provided in Section 6.7.

                  (d) If the terminated Participant returns to service with the
Company prior to incurring five consecutive One-Year Breaks in Service, any
amount forfeited under subsection (c) shall be restored to the Participant's
Company Stock, Matching and Other Investments Accounts as of the last day of the
month in which the terminated Participant returns to service. For this purpose,
unallocated forfeitures shall be utilized first. If not sufficient, the Company
shall contribute additional amounts to restore the specified Accounts.

                  (e) The following events shall constitute a separation from
service for purposes of this Section:

                           (1) the sale or other disposition by the Company to
                  an unrelated entity of substantially all of the assets (within
                  the meaning of section 409(d)(2) of the Code) used by the
                  Company in a trade or business of the Company with respect to
                  a Participant who continues employment with the entity
                  acquiring such assets; or

                           (2) the sale or other disposition by the Company to
                  an unrelated entity of the Company's interest in a subsidiary
                  (within the meaning of section 409(d)(3) of the Code) with
                  respect to a Participant who continues employment with the
                  subsidiary.

                  Notwithstanding the foregoing, an event shall not be treated
as described in this subsection unless (i) the Participant receives a "lump-sum
distribution" (as defined in section 401(k)(10)(B)(ii) of the Code) by reason of
the event, (ii) the Company continues to maintain the Plan

                                       27
<PAGE>   34
after the sale or other disposition and the purchaser does not maintain the Plan
after the sale or other disposition, within the meaning of Treas. Reg.
Section 1.401(k)-1(d)(4)(i), and (iii) the distribution is made in connection
with the disposition of assets or a subsidiary, within the meaning of Treas.
Reg. Section 1.401(k)-1(d)(4)(iii).

         9.5 Disability Retirement.

                  (a) If, before attaining Normal Retirement Age, a Participant
in the service of the Company suffers a total and permanent disability (as
defined in subsection (b)), such Participant shall then retire, he shall become
one hundred percent (100%) vested in his Accrued Benefit and his Accrued Benefit
shall be paid to him pursuant to Section 9.4(a).

                  (b) "Total and Permanent Disability" shall mean the total and
permanent incapacity of a Participant to perform the duties of such
Participant's employment with the Company, such incapacity to be deemed to exist
when so determined by the Company's long term disability carrier under the
Company's long term disability policy.

         9.6 Death. If a Participant dies while in the service of the Company,
his Accrued Benefit shall be paid to his designated beneficiary or beneficiaries
in accordance with Section 9.7. If a Participant with a vested Accrued Benefit
dies after separating from service and before receiving all of the benefit
payments to which he was entitled, the remainder of his vested Accrued Benefit
shall be paid to his designated beneficiary or beneficiaries in accordance with
Section 9.7.

         9.7 Designation of Beneficiary and Form of Payment of Death Benefit;
Spouse's Consent to Non-Spouse Beneficiary.

                  (a) Designation of Beneficiary and Form of Payment. In the
event a Participant has a surviving spouse at his death, such surviving spouse
shall be the Participant's beneficiary, unless the spouse has consented in the
manner described in subsection (b) to the payment of the Participant's Accrued
Benefit to a beneficiary other than the spouse. In the event the Participant has
no surviving spouse at his death, the beneficiary shall be the beneficiary
designated by the Participant. Any designation by the Participant and/or consent
by the Participant's spouse shall be made by a written form delivered to the
Plan Administrator. Except as otherwise provided with respect to a surviving
spouse, a Participant may, at any time prior to his death, change his
beneficiary designation by completing a new written form, but a beneficiary
designation shall remain in effect until such new form is received by the Plan
Administrator.

                  The death benefit shall be paid in one lump sum payment, to be
made as soon as practicable following receipt of all information and documents
necessary to make the distribution.

                  If a Participant dies without effectively designating a
surviving beneficiary and without a surviving spouse, then the beneficiary shall
be legal representative of the Participant.

                  (b) Requirements for Spouse's Consent. To be effective, a
consent by a spouse to a Participant's designation of a nonspouse beneficiary
must be filed in writing with the Plan Administrator, must be specific with
respect to the particular nonspouse beneficiary consented to, must be
irrevocable and must be witnessed by a Plan representative designated by the
Plan Administrator or by a notary public. In addition, any such spousal consent
shall be limited to the nonspouse beneficiary or beneficiaries specifically
designated by the Participant, which designation may not be changed without a
further spousal consent (unless the initial spousal consent expressly permits
designations by the Participant without any further consent by the spouse).

                                       28
<PAGE>   35

         Notwithstanding the foregoing, if the Participant establishes to the
satisfaction of the Plan Administrator that such written consent may not be
obtained because there is no spouse or the spouse cannot be located, the
Participant's designation of a nonspouse beneficiary will be effective without
the requirement of the spouse's consent. Any consent required under this Section
shall be valid only with respect to the spouse who signs the consent, and any
establishment that the consent of a spouse may not be obtained shall be
effective only with respect to such spouse. Additionally, a revocation of a
prior beneficiary designation may be made by a Participant without the consent
of the spouse at any time. The number of revocations or consents shall not be
limited.

         9.8 Special Provision as to Timing of Distributions. Notwithstanding
any other provision of the Plan, other than such provisions as require the
consent of the Participant to a distribution with a present value in excess of
$3,500, a Participant's Accrued Benefit shall be distributed not later than the
times set forth below:

                  (a) If the Participant separates from service by reason of the
attainment of Normal Retirement Age or disability, the distribution of the
Participant's Accrued Benefit shall be made in a lump sum payment not later than
one year after the end of the Plan Year in which such event occurs.

                  (b) If the Participant separates from service for a reason
other than those enumerated in subsection (a) and other than by reason of his
death and is not reemployed by the Company by the end of the fifth Plan Year
following the Plan Year of such separation from service, distribution of the
Participant's Accrued Benefit shall be made in a lump sum payment not later than
one year after the end of the fifth Plan Year following the Plan Year in which
the Participant separated from service.

                  (c) If the Participant separates from service for a reason
other than those enumerated in subsection (a), and is reemployed by the Company
before the date distribution is required to begin under subsection (b),
distribution to the Participant, prior to any subsequent separation from
service, shall be in accordance with terms of the Plan other than this Section.

         9.9 Requirements Concerning Distributions. All benefit distributions
under this Section shall be subject to the following requirements:

                  (a)      Before Death.

                  (1) Last Date for Commencement of Payments. The payment of
         benefits to a Participant under this Plan shall occur not later than
         the 60th day after the close of the Plan Year in which the latest of
         the following events occurs:

                  (i) the Participant attains Normal Retirement Age; or

                  (ii) the Participant terminates service with the Company.

         Notwithstanding the above, if the amount of payment required otherwise
         to occur on a date determined under this Section or under any other
         Section of the Plan cannot be ascertained by such date, or if the Plan
         Administrator is unable to locate the Participant or beneficiary after
         making reasonable efforts to do so, a payment retroactive to such date
         may be made no later than 60 days after the later of (i) the earliest
         date on which the amount of such payment can be ascertained under the
         Plan, or (ii) the earliest date on which the Participant or beneficiary
         is located.

                                       29
<PAGE>   36
                  (2) Additional Rule for Commencement of Benefit Payments. The
         distribution of benefits to a Participant who attains age 70-1/2 after
         December 31, 1996 shall occur not later than April 1 of the calendar
         year following the calendar year in which the Participant attains age
         70-1/2 or the Participant terminates employment, whichever is later.
         However, if the Participant is a five percent (5%) owner (within the
         meaning of Q&A B-2(d) of Prop. Treas. Reg. Section1.401(a)(9)-1 or any
         successor thereto), then the distribution of benefits shall occur not
         later than April 1 of the calendar year following the calendar year in
         which the Participant attains age 70-1/2, regardless of whether the
         Participant has terminated employment. An active Participant who
         attained age 70-1/2 before January 1, 1997 and, therefore, commenced
         benefit payments under the prior terms of the Plan, and who is not a
         five percent (5%) owner, shall be permitted to cease such benefit
         payments (except for the payment due by April 1, 1997 for a Participant
         who attained age 70-1/2 in 1996) until April 1 of the calendar year
         following the calendar year in which he terminates employment. With
         respect to a Participant (other than a five percent (5%) owner) who
         attains age 70-1/2 prior to January 1, 1999, such Participant may elect
         in the form and manner prescribed by the Plan Administrator to receive
         a distribution of benefits commencing no later than April 1 of the
         calendar year in which the Participant attains age 70-1/2.

                  (b) After Death. If a Participant dies before the date
described in subsection (a)(2), and before his Accrued Benefit is distributed to
him, his entire benefit shall be distributed by December 31 of the year
containing the fifth anniversary of the date of the Participant's death.

                  (c) Regulations Control. Distributions under this Section
shall be made in accordance with section 401(a)(9) of the Code and regulations
issued thereunder. This section and section 401(a)(9) of the Code shall take
precedence over any distribution options in the Plan inconsistent with this
Section or section 401(a)(9) of the Code.

         9.10 Put Options on Distributed Shares of Certain Company Stock. If the
distribution of the benefits under Section 9.2 is made in the form of shares of
Company Stock which are "not readily tradeable on an established market," within
the meaning of section 409(h)(1)(B) of the Code, a Participant or a beneficiary,
or a donee or heir of a Participant or beneficiary, shall be granted at the time
that shares are distributed to him, an option to "put" the shares to the
Company, provided that all such shares are so put; provided, further, that the
Trust shall have the option to assume the rights and obligations of the Company
at the time the put option is exercised. A put option shall provide that, for a
period of 60 days after such shares are distributed to a Participant or
beneficiary, or donee or heir of a Participant or beneficiary, (and, if the put
is not exercised within such 60-day period, for an additional period of 60 days
in the following Plan Year), he would have the right to have the Company
purchase such shares at their fair market value, determined by an independent
appraiser as described in Section 7.1, under a fair valuation formula. The put
option shall be exercised by notifying the Company it writing. The terms of
payment for the purchase of such shares of Company Stock shall be as set forth
in the put and may be either in a lump sum or in up to five equal annual
installments (with interest on the unpaid principal balance at a reasonable rate
of interest), as determined by the Plan Administrator. Payment for the purchase
of such shares must commence within 30 days after the put is exercised. The
period during which the put option is exercisable does not include any time
during which the distributee is unable to exercise it because the party bound by
the put option is prohibited from honoring it by applicable Federal or state
law. If payment is made in installments, adequate security and a reasonable rate
of interest must be provided.

         In the case of a purchase from a "disqualified person" (as defined in
Section 13.8(d)), all purchases of Company Stock shall be made at prices which,
in the judgment of the Plan Administrator, do not exceed the fair market value
of such shares as of the date of the transaction.

                                       30
<PAGE>   37
         A Participant's rights set forth in this Section shall be
nonterminable, within the meaning of Treas. Reg. Section 4975-11(a)(3)(ii).

         9.11     Direct Rollovers of Eligible Rollover Distributions Made from
                  this Plan.

                  (a) Direct Rollovers. This Section applies to distributions
made on or after January 1, 1993. Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a Distributee's election under this
Section, a Distributee may elect, at the time and in the manner prescribed by
the Committee, to have any portion of an Eligible Rollover Distribution paid
directly to an Eligible Retirement Plan specified by the Distributee in a Direct
Rollover.

                  (b)      Definitions.

                  (1) "Eligible Rollover Distribution" shall mean any
         distribution of all or any portion of the balance to the credit of the
         Distributee, except that an Eligible Rollover Distribution does not
         include: any distribution that is one of a series of substantially
         equal periodic payments (not less frequently than annually) made for
         the life (or life expectancy) of the Distributee or the joint lives (or
         joint life expectancies) of the Distributee and the Distributee's
         designated beneficiary, or for a specified period of 10 years or more;
         any distribution to the extent such distributions is required under
         section 401(a)(9) of the Code; and the portion of any distribution that
         is not includable in gross income (determined without regard to the
         exclusion of net unrealized appreciation with respect to employer
         securities).

                  (2) "Eligible Retirement Plan" shall mean an individual
         retirement account described in section 408(a) of the Code, an
         individual retirement annuity described in section 408(b) of the Code,
         an annuity plan described in section 403(a) of the Code, or a qualified
         trust described in section 401(a) of the Code, that accepts the
         Distributee's eligible Rollover Distribution. However, in the case of
         an Eligible Rollover Distribution to the surviving spouse, an Eligible
         Retirement Plan is an individual retirement account or individual
         retirement annuity.

                  (3) "Distributee" includes an Employee or former Employee. In
         addition, the Employee's or former Employee's surviving spouse and the
         Employee's or former Employee's spouse or former spouse who is the
         alternate payee under a qualified domestic relations order (within the
         meaning of section 414(p) of the Code) are Distributees with regard to
         the interest of the spouse or former spouse.

                  (4) "Direct Rollover" shall mean a payment by the Plan to the
         Eligible Retirement Plan specified by the Distributee.

         9.12     Participant's Consent to Distribution of Benefits.

                  (a) Except as provided in paragraphs (b) and (c) below, the
committee shall provide each Participant, not more than 90 days and not fewer
than 30 days prior to the date his Accrued Benefit is paid to him, written
notice of his right to defer receipt of the payment until his Normal Retirement
Date. Payment shall not be made prior to the Participant's Normal Retirement
Date unless the Participant affirmatively elects a distribution in writing, on a
form filed with the Committee.

                  (b) The written notice described in paragraph (a) above shall
not apply to the payment if (i) the Participant receives an involuntary lump sum
payment pursuant to Section 9.2(b)(1), or (ii) the payment is made on or after
the Participant's Normal Retirement Date.

                                       31
<PAGE>   38

                  (c) A payment may be made fewer than 30 days after the notice
described in paragraph (a) above is given to the Participant, provided that:

                  (1) The Committee clearly informs the Participant that he has
         a right to a period of at least 30 days after receiving such notice to
         consider whether or not to elect the distribution; and

                  (2) The Participant, after receiving the notice, affirmatively
         elects the distribution.

                                   SECTION 10
                          LIMITATIONS ON CONTRIBUTIONS

         10.1     Definitions for Limitations on Contributions.

                  (a) "Annual additions" shall mean the sum of the following
amounts credited to a Participant's Company Stock, 401(k), Matching and Other
Investments Accounts for the limitation year:

                  (1) Company contributions (including Compensation Deferral
         Contributions, other than Excess Deferral Amounts distributed in
         accordance with Section 8.13); and

                  (2) forfeitures.

For this purpose, Company contributions credited to a Participant's Company
Stock and Matching Accounts shall include amounts contributed by the Company for
the Plan Year which are used to repay principal and/or interest (except as
provided below) on one or more Exempt Loans, or to purchase shares of Company
Stock, and which are deemed allocated to such Participant's Company Stock and
Matching Accounts for purposes of this subsection (a). The portion of such
Company contribution which is deemed allocated to a Participant's Company Stock
and Matching Accounts for purposes of this subsection (a) shall be an amount
which bears the same ratio to the total contribution made by the Company for
such Plan Year which is used to repay principal and/or interest (except as
provided below) on one or more Exempt Loans, or to purchase shares of Company
Stock, as the number of shares of Company Stock allocated to such Participant's
Company Stock Account for such Plan Year on the Valuation Date coincident with
the last day of such Plan Year bears to the total number of shares of Company
Stock allocated to the Company Stock and Matching Accounts of all Participants
for such Plan Year on such Valuation Date.

                  Notwithstanding the above, (i) allocations of Company Stock
resulting from Company contributions used to pay interest on an Exempt Loan and
(ii) allocations of forfeited Company Stock previously acquired with the
proceeds of an Exempt Loan shall not be annual additions for the limitation
year; provided that the requirements of section 415(c)(6)(C) of the Code are met
for such limitation year.

                  Company contributions and forfeitures allocated to an
Employee's 401(k) and Matching Accounts under the Stock Bonus Plan which are
transferred to this Plan will not constitute annual additions to this Plan.

                  (b) "Defined benefit fraction" shall mean a fraction, the
numerator of which is the Participant's projected annual benefit under the
BetzDearborn Inc. Employees' Retirement Plan, and the denominator of which is
the lesser of 125% of the dollar limitation in effect for the limitation year
under section 415(b)(1)(A) of the Code or 140% of the Participant's highest
average limitation compensation.

                                       32
<PAGE>   39
                  (c) "Defined contribution fraction" shall mean a fraction, the
numerator of which is the sum of the annual additions to the Participant's
Company Stock, 401(k), Matching and Other Investments Accounts under the Plan
for the current and all prior limitation years, and the denominator of which is
the sum of the maximum amounts for the current and all prior years of employment
with the Company. The maximum amount in any limitation year is the lesser of
125% of the dollar limitation in effect under section 415(c)(1)(A) of the Code
or thirty-five percent (35%) of the Participant's limitation compensation for
such year.

                  (d) "Highest average compensation" shall mean the
Participant's average limitation compensation for the three consecutive years of
service that produce the highest average.

                  (e) "Limitation compensation" shall mean a Participant's
wages, salaries and fees for professional services and other amounts received
for personal services actually rendered in the service of the Company or any
Affiliate, and excluding contributions by the Company or any Affiliate to a plan
of deferred compensation which are not includable in the Participant's gross
income for the taxable year in which contributed, or any distributions from a
plan of deferred compensation (except any amounts received by a Participant
pursuant to an unfunded, nonqualified plan in the year such amounts are
includable in his gross income). For purposes of applying the limitations of
this Section, compensation for a limitation year is the compensation actually
paid or includable in gross income during such year. For Limitation Years
beginning after December 31, 1997, the term "Limitation Compensation" shall
include any elective deferral (as defined in section 402(g)(3) of the Code), and
any amount which is contributed or deferred by the Company or an Affiliate at
the election of the Employee and which is not includable in the gross income of
the Employee by reason of section 125 of the Code.

                  (f) "Limitation year" shall mean the calendar year.

                  (g) "Maximum permissible amount" shall mean the lesser of--

                  (1) $30,000 (or, if greater, 1/4 fourth of the defined benefit
         dollar limitation set forth in section 415(b)(1) of the Code as in
         effect for the limitation year); or

                  (2) twenty-five percent (25%) of the Participant's limitation
         compensation for the limitation year.

                  The dollar amount of the maximum permissible amount under
paragraph (1) for a limitation year shall be increased by the lesser of (i) one
hundred percent (100%) of the otherwise applicable dollar amount or (ii) the
amount of Company Stock allocated to the Participant's Company Stock and
Matching Accounts for the limitation year, provided the requirements of section
415(c)(6)(A) of the Code are met for such limitation year.

                  (h) "Projected annual benefit" shall mean the annual
retirement benefit (adjusted to an actuarially equivalent straight life annuity
if such benefit is expressed in a form other than a straight life annuity or
qualified joint and survivor annuity) to which the Participant is entitled under
the terms of the BetzDearborn Inc. Employees' Retirement Plan.

         10.2 Basic Limitation. The amount of annual additions which may be
credited to the Participant's Accounts for any limitation year shall not exceed
the lesser of the maximum permissible amount or any other limitation contained
in this Plan. If, as a result of the allocation of forfeitures, a reasonable
error in estimating a Participant's annual compensation, or a reasonable error
in determining the amount of Compensation Deferral Contributions that may be
made to the Plan with respect to any Participant under the limits of section 415
of the Code, or under other limited facts and under the limits

                                       34
<PAGE>   40
And circumstances as determined by the Commissioner of Internal Revenue, the
annual additions for a Participant for the limitation year would otherwise
exceed the maximum permissible amount, then:

                  (a) Compensation Deferral Contributions for such limitation
year shall be distributed to the Participant, to the extent required to reduce
the annual additions to the maximum permissible amount; and

                  (b) If necessary, other amounts to be contributed by the
Company on behalf of such Participant shall be reduced so that the annual
additions for the limitation year equal the maximum permissible amount.

                  Compensation Deferral Contributions distributed in accordance
with subsection (a) shall be disregarded for purposes of Section 8.10 and
Section 8.11.

         10.3 Combined Limit with Pension Plan. Before January 1, 2000, for any
Participant who also has an accrued benefit under the BetzDearborn Inc.
Employees' Retirement Plan, the sum of the Participant's defined benefit
fraction and defined contribution fraction shall not exceed 1.0 in any
limitation year. If the sum of such fractions with respect to any Participant
for any limitation year would otherwise exceed 1.0, the allocations and benefits
under this Plan and the Retirement Plan shall be adjusted in accordance with
section 415 of the Code and regulations issued thereunder.

         10.4 Combining and Aggregating Plans. For purposes of applying the
limitations set forth in this Section:

                  (a) all qualified defined benefit plans ever maintained by the
Company or any Affiliate shall be treated as one defined benefit plan; and

                  (b) all qualified defined contribution plans ever maintained
by the Company or any Affiliate shall be treated as one defined contribution
plan.

                                   SECTION 11
                              TOP-HEAVY PROVISIONS

     11.1 Top-Heavy Preemption. Notwithstanding any other provision of this
Plan the contrary, during any Plan Year in which this Plan is top-heavy, as
defined in Section 11.2, the Plan shall be governed in accordance with this
Section, which shall control over other provisions hereof.

     11.2     Top-Heavy Definitions.

                  (a) "Determination date" shall mean, with respect to any Plan
Year after the first Plan Year, the last day of the preceding Plan Year and,
with respect to the first Plan Year, the last day of such first Plan Year.

                  (b) "Determination period" shall mean, with respect to any
Plan Year, the Plan Year containing the determination date and the four
preceding Plan Years.

                  (c) "Key Employee" shall mean any Employee or former Employee
(and the beneficiaries of such Employee) who at any time during a Plan Year
included in the determination period was--

                                       34
<PAGE>   41

                  (1) an officer of the Company or any Affiliate having an
         annual limitation compensation greater than 150% of the amount in
         effect under section 415(c)(1)(A) of the Code for such Plan Year;

                  (2) one of the 10 Employees having annual limitation
         compensation from the Company and the Affiliates greater than the
         amount in effect under section 415(c)(1) (A) of the Code and owning (or
         considered as owning within the meaning of section 318 of the Code)
         both more than a one-half percent (1/2 percent) interest and the
         largest interests in the Company or any Affiliate;

                  (3) a five percent (5%) owner of the Company or any Affiliate;
         or

                  (4) a one percent (1%) owner of the Company or any Affiliate
         who has an annual limitation compensation from the Company and the
         Affiliates of more than $150,000.

The determination of who is a key Employee shall be made in Accordance with
section 416(i) of the Code and regulations thereunder.

                  (d) "Limitation compensation" shall mean limitation
compensation as defined in Section 10.1(e).

                  (e) "Non-key Employee" shall mean any Employee who is not a
key Employee.

                  (f) "Permissive aggregation group" shall mean, with respect to
any Plan Year, the required aggregation group plus any other defined
contribution plan or defined benefit plan which the Plan Administrator elects to
include, provided such permissive aggregation group meets the requirements of
sections 401(a)(4) and 410 of the Code with such defined contribution plan or
defined benefit plan being taken into account.

                  (g) "Required aggregation group" shall mean, with respect to
any Plan Year:

                  (1) Each defined contribution plan and each defined benefit
         plan of the Company or any Affiliate in which a key Employee is a
         participant or was a participant at any time during the determination
         period (regardless of whether the plan has been terminated); and

                  (2) Each other defined contribution plan and each other
         defined benefit plan of the Company or any Affiliate which, during the
         determination period, enables any defined benefit plan or defined
         contribution plan described in paragraph (1) to meet the requirements
         of section 401(a)(4) or 410 of the Code.

                  (h) "Top-heavy plan" shall mean, for any Plan Year beginning
on or after January 1, 1989, this Plan if:

                  (1) this Plan is not part of a required or permissive
         aggregation group, and the top-heavy ratio for the Plan exceeds sixty
         percent (60%);

                  (2) this Plan is part of a required aggregation group and not
         part of a permissive aggregation group, and the top-heavy ratio for the
         required aggregation group exceeds sixty percent (60%); or

                                       35
<PAGE>   42

                  (3) this Plan is part of a required aggregation group and part
         of a permissive aggregation group, and the top-heavy ratio for the
         permissive aggregation group exceeds sixty percent (60%).

                  (i) "Top-heavy ratio" shall mean a fraction. The numerator of
the fraction is the sum of the account balances of all key Employees under the
Plan, or, if the Plan is a member of a required or permissive aggregation group,
under all defined contribution plans in such required or permissive aggregation
group (hereinafter the "aggregation group"), plus the sum of the present values
of accrued benefits of all key Employees under all defined benefit plans in the
aggregation group, as of the determination date. The denominator of the fraction
is a similar sum determined for all Employees. For purposes of determining the
fraction, the numerator and denominator shall include any part of any account
balance or accrued benefit distributed in the determination period. With respect
to Plan Years beginning on or after January 1, 1989, if any individual has not
been credited with at least one Hour of Service with the Company or any
Affiliate at any time during the determination period, any account balance or
accrued benefit of, or distribution to, such individual shall not be taken into
account.

                  For purposes of the preceding paragraph, the sum of account
balances and the present values of accrued benefits shall be determined as of
the most recent valuation date that falls within the 12-month period ending on
the determination date. The calculation of the top-heavy ratio shall be made in
accordance with section 416 of the Code and the regulations thereunder.

                  Solely for the purpose of determining if the Plan, or any
other plan included in a required aggregation group of which this Plan is a
part, is top-heavy (within the meaning of section 416(g) of the Code) the
accrued benefit of a non-key Employee shall be determined under (i) the method,
if any, that uniformly applies for accrual purposes under all plans maintained
by the Company and the Affiliates, or (ii) if there is no such method, as if
such benefit accrued not more rapidly than the slowest accrual rate permitted
under the fractional accrual rate of section 411(b)(1)(C) of the Code.

                  (j) "Valuation date" shall mean, with respect to this Plan,
the first day of the Plan Year.

         11.3 Top-Heavy Rules. Notwithstanding any other provision of the Plan,
the following rules shall apply for any Plan Year in which the Plan is
determined to be a top-heavy plan:

                  (a) Minimum Benefit. The Company contributions and forfeitures
allocated on behalf of any Participant in this Plan who is a non-key Employee
for the Plan Year shall not be less than the lesser of (i) five percent (5%) of
such Participant's limitation compensation or (ii) the largest percentage of the
Company contributions and forfeitures allocated on behalf of any key Employee
under this Plan for such Plan Year (as a percentage of the first $150,000 as
adjusted for increases in the cost of living in accordance with section
401(a)(17)(B) of the Code of the key Employee's limitation compensation). For
purposes of clause (ii) of the preceding sentence, Company contributions made on
behalf of a key Employee, pursuant to the key Employee's salary reduction
agreement, shall be treated as Company contributions allocated on behalf of the
key Employee. This paragraph (a) shall not apply to any Participant who was not
employed by the Company on the last day of the Plan Year.

                  The minimum benefit shall be provided without regard to any
Social Security contribution. The minimum benefit shall be provided even though,
under other Plan provisions, the Participant would not otherwise be entitled to
receive an allocation, or would have received a lesser allocation, in the Plan
Year because (i) of the Participant's failure to complete 1,000 Hours of
Service, (ii) of the Participant's failure to make mandatory employee
contributions to the Plan or (iii) the Participant's limitation compensation is
less than a stated amount.

                                       36
<PAGE>   43

                  (b) Minimum Vesting. Notwithstanding the provisions of Section
9.1, for any Plan Year in which this Plan is a top-heavy plan, the following
minimum vesting schedule shall apply to the Participant's Accrued Benefit:
<TABLE>
<CAPTION>

                        Years of                        Nonforfeitable
                  Vesting Service                         Percentage
                  ---------------                       --------------
<S>               <C>                                   <C>
                  less than 2                                0%
                  2 but less than 3                         20%
                  3 but less than 4                         40%
                  4 but less than 5                         60%
                  5 or more                                100%
</TABLE>
This subsection (b) does not apply to the Accrued Benefit of any Participant who
does not have an Hour of Service after the Plan has initially become a top-heavy
plan; such Participant's vested Accrued Benefit shall be determined without
regard to this subsection (b).

         11.4 Impact on Maximum Benefits. For any Plan Year in which the Plan is
a top-heavy plan, Section 10.1 shall be read by substituting the number "100"
for the number "125" wherever it appears therein, except that such substitution
shall not have the effect of reducing any benefit accrued under a defined
benefit plan prior to the first day of the Plan Year in which this provision
becomes applicable.

         11.5 Change in Top-Heavy Status. If the Plan becomes a top-heavy plan
and subsequently ceases to be such, the vesting schedule in Section 11.3(b)
shall continue to apply in determining the nonforfeitable percentage of any
Participant who had at least three years of service as of December 31 of the
last Plan Year of top-heaviness. For other Participants, such schedule shall
apply only to the Participant's Accrued Benefit as of such December 31.

         11.6 Duplication of Minimum Contributions Not Required. The Plan
Administrator shall, to the maximum extent permitted by the Code and regulations
thereunder, apply the provisions of this Section by taking into account the
benefits payable and the contributions made under all other defined contribution
and defined benefit plans maintained by the Company or any Affiliate which are
qualified under section 401(a) of the Code to prevent inappropriate omissions or
duplication of minimum benefits or contributions.

         11.7 Repeal of Limitation. In the event that Congress should provide by
statute, or the Treasury Department should provide by regulation or ruling, that
the limitations provided in this Section are no longer necessary for the Plan to
meet the requirements of section 401 of the Code or other applicable law then in
effect, such limitations shall become void and shall no longer apply, without
the necessity of further amendment to the Plan.

                                   SECTION 12
                            NONALIENATION OF BENEFITS

         12.1 Nonalienation Rule. The right of any Participant or beneficiary to
any benefit payment shall not be subject to any voluntary or involuntary
alienation or assignment. The preceding sentence shall also apply to the
creation, assignment or recognition of a right to any benefit payable with
respect to a Participant pursuant to a domestic relations order, unless such
order is determined to be a qualified

                                       37
<PAGE>   44
domestic relations order (as defined in section 414(p) of the Code) or a
domestic relations order entered before January 1, 1985.

                                   SECTION 13
                            FIDUCIARY RESPONSIBILITY

         13.1 Fiduciary Duties. A "fiduciary," as defined in section 3(21) of
ERISA, shall discharge its duties with respect to the Plan and Trust in the
interest of the Participants and their beneficiaries:

                  (a)      for the exclusive purpose of:

                           (1)      providing benefits to Participants and their
                                    beneficiaries; and

                           (2)      defraying reasonable expenses of
                                    administering the Plan and Trust;

                  (b) with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting in like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character and with like aims;

                  (c) by diversifying the investments of the Plan and Trust so
as to minimize the risk of large losses, unless under the circumstances it is
clearly prudent not to do so; and

                  (d) in accordance with the documents and instruments governing
the Plan and Trust insofar as they are consistent with the provisions of ERISA.

                  Notwithstanding the above, the diversification requirements of
subsection (c) and the prudence requirement (to the extent that it requires
diversification) of subsection (b) are not violated by the acquisition or
holding of Company Stock to the extent permitted under the Plan and Trust
Agreement.

         13.2 Allocation of Responsibility. Authority and responsibility for
management of the Plan and Trust shall be allocated among the following persons:

                  (a) The Board of Directors shall have sole responsibility for
the appointment, removal and replacement of members of the Committee and the
Plan Administrator described in Section 14, and the Trustee described in Section
XV. The Board shall also have sole responsibility for:

                  (1) the design of the Plan and Trust Agreement, including the
         right to amend or terminate the Plan and Trust Agreement (under Section
         16.1 or 17.1, respectively) at any time;

                  (2) qualification of the Plan and Trust Agreement and any
         amendments or documents relating thereto under the Code and ERISA;

                  (3) funding of the Company's contributions to the Plan; and

                  (4) the exercise of all other fiduciary functions assigned to
         it in the Plan or Trust Agreement. To the extent that it is carrying
         out this responsibility, the members of the Board of Directors shall be
         "named fiduciaries" of the Plan for purposes of section 402(a)(1) of
         ERISA.

                                       38
<PAGE>   45

                  (b) The Committee shall have sole responsibility for
establishing the guidelines for the administration and operation of the Plan, as
set forth in Section 14. To the extent it is carrying out these duties, the
members of the Committee shall be "named fiduciaries" with respect to the Plan.

                  (c) The Plan Administrator shall have sole responsibility for
the execution of the administrative duties assigned him by the Board of
Directors, the Committee, and the Plan and Trust Agreement. To the extent he is
carrying out this responsibility, the Plan Administrator shall be a "named
fiduciary" of the Plan.

                  (d) The Trustee shall, subject to any guidelines established
by the Committee, have sole responsibility for investment, management and
control of the assets in the Trust Fund in accordance with the terms of the Plan
and the Trust Agreement. To the extent it is carrying out this responsibility,
the Trustee shall be a "named fiduciary" of the Plan.

         13.3 No Joint Responsibility. It is the purpose of this Plan and Trust
Agreement to allocate to each of the fiduciaries identified in Section 13.2
exclusive responsibility of prudent execution of the functions assigned to him
or it (or to the entity of which he or it is a member) and no responsibility for
execution of functions assigned to others. Whenever one such fiduciary is
required by the Plan and Trust Agreement to follow the directions of another
such fiduciary, the two fiduciaries shall not be deemed to have been assigned a
shared responsibility, but the fiduciary giving the directions shall have sole
responsibility for the functions assigned to him or it, including issuing of
such directions, and the fiduciary receiving the directions shall have sole
responsibility for the functions assigned to him or it, including following such
directions insofar as they are on their face proper under this Plan and Trust
Agreement and under applicable law.

         13.4     No Co-Fiduciary Liability.

                  (a) A fiduciary shall not be liable for a breach of fiduciary
responsibility by another fiduciary to whom other fiduciary responsibilities
have been assigned under the Plan except under the following circumstances:

                  (1) if he or it participates knowingly in, or knowingly
         undertakes to conceal, an act or omission of such other fiduciary,
         knowing such act or omission is a breach;

                  (2) if, by his or its failure properly to discharge his or its
         own fiduciary responsibilities, he or it has enabled such other
         fiduciary to commit a breach; or

                  (3) if he or it has knowledge of a breach by such other
         fiduciary, unless he or it makes reasonable efforts under the
         circumstances to remedy the breach.

                  (b) If the Committee appoints an investment manager or
managers under Section 14.6, then, notwithstanding Section 13.3 and subsections
(a)(2) and (3), the Trustee shall not be liable for the acts and omissions of
such investment manager.

         13.5 Act in Interest of Participants. In carrying out the
responsibilities allocated to him or it under this Plan and Trust Agreement,
each fiduciary shall act solely in the interests of the Plan's Participants and
their beneficiaries.

         13.6 Employment of Advisors. A fiduciary identified in Section 13.2 may
consult with counsel, who may be counsel to the Company, and shall be fully
protected in acting upon the advise of such counsel, with regard to such
fiduciary's responsibilities under the Plan.

                                       39
<PAGE>   46

         13.7 Transfer or Maintenance of Indicia of Ownership of Plan Assets
Outside United States Prohibited. Except as authorized by the Secretary of Labor
by regulation, no fiduciary shall maintain the indicia of ownership of any
assets of the Plan or Trust outside the jurisdiction of the district courts of
the United States.

         13.8     Prohibited Transactions

                  (a) Unless otherwise exempted by ERISA or by the Secretary of
Labor, a fiduciary with respect to the Plan or Trust shall not cause the Plan or
Trust to engage in a transaction if he or it knows, or should know, that such
transaction constitutes a direct or indirect:

                  (1) sale or exchange, or leasing, of any property between the
         Plan or Trust and a party in interest or a disqualified person;

                  (2) lending of money or other extension of credit between the
         Plan or Trust and a party in interest or a disqualified person;

                  (3) furnishing of goods, services, or facilities between the
         Plan or Trust and a party in interest or a disqualified person;

                  (4) transfer to, or use by or for the benefit of, a party in
         interest or a disqualified person, of any assets of the Plan or Trust;
         or

                  (5) an acquisition, on behalf of the Plan or Trust, of any
         securities issued by the Company or an affiliate which are not
         "qualifying employer securities" within the meaning of section
         4975(e)(8) of the Code.

                  (b) Unless otherwise exempted by the Secretary of Labor, a
fiduciary with respect to the Plan or Trust shall not:

                  (1) deal with the assets of the Plan or Trust in his or its
         own interest or for his or its own account;

                  (2) in his or its individual or any other capacity act in any
         transaction involving the Plan or Trust on behalf of a party (or
         represent a party) whose interests are adverse to the interests of the
         Plan or Trust or the interests of the Participants or their
         beneficiaries; or

                  (3) receive any consideration for his or its own personal
         account from any party dealing with the Plan or Trust in connection
         with a transaction involving the assets of the Plan or Trust.

                  (c) Notwithstanding anything to the contrary set forth in this
Section, a fiduciary shall be entitled to:

                  (1) receive any benefit to which the fiduciary may be entitled
         as a Participant or beneficiary in the Plan or Trust, so long as the
         benefit is computed and paid on a basis which is consistent with the
         terms of the Plan and Trust as applied to all Participants and their
         beneficiaries;

                                       40
<PAGE>   47

                  (2) receive any reasonable compensation for services rendered
         except that no person so serving who already receives full-time pay
         from the Company, from an employee organization whose employees are
         Participants in the Plan or from an association of employers whose
         employees are Participants in the Plan shall receive compensation from
         the Plan or Trust, except for reimbursement of expenses properly and
         actually incurred;

                  (3) receive reimbursement of expenses properly and actually
         incurred, in the performance of its duties with the Plan and Trust;

                  (4) serve as a fiduciary in addition to being an officer,
         employee, agent or other representative of a party in interest or
         disqualified person; and

                  (5) acquire or sell qualifying employer securities if (i) such
         acquisition or sale is for adequate consideration, and (ii) no
         commission is charged with respect to such acquisition or sale.

                  (d) For purposes of this Section, the words "party in
interest" or "disqualified person" mean:

                  (1)      any fiduciary, counsel or employee of the Plan or
                           Trust;

                  (2)      a person providing services to the Plan or Trust;

                  (3)      the Company;

                  (4)      an employee organization any of whose members are
                           covered by the Plan;

                  (5)      an owner, direct or indirect of fifty percent (50%)
                           or more of:

                           (A) the combined voting power of all classes of stock
                  entitled to vote or the total value of shares of all classes
                  of stock of a corporation,

                           (B) the capital interest or the profits interest of a
                  partnership, or

                           (C) the beneficial interest of a trust or
                  unincorporated enterprise, which is an employer or employee
                  organization described in subsection (d)(1), (2), (3) or (5)
                  above;

                  (6)      a corporation, partnership, or trust or estate of
                  which (or in which) fifty percent (50%) or more of:

                           (A) the combined voting power of all classes of stock
                  entitled to vote or the total value of shares of all classes
                  of stock of such corporation,

                           (B) the capital interest or profits interest of such
                  partnership, or

                           (C) the beneficial interest of such trust or estate
                  is owned directly or indirectly, or held by persons described
                  in subsection (d)(1), (2), (3), (4) or (5) above;

                  (7) an employee, officer, director (or an individual having
         powers or responsibilities similar to those of officers or directors),
         or a ten percent (10%) or more shareholder directly or indirectly of a
         person described in subsection (d)(2), (3), (4), (5) or (6), or of the
         Plan or Trust; or

                                       41
<PAGE>   48

                  (8) a ten percent (10%) or more (directly or indirectly in
         capital or profits) partner or joint venturer of a person described in
         subsection (d)(2), (3), (4), (5) or (6).

                  (e)      For purposes of this Section, the words "adequate
                           consideration" mean:

                  (1)      in the case of a security for which there is a
                           generally recognized market either,

                           (A) the price of the security prevailing on a
                  national securities exchange registered under section 6 of the
                  Securities Exchange Act of 1934, or which has been listed for
                  more than one month (at the time of such sale or purchase), on
                  an electronic quotation system administered by a national
                  securities association registered under such Act, or

                           (B) if the security is not traded on such a national
                  securities exchange, or so listed on such an electronic
                  quotation system, a price not less favorable to the Plan than
                  the offering price for the security as established by the
                  current bid and asked prices quoted by persons independent of
                  the issuer and of any party in interest or disqualified
                  person; and

                  (2) in the case of an asset other than a security for which
         there is a generally recognized market, the fair market value of the
         asset as determined in good faith by the Trustee or named fiduciary
         pursuant to the terms of the Plan and in accordance with regulations
         prescribed by the Secretary of Labor.

                                   SECTION 14
                            ADMINISTRATION OF PLAN --
                      STOCK BONUS PROFIT SHARING/RETIREMENT
                        COMMITTEE AND PLAN ADMINISTRATOR

         14.1 Members of Committee. The Board shall appoint a Stock Bonus Profit
Sharing/Retirement Plan Committee (the "Committee") to consist of not less than
three members, to hold office, without special compensation for Committee
membership, at the pleasure of the Board of Directors. Members of the Committee
may, but are not required to, be Participants under the Plan or officers,
employees or members of the Board of Directors. Any member may resign by giving
notice, in writing, filed with the Chairman or Secretary of the Board of
Directors. Vacancies shall be filled promptly by the Board of Directors in such
manner that the composition of the Committee shall be as herein prescribed. The
Plan Administrator shall notify the Trustee of the appointment of the Committee
and of any subsequent changes in its membership.

         14.2 Officers and Employees of the Committee. The members of the
Committee shall elect a Chairman who shall be a member of the Committee and a
Secretary who may, but need not be, a member of the Committee. The Secretary
shall keep minutes of the Committee's proceedings and all data, records and
documents pertaining to the Committee's guidelines for administration and
operation of the Plan and the Trust.

         14.3 Action of Committee. A majority of the Committee shall constitute
a quorum for the transaction of business. Resolutions or other actions of the
Committee at any meeting shall be determined by the vote or other affirmative
expression of a majority of its members present at such meeting. Resolutions or
other action may be taken without a meeting upon the written consent of all
members of the Committee. The Chairman or the Secretary may execute any
certificate or other written direction on

                                       42
<PAGE>   49
behalf of the Committee. In the event the Committee members entitled to vote on
any question are unable to determine such question by a majority vote, such
question shall be determined by the Board of Directors.

         14.4 Disqualification of Committee Member. A member of the Committee
who is a Participant or beneficiary shall not vote on any question relating
specifically to himself.

         14.5 Expenses of Committee. All expenses of the Committee properly and
actually incurred in the performance of its duties under the Plan and the Trust
Agreement shall be paid or reimbursed by the Company.

         14.6 Powers of the Committee. The Committee shall have full power to
establish guidelines for the administration and operation of the Plan and to
review any action taken by the Plan Administrator, including the power to
appoint one or more investment managers to manage (including the power to
acquire and dispose of) any designated assets of the Trust.

         14.7 Allocation of Fiduciary Responsibility. The Committee from time to
time may allocate to one of its members, to the Plan Administrator and/or may
delegate to any other persons or organizations any of the rights, powers, duties
and responsibilities of the Committee with respect to the operation and
administration of the Plan and the Trust Agreement. Any such allocation or
delegation shall be reviewed periodically by the Committee and shall be
terminable upon such notice as the Committee, in its discretion, deems
reasonable and proper under the circumstances.

         14.8 Plan Administrator and His General Powers. The Plan Administrator
shall be the Vice President - Human Resources of the Company or any other person
designated by the Board. The Plan Administrator shall serve without
compensation, and at the pleasure of the Board. The Plan Administrator shall be
responsible for the administration and operation of the Plan pursuant to the
guidelines established by the Committee and subject to the review of the
Committee, and for any other duties assigned him by the Board of Directors
and/or the Committee.

         14.9 General Duties of the Plan Administrator. The general duties of
the Plan Administrator shall include the following:

                       (a) determining all questions relating to the eligibility
of Employees to become Participants and the status of Employees as Participants
under the Plan;

                       (b) determining the Accrued Benefit payable to
Participants or beneficiaries and authorizing and directing the Trustee with
respect to the payment of, or provision for, benefits under the Plan;

                       (c) engaging for the Plan any administrative, legal,
medical, accounting, clerical or other services he may deem appropriate to
effectuate the Plan;

                       (d) as provided in Section 14.13, construing and
interpreting the Plan and the Trust Agreement whenever necessary to carry out
their intention and purpose and making and publishing such rules for the
regulation of the Plan and the Trust Agreement as are consistent with the
guidelines established by the Committee and with the terms of the Plan and the
Trust Agreement;

                       (e) compiling and maintaining, in conjunction with the
Company, all records he determines to be necessary, appropriate or convenient in
connection with the administration of the Plan and the Trust Agreement;

                                       43
<PAGE>   50

                  (f) determining, in accordance with the terms of the Plan, the
allocation, disposition and distribution of assets in the Trust Fund in the
event the Plan is terminated;

                  (g) appointing and contracting with such independent public
accountant or accountants as shall be necessary to comply with the reporting and
disclosure requirements of any applicable Federal or state law, including the
preparation and filing of all returns and reports required to be filed by the
Plan with any governmental agency;

                  (h) furnishing of all required forms, statements, information
and reports to Participants (or their beneficiaries);

                  (i) developing a policy for the funding of the Plan consistent
with the guidelines established by the Committee and subject to approval by the
Board of Directors and consistent with the needs of the Plan and the
requirements of ERISA; and

                  (j) processing of all Claims filed under Section 14.11. The
decision of the Plan Administrator, after review by the Committee, except as
otherwise provided in Section 14.7(i), with respect to matters within his
jurisdiction shall be final, binding and conclusive upon the Committee, the
Company and upon each Participant, beneficiary and every other person or party
interested or concerned.

         14.10 Information to be Submitted by Company to the Plan Administrator.
To enable the Plan Administrator to perform his functions, the Company shall
supply full and timely information to him on all matters relating to
Participants, former Participants, and beneficiaries as the Plan Administrator
may require, and shall maintain such other records as the Plan Administrator may
determine are necessary in order to determine the benefits due or which may
become due to the Participants, former Participants and beneficiaries under the
Plan. The Plan Administrator shall advise the Trustee of such of the foregoing
facts as may be pertinent to the Trustee's responsibilities under the Plan and
Trust Agreement.

         14.11    Claim Procedure.

                  (a) Filing Claim for Benefits. If an individual (hereinafter
referred to as the "Applicant," which reference shall include the legal
representative, if any, of the individual) does not receive the timely payment
of the benefits to which the Applicant believes he is entitled to receive under
the terms of the Plan, the Applicant may make a claim ("Claim") for benefits in
the manner hereinafter provided.

                  All Claims for benefits under the Plan shall be made in
writing and shall be signed by the Applicant. Claims shall be submitted to the
Plan Administrator. If the Applicant does not furnish sufficient information
with the Claim for the Plan Administrator to determine the validity of the
Claim, the Plan Administrator shall furnish the Applicant with forms prescribed
by the Plan Administrator within 10 days of receipt of the initial Claim,
indicating any additional information which is necessary for the Plan
Administrator to determine the validity of the Claim.

                  Each Claim hereunder shall be acted on and approved or
disapproved by the Plan Administrator within 60 days following the receipt by
the Plan Administrator of the information necessary to process the Claim.

                  In the event the Plan Administrator denies a Claim for
benefits in whole or in part, the Plan Administrator shall notify the Applicant
in writing of the denial of the Claim and notify such Applicant of his right to
a review of the Plan Administrator's decision by the Committee. Such notice by

                                       44
<PAGE>   51
the Plan Administrator shall also set forth, in a manner calculated to be
understood by the Applicant, the specific reason for such denial, the specific
Plan provisions on which the denial is based, a description of any additional
material or information necessary to perfect the Claim with an explanation of
such material or information where necessary and an explanation of the Plan's
Claim review procedure as set forth in this Section.

                  If no action is taken by the Plan Administrator on an
Applicant's Claim within 60 days after receipt by the Plan Administrator, such
application shall be deemed to be denied for purposes of the following appeals
procedure.

                  (b) Appeals Procedure. Any Applicant whose Claim for benefits
is denied in whole or in part (such Applicant being hereinafter referred to as
the "Claimant" which reference shall include the legal representative, if any,
of the individual) may appeal from such denial to the Committee for a review of
the decision by the Committee. Such appeal must be made within 60 days after the
Claimant has received written notice of the denial as provided above. An appeal
must be submitted in writing within such period and must:

                  (1) request a review by the Committee of the Claim for
benefits under the Plan;

                  (2) set forth all of the grounds upon which the Claimant's
request for review is based and any facts in support thereof; and

                  (3) set forth any issues or comments which the Claimant deems
pertinent to the appeal.

                  The Committee shall act upon each appeal within 60 days after
receipt thereof unless special circumstances require an extension of the time
for processing, in which case a decision shall be rendered by the Committee as
soon as possible but not later than 120 days after the appeal is received by the
Committee.

                  The Committee shall make a full and fair review of each appeal
and any written materials submitted by the Claimant and/or the Company in
connection therewith. The Committee may require the Claimant and/or the Company
to submit such additional facts, documents or other evidence as the Committee in
its discretion deems necessary or advisable in making its review. The Claimant
shall be given the opportunity to review pertinent documents or materials upon
submission of a written request to the Committee, provided the Committee finds
the requested documents or materials are pertinent to the appeal.

                  On the basis of its review, the Committee shall make an
independent determination of the Claimant's eligibility for benefits under the
Plan. The decision of the Committee on any Claim for benefits shall be final and
conclusive upon all parties thereto.

                  In the event the Committee denies an appeal, in whole or in
part, the Committee shall give written notice of the decision to the Claimant,
which notice shall set forth in a manner calculated to be understood by the
Claimant the specific reasons for such denial and which shall make specific
reference to the pertinent Plan provisions on which the Committee decision was
based.

                  (c) Review of Accrued Benefit Statement. If a Participant or
former Participant believes any statement of his Accrued Benefit he receives
pursuant to Section 14.11 is incorrect, such Participant, or former Participant
may submit a written request for correction or verification of such statement to
the Plan Administrator and the Plan Administrator shall respond in writing to
such request in

                                       45
<PAGE>   52
the same manner as provided above for an Applicant. If the Participant, or
former Participant believes the Plan Administrator's response is incorrect, the
Participant, or former Participant may request in writing within 30 days of the
response that the Committee review such statement, and the Committee shall
follow the same procedure with respect to such request as provided above for a
Claimant.

         14.12 Service of Legal Process. The name and address of the person
designated for the service of legal process with respect to the Plan is as
follows:

                                    Plan Administrator
                                    Employee Stock Ownership and 401(k) Plan
                                    BetzDearborn Inc.
                                    4636 Somerton Road
                                    Trevose, Pennsylvania 19053

         14.13 Discretionary Authority. The Plan Administrator shall have sole
discretion to carry out his responsibilities under this Section to construe and
interpret the provisions of the Plan and to determine all questions concerning
benefit entitlements, including the power to construe and determine disputed or
doubtful terms. To the maximum extent permissible under law, the Plan
Administrator's determinations on all such matters shall be final and binding
upon all persons involved.

                                   SECTION 15
                              THE TRUSTEE AND TRUST

         15.1 The Trust. The Trust which is a part of this Plan shall consist of
all amounts contributed to the Plan, and the earnings and appreciation thereon,
less payments made by the Trustee under the Plan and the Trust Agreement entered
into pursuant to the Plan.

         15.2 Actions and Responsibility of Trustee. The Trustee shall have,
subject to the power of the Committee to appoint investment managers,
responsibility to hold, invest, reinvest and administer the Trust assets and, in
so holding and otherwise managing such Trust assets, the Trustee shall act
solely in the interest of the Participants and their beneficiaries.

         15.3 Payments. The Trustee shall make all payments of Accrued Benefits
under the Plan upon the written instructions of the Plan Administrator.

         15.4 Resignation and Removal of Trustee. The Board may remove the
Trustee at any time upon delivery of any written notice called for in the Trust
Agreement; and the Trustee may resign at any time upon delivery of such notice
to the Board. Upon such removal or resignation of the Trustee, the Board shall
appoint a successor Trustee and enter into a successor trust agreement pursuant
to the Plan.

         15.5 Voting Rights and Tender Offers.

                  (a) Voting Rights. The Trustee shall have no discretion or
authority to vote Company Stock held in the Trust on any matter presented for a
vote by the stockholders of the Company except in accordance with timely
directions received by the Trustee from Participants who have Company Stock
allocated to or otherwise held in their Accounts under the Plan. Such directions
shall be given by Participants acting in their capacity as "named fiduciaries"
within the meaning of section 403(a)(1) of ERISA ("Named Fiduciaries") with
respect to both allocated and otherwise held Company Stock and unallocated
Company Stock. Upon timely receipt of such instructions as described in
subsection (c)(1), the Trustee shall vote the Company Stock held in the Trust as
set forth below.

                                       46
<PAGE>   53
                  Each Participant who has Company Stock allocated to or
otherwise held in his Accounts shall, as Named Fiduciary, direct the Trustee
with respect to the vote of Company Stock allocated to or otherwise held in his
Accounts and the Trustee shall follow the directions of those Participants who
provide timely instructions to the Trustee. The direction of a Participant with
respect to Company Stock allocated to or otherwise held in his Accounts shall
also constitute his direction, as Named Fiduciary, to the Trustee with respect
to the vote of a portion of the shares of Company Stock held in the Suspense
Subfund (or otherwise unallocated) or for which no directions were timely
received by the Trustee, whether or not allocated to the Account of any
Participant. Such direction shall be with respect to such number of votes equal
to the total number of votes attributable to Company Stock in the Suspense
Subfund (or otherwise unallocated) or with respect to which no directions were
timely received multiplied by a fraction, the numerator of which is the number
of votes attributable to Company Stock allocated to or otherwise held in the
Participant's Accounts and the denominator of which is the total number of votes
attributable to Company Stock allocated to or otherwise held in the Accounts of
all such Participants who have provided directions to the Trustee under this
subsection (a).

                  (b) Tender Offers for Company Stock. In the event an offer is
received by the Trustee (including but not limited to a tender offer or exchange
offer within the meaning of the Securities Exchange Act of 1934, as from time to
time amended and in effect) to acquire any shares of Company Stock held in the
Trust, or any shares or other securities into which shares of Company Stock held
in the Trust are convertible or for which they are exchangeable; whether or not
allocated or otherwise held in the Account of any Participant (an "Offer"), the
Trustee shall have no discretion or authority to sell, exchange, transfer or
convert any of such shares pursuant to such Offer except to the extent, and only
to the extent, that the Trustee is timely directed to do so in writing with
respect to any Company Stock subject to such Offer and allocated to or otherwise
held in a Participant's Account by the Participant, as Named Fiduciary. In
addition, such direction of a Participant with respect to Company Stock
allocated to or otherwise held in his Accounts shall also constitute his
direction, as Named Fiduciary, to the Trustee with respect to any Company Stock
subject to such Offer held in the Suspense Subfund (or otherwise unallocated),
with respect to an amount of such unallocated Company Stock equal to the total
amount of unallocated Company Stock multiplied by a fraction, the numerator of
which is the amount of Company Stock allocated to or otherwise held in the
Participant's Accounts and the denominator of which is the total amount of
Company Stock allocated to or otherwise held in the Accounts of all
Participants. Upon timely receipt of such directions as described in subsection
(c)(2), the Trustee shall sell, exchange or transfer pursuant to such Offer only
such shares as to which such directions were given.

                  In the event, under the terms of an Offer or otherwise, any
shares of Company Stock tendered for sale, exchange or transfer pursuant to such
Offer may be withdrawn from such Offer, the Trustee shall follow such directions
respecting the withdrawal of such securities from such Offer in the same manner
and the same proportion as shall be timely received by the Trustee from the
Participants as Named Fiduciaries entitled under this subsection (b) to give
directions as to the sale, exchange or transfer of securities pursuant to such
Offer.

                  (c) Voting and Tender Offer Directions. Voting and tender
offer directions shall be given in accordance with the following provisions:

                  (1) Voting Directions. As promptly as possible before each
         annual or special shareholders' meeting of the Company, the Plan
         Administrator shall direct the Trustee to furnish to each Participant a
         copy of any proxy solicitation material, together with a form
         requesting confidential instructions on how the Company Stock allocated
         to or otherwise held in such Participant's Accounts and held in the
         Suspense Subfund (or otherwise unallocated) (including fractional
         shares to 1/1000 of a share) is to be voted. Upon timely receipt of
         such instructions, the

                                       47
<PAGE>   54
         Trustee shall vote the Company Stock as directed, in blocks. The
         instructions received by the Trustee from Participants shall be held by
         the Trustee in strict confidence and shall not be divulged or released
         to any person (except for agents of the Trustee who shall at all times
         be subject to the same restrictions as the Trustee), including officers
         of the Company or Eligible Employees or employees of any other company.
         The Trustee and the Plan Administrator shall not make recommendations
         to Participants on whether to vote or how to vote.

                  (2) Tender Offer Directions. The Trustee shall notify each
         Participant of each tender or exchange offer and shall utilize its best
         efforts to distribute or cause to be distributed to such Participant in
         a timely manner all information distributed to shareholders of the
         Company in connection with any such tender or exchange offer. A
         Participant's instructions to the Trustee as to the manner in which to
         respond to any such tender or exchange offer shall remain in force
         until superseded in writing by the Participant. The Trustee shall
         tender or exchange such shares of Company Stock as described in
         subsection (b). Unless and until shares of Company Stock are tendered
         or exchanged, the individual instructions received by the trustee from
         Participants shall be held by the Trustee in strict confidence and
         shall not be divulged or released to any person, including officers of
         the Company or Eligible Employees, or employees of any other company.

                                   SECTION 16
                     PLAN AMENDMENT, MERGER OR CONSOLIDATION

         16.1 Amendment. The Board of Directors shall have the right to amend
this Plan at any time, by written resolution, subject to the following
limitations:

                  (a) No such amendment shall cause any part of the Trust Fund
to be used for or diverted to any purpose other than the exclusive benefit of
the Participants or their beneficiaries.

                  (b) No such amendment shall cause any reduction in the amount
of any Participant's Accrued Benefit. For purposes of this subsection (b), an
amendment which has the effect of (i) eliminating or reducing an early
retirement benefit or a retirement-type subsidy or (ii) eliminating an optional
form of benefit, with respect to benefits attributable to service before the
amendment, shall be treated as reducing accrued benefits as provided in section
411(d)(6) of the Code and the regulations thereunder.

                  (c) No such amendment shall change any vesting schedule
unless, in the case of an individual who is a Participant on (i) the date the
amendment is adopted or (ii) the date the amendment is effective, if later, the
nonforfeitable percentage of such Participant's right to his Accrued Benefit is
not less than his percentage computed under the Plan without regard to such
amendment. Furthermore, no such amendment shall otherwise change any vesting
schedule unless each Participant having three or more years of service is
permitted to elect, in accordance with regulations under the Code, to have the
nonforfeitable percentage of his Accrued Benefit determined under the Plan
without regard to such amendment; provided that no election shall be given to
any Participant whose nonforfeitable percentage under the Plan as amended cannot
at any time be less than such percentage determined without regard to such
amendment.

         16.2 Merger or Consolidation. This Plan and Trust shall not be merged
or consolidated with, nor shall any assets or liabilities be transferred to, any
other plan and trust, unless the benefits payable to each Participant if the
Plan were terminated immediately after such action would be equal to or greater
than the benefits which would have been payable to each Participant if the Plan
had been terminated immediately before such action.

                                       48
<PAGE>   55
                                   SECTION 17
                                PLAN TERMINATION

         17.1 Discontinuance of Contributions or Termination The Board of
Directors shall have the right to discontinue the Company's contributions
hereunder and to terminate or partially terminate this Plan by delivery of
written notice to the Trustee of such action.

                  Upon complete discontinuance of the Company's contributions,
or termination or partial termination of the Plan, the rights of all affected
Participants to benefits accrued to the date of such discontinuance or
termination shall become nonforfeitable except to the extent that law or
regulations may preclude such vesting in order to prevent discrimination in
favor of highly compensated Employees.

                  Upon final termination of the Plan, the Plan Administrator
shall direct the Trustee to distribute all assets remaining in the Trust, after
payment of any proper expenses, to the Participants in accordance with the
vested Accrued Benefits of such Participants as of the date of such termination.
Such payments shall be made in cash and at such time and in such manner as the
Plan Administrator shall in its discretion determine, subject to Section 9.8 and
Section 9.9. Any shares of Company Stock held in the Suspense Subfund which
cannot be allocated to the Company Stock Accounts of Participants because such
shares have not been released from the Suspense Subfund pursuant to Section 6.5,
shall be delivered to the Company.

                  Notwithstanding the foregoing, amounts credited to a
Participant's 401(k) Account shall not be distributed prior to the Participant's
attainment of age 59 1/2, separation from service (within the meaning of
Section 9.4), total and permanent disability (as defined in Section 9.5(b)),
death, or financial hardship (within the meaning of Section 8.6(a)), except as a
"lump-sum distribution" (as defined in section 401(k)(10)(B)(ii) of the Code) to
a Participant or his beneficiary as soon as administratively feasible after the
termination of the Plan, provided that the Company does not establish or
maintain a successor plan within the meaning of section 401(k)(10)(a)(i) of the
Code and Treas. Reg. Section 1.401(k)-1(d)(3).

                                   SECTION 18
              TRANSFERS OF 401(K) ACCOUNTS, MATCHING, STOCK BONUS,
                     VOLUNTARY, AND DIVERSIFICATION ACCOUNTS
                            FROM THE STOCK BONUS PLAN

         18.1 Transfers of 401(k), Matching, Stock Bonus, Voluntary, and
Diversification Accounts from the Stock Bonus Plan. The Stock Bonus Plan has
been amended, effective September 1, 1990, to provide for the transfer of all
401(k), Matching, Stock Bonus, Voluntary, and Diversification Accounts (and all
liabilities attributable to such Accounts) thereunder to this Plan. The Plan
Administrator of this Plan is directed to accept such transfer. The Plan
Administrator shall deposit the transferred Accounts as follows:

                  (a) an Employee's transferred 401(k) Account, if any, shall be
consolidated with his 401(k) Account in this Plan;

                  (b) an Employee's transferred Matching Account, if any, shall
be deposited in his Rollover Account in this Plan; and

                                       49
<PAGE>   56

                  (c) an Employee's transferred Stock Bonus, Voluntary, and/or
Diversification Accounts, if any, shall be maintained as separate Accounts in
this Plan.

The Plan Administrator shall establish a 401(k) Account and/or Rollover Account
in this Plan for each Employee who did not have such Account(s) prior to the
transfer of his 401(k) Account and/or Matching Account from the Stock Bonus
Plan. Once a Participant's Accounts have been transferred from the Stock Bonus
Plan, no subsequent employer or employee contribution shall be made under the
terms of the Stock Bonus Plan and credited to any Participant's Accounts in this
Plan. Notwithstanding the preceding sentence, Accounts transferred from the
Stock Bonus Plan shall share in allocations of gains and losses under Sections
7.1 and 7.2.

                  18.2 Distributions and Withdrawals of Amounts Attributable to
Amounts Transferred.

                  (a)      Method of Distributions.

                           (1) Distribution Upon Retirement, Disability or
                  Death. Upon the retirement, total and permanent disability (as
                  defined in Section 9.5(b)), or death of a Participant whose
                  401(k), Matching, Stock Bonus, Voluntary, and/or
                  Diversification Accounts were transferred to this Plan from
                  the Stock Bonus Plan, the amounts in his Accounts shall be
                  payable to the Participant or his beneficiary in a lump sum,
                  installment payments, or any other manner permitted under the
                  Stock Bonus Plan (all references in this Section to the Stock
                  Bonus Plan shall be to the Stock Bonus Plan as it was in
                  effect on September 1, 1990). Installment payments, if
                  elected, will be made in equal quarterly, semiannual, or
                  annual installments, over a period certain not extending
                  beyond the life expectancy of the Participant or the joint
                  life expectancies of the Participant and his spouse.

                           If a Participant whose 401(k), Matching, Stock Bonus,
                  Voluntary, and/or Diversification Accounts were transferred to
                  this Plan from the Stock Bonus Plan dies without having made
                  an election as to the form of his benefit distribution, the
                  Participant's entire benefit under this Plan shall be
                  distributed in a lump sum to the beneficiary of the
                  Participant unless the beneficiary is the Participant's
                  spouse. In such event, payment of the amounts in the
                  Participant's Accounts shall be made in one lump sum to the
                  Participant's spouse unless the spouse elects, no later than
                  60 days after the date of death of such Participant, to have
                  the amounts due such spouse paid in installments. If the
                  spouse elects installment payments, such payments will be paid
                  in the manner described in the preceding paragraph.

                           Payment of the amounts in the Participant's Accounts
                  shall be made or commence no later than 60 days after the last
                  day of the Plan Year in which the Participant terminates
                  employment by reason of retirement, disability, or death.

                           (2) Distribution Upon Other Termination of
                  Employment. Upon termination of employment for reasons other
                  than retirement, disability, or death, a Participant whose
                  401(k), Matching, Stock Bonus, Voluntary, and/or
                  Diversification Accounts were transferred to this Plan from
                  the Stock Bonus Plan shall receive payment of his entire
                  Accrued Benefit under this Plan in accordance with Section 9.2
                  of this Plan.

                  (b) In-Service Withdrawals. An Employee whose Voluntary
Account was transferred to this Plan from the Stock Bonus Plan may elect to
withdraw at any time any portion or all of the amount in his Voluntary Account,
in accordance with Section 6.9 of the Stock Bonus Plan. Any

                                       50
<PAGE>   57
withdrawal may not be for less than the lessor of (i) $500, or (ii) the
Employee's entire interest in the Voluntary Account.

                  (c) Form of Distribution or Withdrawal. To the extent
permitted under the Stock Bonus Plan, a lump sum distribution described in this
Section may be paid in cash or securities, including Common Stock, as elected by
the Employee. As provided in Sections 8.4 and 8.5 of the Stock Bonus Plan, an
Employee may receive only cash from his Voluntary Account and/or Diversification
Account.

         18.3     Transfer to Diversification Account.

                  (a) Eligibility to Make Transfers. Any Participant may direct
the Trustee, in accordance with paragraphs (b) or (c) below, to transfer a
portion or all of the vested interest in such Participant's Stock Bonus Account
to the Investment Fund. Amounts diversified from a Stock Bonus Account shall be
allocated to the Participant's Diversification Account. A Participant may not
diversify any stock held in his separate PAYSOP Account.

                  (b) Valuation of Diversification. The transfer of the
Participant's vested interest from his Stock Bonus Account, invested in Common
Stock, to his Diversification Account shall be valued as provided in Section
7.1.

                  (c) How to Make Election. A Participant may elect to diversify
his shares of Common Stock at any time during the Plan Year by filing the
Appropriate Form with the Plan Administrator in respect to each diversification
request, or in any other manner acceptable to the Plan Administrator. No
automatic diversifications upon a regular basis shall be permitted.

         18.4 Protected Forms of Distribution. A Participant whose 401(k),
Matching, Stock Bonus, Voluntary, and/or Diversification Accounts in the Stock
Bonus Plan were transferred to this Plan who was or becomes eligible for a
protected form of distribution (as described in section 411(d)(6) of the Code,
and rules and regulations thereunder), under the terms of the Stock Bonus Plan
as it was in effect on September 1, 1990, and which was not otherwise provided
under this Plan, shall be eligible to elect such form of distribution with
respect to that portion of his total Account which equals the value of the
amount transferred from the Stock Bonus Plan effective September 1, 1990.
Notwithstanding anything in this Plan to the contrary, it is intended that the
forms of distribution provided under the plan comply with section 411(d)(6) of
the Code, and rules and regulations thereunder.

                                   SECTION 19
                      TRANSFERS OF PAYSOP ACCOUNTS FROM THE
                                STOCK BONUS PLAN

         19.1 Transfers of PAYSOP Accounts from the Stock Bonus Plan. The Stock
Bonus Plan has been amended, effective October 1, 1992, to provide for the
transfer of all PAYSOP Accounts (and all liabilities attributable to such
Accounts) thereunder to this Plan. The Plan Administrator of this Plan is
directed to accept such transfer. A Participant's transferred PAYSOP Account
shall be maintained as a separate Account in this Plan.

         19.2 Income on PAYSOP Accounts. Dividends and other income attributable
to the PAYSOP shall be reinvested in Common Stock and allocated to each
Participant's PAYSOP Account according to the number of shares allocated to such
Account within a reasonable time after receipt of such dividends.

                                       51
<PAGE>   58
         19.3 Nonforfeitable Right to Allocated Common Stock. Each Participant
shall have a nonforfeitable right to all Common Stock and income allocated to
his PAYSOP Account. However, no Common Stock may be distributed from a
Participant's PAYSOP Account before the end of the 84th month beginning after
the month in which such Common Stock was allocated. The foregoing rule shall not
apply in the following cases:

                  (a) The Participant's death, total and permanent disability
(as defined in Section 9.5(b) of this Plan), separation from service, or
termination of the PAYSOP Plan;

                  (b) A transfer of the Participant from the service of the
Company to the service of an acquiring employer where:

                  (1) The Company sells to the acquiring employer substantially
         all of the assets used by the Company in a trade or business conducted
         by the Company, or

                  (2) The Company sells to the acquiring employer all of the
         stock of a subsidiary of the Company;

                  (c) Where the Company disposed of its interest in a subsidiary
and the Participant continues to be employed by such subsidiary; or

                  (d) Any distribution required under Section 9.9 or 19.5 of
this Plan.

         19.4 Administrative Expenses. Administrative expenses or costs incurred
by the Trustee and by the Committee in connection with the PAYSOP, including the
fees of their counsel, accountants, salaries (if any), and other items, in the
performance of their duties may be paid by the Company; provided that, as
reimbursement for the expense of administering the PAYSOP, the Company may
direct the Trustee in writing to pay from the Trust Fund so much of the amounts
paid or incurred during a taxable year, as expenses of administering the PAYSOP,
as does not exceed the smaller of (i) the sum of ten percent (10%) of the first
$100,000 and five percent (5%) of any amount in excess of $100,000 of the income
from dividends paid to the PAYSOP during the Plan Year ending with or within the
Company's taxable year, or (ii) $100,000.

         19.5     Diversification Withdrawals.

                  (a) Election. Within 90 days after the last day of each Plan
Year during a Participant's Qualified Election Period, the Qualified Participant
shall be permitted to elect on an Appropriate Form, or in any other manner
acceptable to the Plan Administrator, to withdraw from his PAYSOP Account
twenty-five percent (25%) of the value of his PAYSOP Account balance
attributable to shares of Company Stock which were acquired by the PAYSOP after
December 31, 1986. Within 90 days after the close of the last Plan Year in the
Participant's Qualified Election Period, a Qualified Participant may elect to
withdraw from his PAYSOP Account fifty percent (50%) of the value of such
account balance.

                  (b) Time of Distribution. The Participant's withdrawal shall
be distributed by the Plan Administrator no later than 180 days after the close
of the Plan Year to which the direction applies.

                  (c) Determination of Amount for Diversification Requirements.
The portion of a Participant's Account balance attributable to shares of Company
Stock which were acquired by the Plan after December 31, 1986, shall be
determined by multiplying the number of shares of such securities held in the
account by a fraction, the numerator of which is the number of shares acquired
by the PAYSOP

                                       52
<PAGE>   59
after December 31, 1986 and allocated to Participant's PAYSOP Accounts (not to
exceed the number of shares held by the PAYSOP on the date the individual
becomes a Qualified Participant), and the denominator of which is the total
number of shares held by all PAYSOP Accounts at the date the individual becomes
a Qualified Participant.

         19.6     Distributions of PAYSOP Accounts.

                  (a) Method of Distribution. Distribution of PAYSOP Accounts
shall be made in the same manner as described in Sections 18.2(a) and (b) and
18.4 of this Plan with respect to all other Accounts transferred from the Stock
Bonus Plan, except that all references to the Stock Bonus Plan shall be to the
Stock Bonus Plan as it was in effect on October 1, 1992.

                  (b)      Form of Distribution.

                  (1) Distributions of Common Stock from a Participant's PAYSOP
         Account shall be in full shares of Common Stock, and cash shall be
         distributed in lieu of any fractional shares of Common Stock allocated.
         Fractional shares shall be valued by reference to their fair market
         value, determined in accordance with Section 7.1.

                  (2) Notwithstanding the foregoing, the Committee may determine
         that any or all of the distributions under Section 19.3 or subsection
         (1) above shall be made in cash in lieu of Common Stock, or partially
         in cash and partially in Common Stock; provided, that the Committee
         shall have advised each Participant (or beneficiary) in writing that he
         has a right to demand that his benefits be distributed in the form of
         shares of Common Stock. When a cash distribution is made, the
         Participant's shares of Common Stock shall be valued at their fair
         market value, determined in accordance with Section 7.1.

                  (3) It is intended that the distributions described in
         subsections (1) and (2) above shall be made in accordance with
         regulations which may hereafter be issued by the Department of
         Treasury.

                                   SECTION 20
                                  MISCELLANEOUS

         20.1 Participation by Affiliates with Consent of BetzDearborn Inc. Any
corporation which is an Affiliate, with approval of the Board of Directors, by
resolution of its own board of directors, may adopt the Plan and Trust hereby
created. From and after the effective date when such corporation shall have
become a party to this Plan and the Trust Agreement, it shall for all purposes
of this Plan and the Trust Agreement be included within the meaning of the word
"Company" and shall be an affiliated company for purposes of benefit accrual and
vesting.

         20.2 Application of Plan. This Plan shall not apply to any person who
retired or otherwise separated from the service of the Company before the
Effective Date. The right of any such person to any retirement benefit or
otherwise shall be governed solely by the provisions of the BetzDearborn Inc.
Employees' Retirement Plan or the Plan in effect on the date of such retirement
or other separation from service.

         20.3 No Employment Rights Created. The Plan and Trust do not confer
upon any Participant or other Employee any right to be continued in the employ
of the Company or an Affiliate, and the

                                       53
<PAGE>   60
Company expressly reserves the right to terminate the employment of any Employee
whether or not a Participant, whenever the interest of the Company, in its sole
judgment, may so require.

         20.4 Incapacitated Participant or Beneficiary. If the Plan
Administrator deems any person incapable of receiving any benefit to which he is
entitled by reason of minority, illness, infirmity or other incapacity, the Plan
Administrator may direct the Trustee to make payment to such person's legally
appointed guardian, or, if none has been appointed, to the holder of a legally
valid power of attorney from such person. Such payments shall, to the extent
thereof discharge the liability of the Company, the Committee, the Plan
Administrator, the Trustee and the Trust.

         20.5 Payment of Plan Expenses. Except as otherwise provided in the
Trust Agreement, the Plan shall pay the expenses of administering the Trust
which is part of this Plan (to the extent such expenses are not paid by the
Company), including the compensation of the Trustee, which shall be as mutually
agreed by the Company and the Trustee.

         20.6 Unclaimed Benefits. Any benefits payable to a Participant or
beneficiary not claimed for a period of five years from the date of entitlement
as determined by the Plan Administrator following a diligent effort to locate
such Participant or beneficiary and with the approval of the Plan Administrator,
shall be forfeited and applied in accordance with the terms of Section 6.7;
provided, however, that such forfeited benefits shall be reinstated if a claim
for them is made by the Participant or beneficiary.

         20.7 Treatment of Leased Employees. Notwithstanding any other
provisions of the Plan, for purposes of the pension requirements of section
414(n)(3) of the Code, Employees shall include Leased Employees.

         20.8 Construction. Construction and administration of this Plan and of
the Trust Agreement shall be governed by ERISA and other applicable Federal law
and to the extent not governed by Federal law, by Pennsylvania law.

         20.9 Gender and Number. The masculine pronoun wherever used shall
include the feminine and the singular may include the plural, and vice versa, as
the context may require.

                                   SECTION 21
                      SPECIAL PROVISIONS CONCERNING CERTAIN
                       FORMER EMPLOYEES OF THE GRACE GROUP

         21.1 Definitions. The following words and phrases, as used herein,
shall have the following meanings, unless the context clearly indicates
otherwise:

                  (a) "Buyer Group" shall mean, collectively, Betz Laboratories,
Inc. and any entity of which it owns directly or indirectly fifty percent (50%)
or more of the voting power or other similar interests and, at any time on or
after the Closing Date, the Transferred Companies and Transferred Joint
Ventures.

                  (b) "Closing Date" shall mean the Closing Date under the Sale
Agreement, which is expected to be June 28, 1996.

                  (c) "Continued Employee" shall mean any employee -

                                       54
<PAGE>   61
                  (1) who is an employee of the Grace Group (other than the
         Transferred Companies or Transferred Joint Ventures) who is employed
         exclusively in the Dearborn Business (as defined in the Sale
         Agreement);

                  (2) who is an employee of the Grace Group (other than the
         Transferred Companies or Transferred Joint Ventures) who performs
         substantial services for the Dearborn Business and is designated by
         Grace as an employee who is to be transferred with the Dearborn
         Business; or

                  (3) who replaces any employee described in paragraph (i) or
         (ii) above (excluding any such employee who is on long-term disability
         on the Closing Date) and who accepts an offer of employment made by a
         member of the Buyer Group in accordance with the Sale Agreement.

                  (d)      "Grace" shall mean W.R. Grace & Co.-Conn.

                  (e) "Grace Group" shall mean, collectively, W.R. Grace & Co.
and any entities of which it owns directly or indirectly fifty percent (50%) or
more of the voting power or other similar interests at any time prior to the
closing under the Sale Agreement, the Transferred Companies, and the Transferred
Joint Ventures.

                  (f) "Sale Agreement" shall mean the Grace Dearborn Worldwide
Purchase and Sale Agreement, entered into by W.R. Grace & Co.-Conn. and the
Company, dated March 11, 1996.

                  (g) "Transferred Companies" shall mean Grace Dearborn N.V.;
Alexim N.V.; Finac N.V.; Grace Dearborn, Inc.; Grace Service Chemicals S.A.;
Grace Dearborn B.V.; Dearborn Holdings AB; Grace Dearborn AB; and Dearborn USA,
Limited Partnership.

                  (h) "Transferred Joint Ventures" shall mean Dearborn I.E.I.
(India) Private Ltd. and Nippon Dearborn K.K.

                  (i) "U.S. Employee" shall mean an employee of Dearborn USA,
Limited Partnership, or a Continued Employee.

         21.2 Participation by Certain Employees of the Dearborn Business.
Notwithstanding Section 3.2, each U.S. Employee who participated in the W.R.
Grace & Co. Salaried Employees Savings and Investment Plan immediately prior to
the Closing Date shall become a Participant in the Plan on the date he first
completes an Hour of Service for the Company.

         21.3 Years of Vesting Service. Each U.S. Employee's service with the
Grace Group prior to the Closing Date shall be counted for purposes of
determining Years of Vesting Service under this Plan on and after the Closing
Date.

         21.4 Allocation of Company Stock Contribution for 1996. For purposes of
determining entitlement to allocations of contributions under Section 6 for
1996, a Participant's service in 1996 with the Grace Group prior to the Closing
Date shall be counted for purposes of determining if the Participant completed
1,000 or more Hours of Service under Section 6.1. However, only Compensation
received in 1996 as an Eligible Employee shall be counted for purposes of
determining the amount of a Participant's allocation under Sections 6.2, 6.3,
6.6(c), and 6.7.

                                       55
<PAGE>   62
         IN WITNESS WHEREOF, BETZDEARBORN INC. has caused these presents to be
duly executed as of this ----- day of ----------, ----.

                                                    BETZDEARBORN INC.

                                                      -------------------------

                                                    By:
                                                      -------------------------
                                                    Title:
                                                       -------------------------
ATTEST:

------------------------------
Title:
------------------------------
         [CORPORATE SEAL]

                                       56
<PAGE>   63

                      FIRST AMENDMENT TO BETZDEARBORN INC.
                    EMPLOYEE STOCK OWNERSHIP AND 401(K) PLAN

         THIS FIRST AMENDMENT made on this day of ______________, 1998, by
BETZDEARBORN INC. (the "Corporation"), a corporation organized and existing
under the laws of the State of Pennsylvania;

                              W I T N E S S E T H:

         WHEREAS, the Corporation, as Plan Sponsor, maintains the BetzDearborn
Inc. Employee Stock Ownership and 401(k) (the "Plan"), which was established by
an indenture dated January 1, 1989, and last amended and restated by an
indenture dated January 1, 1998; and

         WHEREAS, the Corporation desires to amend the Plan to make certain
changes related to vesting and to the definitions of "Company Stock" and
"Preferred Stock."

         NOW, THEREFORE, the Corporation does hereby amend the Plan effective as
of the effective time of the merger among the Corporation and Hercules Inc.
("Hercules") and Water Acquisition, Co., a wholly owned subsidiary of Hercules,
as follows:

         1. By deleting existing Plan Section 1.8 in its entirety and replacing
it with the following new Plan Section 1.8:

                  "1.8 `Common Stock' shall mean the common stock of Hercules,
         Inc., it being intended that such Common Stock constitute `qualifying
         employer securities' within the meaning of Section 4975(e)(8) of the
         Code."

         2. By deleting existing Plan Section 1.10 in its entirety and replacing
with the following new Plan Section 1.10:

                  "1.10 `Company Stock' shall mean the common stock of Hercules,
         Inc., it being intended that such Company Stock constitute `qualifying
         employer securities' within the meaning of Section 4975(e)(8) of the
         Code."

         3. By deleting existing Plan Section 1.36 in its entirety and replacing
it with the following new Plan Section 1.36:

            "1.36 [RESERVED]"

         4. By deleting the second paragraph of Plan Section 5.4(a) in its
entirety.

<PAGE>   64

         5. By deleting the second paragraph of existing Plan Section 7.1(a) in
its entirety and replacing it with the following new second paragraph of Plan
Section 7.1(a):

                  "For purposes of the valuation described above, the fair
         market value of shares of Company Stock held by the Trustee shall be
         determined as of the Valuation Date coincident with the last day of the
         Plan Year, and as of such other Valuation Dates as the Plan
         Administrator so directs."

         6. By deleting existing Plan Section 8.18(f)(3) in its entirety and
replacing it with the following new Plan Section 8.18(f)(3):

                  "(3) Loan Date. Each loan shall be made as soon as practicable
         following approval of the Participant's loan application by the Plan
         Administrator. To the extent any loan is made from a particular Account
         of a Participant which is invested partially in different investment
         media, such loan shall be made pro rata from the investments of such
         Account in each such investment medium, valued as of the most recent
         Valuation Date or, to the extent that such loan is made from amounts
         invested in Investment Vehicles the value of which is priced daily, as
         of the date of the loan."

         7. By adding the following sentence to the end of existing Plan Section
9.1:

                  "Notwithstanding any other provision of the Plan, an Employee
         who is a Participant of the Plan as of the effective time of the merger
         among the Corporation and Hercules, Inc. and Water Acquisition Co., a
         wholly owned subsidiary of Hercules, Inc., shall be fully vested in all
         of his Accounts."

         8. By deleting existing Plan Section 9.2(c) in its entirety and
replacing it with the following new Plan Section 9.2(c):

                  "(c) Form. Benefits from the Participant's Company Stock,
         Matching, and Other Investments Accounts shall be paid in whole shares
         of Company Stock. Benefits from the Participant's 401(k) and Rollover
         Accounts shall be paid in cash, except that, to the extent the
         Investment Vehicle in which the Accounts are invested consists of
         Company Stock, such benefits shall be paid in Company Stock.

                  Notwithstanding the foregoing, a Participant may elect to
         receive all benefits from his Other Investments, 401(k) and Rollover
         Accounts in cash."

         9. By adding the following sentence to the end of existing Plan Section
18.4:

                  "Notwithstanding anything contained in Plan Section 18, any
                  distribution which would have been required to be made in the
                  form of "employer securities" (within the meaning of Code
                  Section 409(l)) will be made in the form of Common Stock."

                                       2
<PAGE>   65

         Except as specifically amended hereby, the Plan shall remain in full
force and effect as prior to this First Amendment.

         IN WITNESS WHEREOF, the Corporation has executed this First Amendment
as of the date and the year first above written.

                                                    PLAN SPONSOR:

                                                    BETZDEARBORN INC.

                                                    By:
                                                     ---------------------------
                                                    Title:
                                                     ---------------------------

ATTEST:

---------------------------------
Title:
---------------------------------
         [CORPORATE SEAL]

                                        3

<PAGE>   66
                     SECOND AMENDMENT TO BETZDEARBORN INC.
                    EMPLOYEE STOCK OWNERSHIP AND 401(k) PLAN

     THIS SECOND AMENDMENT made on this day of ___________, 1998, by
BETZDEARBORN INC. (the "Corporation"), a corporation organized and existing
under the laws of the State of Pennsylvania;

                              W I T N E S S E T H:

     WHEREAS, the Corporation, as Plan Sponsor, maintains the BetzDearborn Inc.
Employee Stock Ownership and 401(k) (the "Plan"), which was established by an
indenture dated January 1, 1989, and last amended and restated by an indenture
dated January 1, 1998; and

     WHEREAS, the Corporation desires to amend the Plan to revise the formula
for 'Company Matching Contributions' and the day on which the interest rate
applicable to loans under the Plan is set.

     NOW, THEREFORE, the Corporation does hereby amend the Plan effective as of
January 1, 1999, as follows:

     1.   By deleting existing Plan Section 8.3(b) in its entirety and replacing
it with the following new Plan Section 8.3(b):

          "(b)  Matching Rate.  The Matching Rate shall be fifty percent (50%).
The Maximum Compensation deferral Percentage shall be six percent (6%)."

     2.   By deleting existing Plan Section 8.18(b) in its entirety and
replacing it with the following new Plan Section 8.18(b):

          "(b)  Terms of Loan.  Each loan granted or renewed under this Section
shall bear a rate of interest which is two percentage points greater than the
prime lending rate, as announced in The Wall Street Journal, on the first
business day of each calendar quarter in which the loan is made or such other
rate as may be determined by the Plan Administrator to be required by law. The
interest rate and other conditions for the repayment of the loan shall be fixed
at the time the loan is made. All loans shall be repayable by their terms within
five years."
<PAGE>   67
     Except as specifically amended hereby, the Plan shall remain in full
force and effect as prior to this Second Amendment.

     IN WITNESS WHEREOF, the Corporation has executed this Second Amendment as
of the date and the year first above written.

                                        PLAN SPONSOR:

                                        BETZDEARBORN INC.

                                        By:
                                           -------------------------------------

                                        Title:
                                              ----------------------------------

ATTEST:

------------------------------------

Title:
      ------------------------------
             [CORPORATE SEAL]

<PAGE>   68
                      THIRD AMENDMENT TO BETZDEARBORN INC.
                    EMPLOYEE STOCK OWNERSHIP AND 401(K) PLAN

         THIS THIRD AMENDMENT made on this --- day of March, 1999, by
BETZDEARBORN INC. (the "Corporation"), a corporation organized and existing
under the laws of the State of Pennsylvania;

                              W I T N E S S E T H:

         WHEREAS, the Corporation, as Plan Sponsor, maintains the BetzDearborn
Inc. Employee Stock Ownership and 401(k) (the "Plan"), which was established by
an indenture dated January 1, 1989, and last amended and restated by an
indenture dated January 1, 1998; and

         WHEREAS, as a condition to receipt of a favorable determination on the
tax-qualified status of the Plan, the Corporation desires to amend the Plan to
reflect the required provisions of the Uniformed Service Employment and
Reemployment Rights Act of 1994; and

         WHEREAS, the officers of the Corporation are authorized to amend the
Plan as required for the continued qualification of the Plan.

         NOW, THEREFORE, the Corporation does hereby amend the Plan effective as
of December 12, 1994, by adding the following new Plan Section 4.4 to the Plan:

                  "4.4 Notwithstanding any provision of the Plan to the
        contrary, contributions, benefits and service credit with respect to
        qualified military service will be provided in accordance with Section
        414(u) of the Code."

         Except as specifically amended hereby, the Plan shall remain in full
force and effect as prior to this Third Amendment.

         IN WITNESS WHEREOF, the Corporation has executed this Third Amendment
as of the date and the year first above written.

                                                BETZDEARBORN INC.

                                                By:
                                                  -----------------------------

                                                Title:
                                                  -----------------------------

ATTEST:

--------------------------------

Title:
--------------------------------
         [CORPORATE SEAL]

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