Document:

AMERICAN HOME PRODUCTS CORPORATION
                           DEFERRED COMPENSATION PLAN

                    Amended and Restated as of April 1, 2001
                                     PURPOSE

The American Home Products Corporation Deferred Compensation Plan (the "Plan")
is an unfunded deferred compensation plan, that provides certain key employees
of American Home Products Corporation, a Delaware corporation ("AHPC") and its
wholly-owned Subsidiaries in the United States, including Puerto Rico (together
with AHPC, the "Company") with the opportunity to voluntarily defer receipt of a
portion of their compensation. AHPC adopted the Plan to enable the Company to
attract and retain a select group of management and highly compensated
Employees.

     SECTION  ONE -  DEFINITIONS

     Whenever used in the Plan,  unless clearly  apparent from the context,  the
following terms shall have the following meanings:

     (a)  "Administrator"  means the  Committee or such entity or person to whom
the Committee may delegate responsibility for administration of the Plan.

     (b) "AHPC ERP"  means the  American  Home  Products  Corporation  Executive
Retirement Plan, as amended from time to time.

     (c) "AHPC SERP" means the American Home Products  Corporation  Supplemental
Executive Retirement Plan, as amended from time to time.

     (d) "AHPC SESP" means the American Home Products  Corporation  Supplemental
Employee Savings Plan, as amended from time to time.

     (e) "Amended and Restated Effective Date" means April 1, 2001.

     (f) "Base  Salary"  means,  except as set forth in the next  sentence,  for
purposes of deferrals  under the Plan, the annual base cash  compensation  to be
paid  during a Plan Year by the  Company to an Eligible  Employee  for  services
rendered  during  such Plan  Year.  Notwithstanding  the  foregoing,  solely for
purposes of  determining  whether an Employee  is an  Eligible  Employee,  "Base
Salary" means the annual base compensation from all sources (i.e., regardless of
whether United States source or foreign source) to be paid during a Plan Year by
AHPC and its Subsidiaries to an Employee for services  rendered during such Plan
Year.

     (g) "Beneficiary"  means one or more persons or entities (including a trust
or estate)  designated by a Participant to receive payment of any unpaid balance
in the  Participant's  Deferral  Account  under  the  Plan in the  event  of the
Participant's  death.  Such designation  shall be made on a form provided by the
Recordkeeper  and approved by the  Administrator in accordance with its rules as
provided in Section 9(i).

     (h) "Board of Directors" means the Board of Directors of AHPC.

     (i) "Bonus  Compensation"  means cash compensation to be paid during a Plan
Year to an Eligible  Employee by the Company  for  services  rendered  under any
incentive compensation or bonus plan, program or arrangement which is maintained
or which may be adopted by the Company.

     (j)  "Change in Control"  means the first to occur of any of the  following
events:

          (i) any person or persons  acting in concert  (excluding  AHPC benefit
     plans) becomes the  beneficial  owner of securities of AHPC having at least
     twenty  percent  (20%) of the  voting  power  of  AHPC's  then  outstanding
     securities  (unless the event causing the twenty percent (20%) threshold to
     be crossed is an  acquisition  of voting  common  securities  directly from
     AHPC); or

          (ii) the  consummation of any merger or other business  combination of
     AHPC,  sale or lease of AHPC's  assets,  or  combination  of the  foregoing
     transactions  (the  "Transactions"),  other than a Transaction  immediately
     following which the shareholders of AHPC who owned shares immediately prior
     to the Transaction (including any trustee or fiduciary of any AHPC employee
     benefit plan) own, by virtue of their prior ownership of AHPC's shares,  at
     least sixty-five percent (65%) of the voting power, directly or indirectly,
     of (a) the  surviving  corporation  in any such  merger  or other  business
     combination;  (b) the purchaser or lessee of the AHPC's assets; or (c) both
     the surviving  corporation  and the purchaser or lessee in the event of any
     combination of Transactions; or

          (iii) within any twenty-four  (24) month period,  the persons who were
     directors  immediately  before the beginning of such period (the "Incumbent
     Directors")  shall cease (for any reason other than death) to constitute at
     least a majority of the Board of  Directors  or the board of directors of a
     successor to AHPC. For this purpose, any director who was not a director at
     the beginning of such period shall be deemed to be an Incumbent Director if
     such  director  was  elected  to  the  Board  of  Directors  by,  or on the
     recommendation  of or with the  approval  of,  at least  two-thirds  of the
     directors  who  then  qualified  as  Incumbent  Directors  (so long as such
     director  was not  nominated  by a person  who has  expressed  an intent to
     effect a Change in Control or engage in a proxy or other control contest).

     (k) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.

     (l) "Committee" means the Compensation and Benefits  Committee of the Board
of Directors.

     (m)  "Company"  means  American  Home  Products  Corporation,   a  Delaware
corporation ("AHPC"),  together with its wholly owned Subsidiaries in the United
States, including Puerto Rico.

     (n) "Deemed  Interest"  means the amount of  interest  that would have been
earned had an amount  deferred  hereunder  been  invested  at the Deemed Rate of
Interest.

     (o)  "Deemed  Rate of  Interest"  - means  (i) prior to June 1,  1999,  the
average of the quarter end yields for a ten (10) year period ending September 30
of the prior  year of the ten (10) year U.S.  Treasury  notes  plus two  percent
(2%); and (ii) thereafter,  ten percent (10%) per annum,  compounded  quarterly.
The Deemed Rate of  Interest  in  subparagraph  (ii) above may be  increased  or
decreased  from  time to  time  by the  Committee  as it may  deem  appropriate;
provided that no such decrease shall be effective for Deemed  Interest  accruing
prior to the latest of: (i) April 1, 2004, (ii) the date of the Committee action
implementing  such  decrease,  and (iii) the date such decrease is  communicated
generally to Participants; and provided, further, that, if effective on or after
April 1, 2004 the  Committee  decreases  the Deemed Rate of  Interest  below ten
percent (10%) per annum, such decrease shall not apply to any amounts which were
deferred prior to the date of such decrease, and the ten percent (10%) per annum
rate shall  continue  to apply with  respect to such  amounts  (unless and until
another Investment Option is subsequently elected).

     (p)  "Deferral   Account"  means  a  bookkeeping   account  (including  all
subaccounts)  maintained by the  Recordkeeper for each Participant to record his
or her balance under the Plan. A Participant's Deferral Account shall consist of
the sum of: (i) all of a Participant's  deferrals  under the Plan,  whether made
before or after the Amended  and  Restated  Effective  Date,  including  amounts
rolled into the  Predecessor  Plan as of the Original  Effective  Date,  plus or
minus (ii)  Investment  Earnings/Losses  on those amounts in accordance with the
applicable  crediting  provisions  of the Plan that relate to the  Participant's
Deferral  Account,  minus  (iii)  all  distributions  or  withdrawals  made to a
Participant or his or her Beneficiary pursuant to the Plan that relate to his or
her Deferral Account.

     (q)  "Disability"  means a period of disability  during which a Participant
qualifies  for  permanent  disability  benefits  under the  Company's  long-term
disability  plan,  or, if a Participant  does not  participate in such a plan, a
period of  disability  during which the  Participant  would have  qualified  for
permanent  disability  benefits  under  such a plan had the  Participant  been a
Participant  in  such a  plan,  as  determined  in the  sole  discretion  of the
Administrator.  If the Company does not sponsor such a plan, or  discontinues to
sponsor such a plan,  Disability shall be determined by the Administrator in its
sole discretion.

     (r) "Election Form" means the form or forms  established  from time to time
by the  Administrator,  that a Participant  completes,  signs and returns to the
Recordkeeper to make an election under the Plan.

     (s)  "Eligible  Employee"  means an active  Employee  of the Company who is
scheduled  to receive Base Salary for the Plan Year of not less than one hundred
fifty-five thousand dollars ($155,000) or such other amount as may be determined
from time to time by the Administrator. The determination of whether an Employee
is  an  Eligible   Employee  shall  be  made  at  the  sole  discretion  of  the
Administrator.

     (t) "Employee" means any employee of the Company.

     (u) "Executive Retirement Payments" means the payments an Eligible Employee
is eligible to receive from the AHPC ERP, the AHPC SERP, and the AHPC SESP.

     (v) "Investment  Earnings/Losses"  means the income,  gains and losses that
would have been realized had an amount deferred hereunder actually been invested
in the Investment Option or Options selected by a Participant.

     (w) "Investment Options" means the investment options as listed in Appendix
A, which is attached hereto and incorporated herein by this reference,  that are
used as hypothetical investment options among which the Participant may allocate
all or a portion of his or her Deferral Account.  The Administrator may amend or
change  available  Investment  Options  (other  than the Deemed Rate of Interest
Investment  Option)  from  time to  time as it  deems  appropriate  in its  sole
discretion, as provided for in Section 7(f); it being understood that the Deemed
Rate of Interest may be amended only by the Committee in accordance with Section
1(o) above.

     (x) "Normal  Retirement  Date" shall have the same  meaning as set forth in
the American Home Products Corporation Retirement Plan - United States.

     (y) "Original  Effective  Date" means the original  effective  date for the
Predecessor Plan, which was July 31, 1997.

     (z)  "Participant"  means an Employee or Retiree  (for so long as he or she
retains a Deferral  Account under the Plan): (i) who at the time of commencement
of his or her  participation  in the Plan  was an  Eligible  Employee,  (ii) who
elects to  participate  in the Plan,  (iii) who signs and returns all enrollment
forms required by the  Recordkeeper,  and (iv) whose signed form(s) are accepted
by the  Recordkeeper.  The  term  "Participant"  shall  include  an  individual,
including a Retiree,  who is not making deferrals but retains a Deferral Account
in the Plan (including through the Predecessor Plan).

     (aa)  "Plan"  means  the  American  Home  Products   Corporation   Deferred
Compensation  Plan as set forth herein and as it may be amended and/or  restated
from time to time.

     (bb) "Plan Year" means the calendar year.

     (cc) "Predecessor  Plan" means the AHPC Deferred  Compensation  Plan, which
was effective as of July 31, 1997,  and which  replaced and subsumed all Company
sponsored  deferral plans or programs that existed for members of a select group
of management Employees prior to July 31, 1997.

     (dd)  "Recordkeeper"  means the entity selected by the  Administrator  from
time to time to maintain  records of the Deferral  Accounts of Participants  and
provide administrative services.

     (ee) "Retiree" - means an individual who is Retired.

     (ff)   "Retirement",   "Retire(s)"  or  "Retired"  means   separation  from
employment from the Company for any reason other than a leave of absence,  death
or  Disability on or after the earlier of the  attainment of (i) age  sixty-five
(65) or (ii) age fifty-five (55) with five (5) Years of Service.

     (gg) "Retirement  Benefit" means the type and form of payments available to
a Participant upon Retirement as described in Section 8(b).

     (hh) "Retirement Benefit Installment Payout Dates" means, with respect to a
deferral made by a Participant,  the first day of the calendar  quarter  elected
(initially or upon  re-deferral  pursuant to Section 8(b)(3)) by the Participant
for the  commencement  of  installment  payments  and,  in the  case  of  annual
installments,  the  anniversary  dates  thereof  and,  in the case of  quarterly
installments,  the first day of each calendar quarter  thereafter,  in each case
through  the final  installment  payout  date  elected by the  Participant  with
respect to such  deferral;  provided  that the first of such dates  shall be (A)
with respect to Executive Retirement Payments,  not less than twelve (12) months
after  the  Participant's  Retirement  date and (B) with  respect  to all  other
Retirement Benefit payments, on or after the Participant's  Retirement date; and
provided,  further,  that the final installment payout date with respect to such
deferral  occurs  (X) no  earlier  than  the  second  anniversary  of the  first
installment  payment and (Y) no later than the earlier of (I) the quarter  prior
to the  fifteenth  anniversary  of the first  installment  payment  and (II) the
fifteenth anniversary of the Participant's Normal Retirement Date.

     (ii)  "Retirement  Benefit Lump Sum Payout  Date" means,  with respect to a
deferral made by a Participant,  the first day of the calendar  quarter  elected
(initially or upon  re-deferral  pursuant to Section 8(b)(3)) by the Participant
for a lump sum payout of a Retirement Benefit;  provided that such date shall be
(A) with respect to  Executive  Retirement  Payments,  not less than twelve (12)
months after the Participant's Retirement date and (B) with respect to all other
Retirement Benefit payments, on or after the Participant's  Retirement date; and
provided,  further,  that  such  date  shall  be no  later  than  the  fifteenth
anniversary of the Participant's Normal Retirement Date.

     (jj)  "Retirement  Eligible" means a Participant who is an Employee and who
has attained the earlier of (i) age sixty-five (65), or (ii) age fifty-five (55)
with five (5) Years of Service.

     (kk)  "Severance  Payments"  means severance  payments  (including  pension
enhancements) payable pursuant to Change in Control severance agreements entered
into between AHPC and members of the Finance  Committee,  Operations  Committee,
and other principal elected corporate  officers and key Employees of AHPC, which
provide  for  severance  benefits  to  such  Employees  in the  event  of  their
termination of employment following a Change in Control.

     (ll)  "Short-Term   Payout"  means  the  type  of  payout  available  to  a
Participant as described in Section 8(a).

     (mm) "Short-Term  Payout Date" means,  with respect to a deferral made by a
Participant,  the first day of the calendar  quarter  elected by the Participant
for payment of a Short-Term  Payout;  provided that such date shall be in a Plan
Year  which,  in the case of an initial  election,  is at least three (3) but no
more  than  fifteen  (15)  years  after  the end of the Plan  Year in which  the
deferral occurs and in the case of a re-deferral pursuant to Section 8(a)(2), is
at least three (3) but not more than  fifteen (15) years after the date on which
the  Short-Term  Payout,  but for the  re-deferral,  would have been  paid;  and
provided,  further,  that in each  case  such  date  shall be no later  than the
fifteenth anniversary of the Participant's Normal Retirement Date.

     (nn)   "Subsidiary(ies)"   means,  as  to  any  person,   any  corporation,
partnership or joint venture, of which (or in which) such person,  together with
one or more of its  subsidiaries,  directly or  indirectly  owns more than fifty
percent  (50%) of the  interest in the  capital or profits of such  corporation,
partnership or joint venture.

     (oo)  "Trust  Agreement"  means an  agreement  between the Trustee and AHPC
covering a grantor  trust which AHPC may, in its sole  discretion,  establish in
connection with the Plan as described in Section 9(g).

     (pp)  "Trustee"  means the  trustee  named by AHPC from time to time as the
trustee for the Trust Agreement.

     (qq)  "Year  of  Service"  shall  have  the  same  meaning  as in the  AHPC
Retirement Plan.

     (rr) "Yearly or Quarterly Installment Method" means a yearly (or quarterly)
installment  payment  over the  number of years (or  quarters)  selected  by the
Participant  in accordance  with the Plan,  calculated as follows:  the Deferral
Account of the  Participant  shall be  calculated as of the close of business on
the date of reference  (or, if the date of  reference is not a business  day, on
the immediately  following  business day). The date of reference with respect to
the first yearly (or quarterly)  installment  payment dates shall be as provided
in Section 1(hh),  and the date of reference  with respect to subsequent  yearly
(or quarterly)  installment payment dates shall be the anniversary date or dates
thereof in the applicable year. The yearly (or quarterly)  installment  shall be
calculated by multiplying  the portion of the Deferral  Account not allocated to
the Deemed Interest  Investment Option by a fraction,  the numerator of which is
one (1),  and the  denominator  of which is the  remaining  number of yearly (or
quarterly)  payments due the Participant.  By way of example, if the Participant
elects ten (10) yearly (or forty (40) quarterly) installment payments, the first
payment  shall be  one-tenth  (1/10) (or  one-fortieth  (1/40)) of the  Deferral
Account,  calculated as described in this definition. For the following payment,
the  payment  shall be  one-ninth  (1/9)  (or one  thirty-ninth  (1/39))  of the
Deferral Account, calculated as described in this definition.

               SECTION TWO - DEFERRALS UNDER THE PREDECESSOR PLAN

     Prior  to the  Amended  and  Restated  Effective  Date  of the  Plan,  AHPC
maintained  the  Predecessor  Plan,  which allowed  members of a select group of
management or highly compensated  employees to defer receipt of various types of
compensation.  In addition,  some of those employees had separate  non-qualified
plan  balances  consolidated  into  the  Predecessor  Plan  as of  the  Original
Effective Date. Except as otherwise  provided herein,  any Participant who has a
Deferral Account as of the Amended and Restated Effective Date shall continue to
have that portion of his or her Deferral Account that is in existence as of that
date governed under the Plan by the  distribution  provisions of the Predecessor
Plan as elected by the Participant  prior to the Amended and Restated  Effective
Date. Notwithstanding the foregoing, a Participant with such a balance who is an
Eligible Employee on March 31, 2001, shall have the right (1) by June 1, 2001 to
amend any distribution election made prior to the Amended and Restated Effective
Date to conform with the distribution  options allowed under Section 8, provided
that (i) such  election is in a form and manner  approved by the  Administrator,
(ii) to the extent that such  amendment  relates to the deferrals of Base Salary
for the 2001 Plan Year, the distribution  election designated by the Participant
in such amendment shall govern all deferrals of Base Salary during the 2001 Plan
Year and (iii) any such  election  does not  apply  (A) to the  portion  of each
balance that is otherwise  payable under a prior election  within six (6) months
of June 1, 2001,  or (B) to the extent that it would  accelerate  the payment of
any distribution to a date on or before December 1, 2001; and (2) thereafter, to
amend any distribution election in accordance with and subject to the provisions
of Section 8. Further,  notwithstanding the foregoing, a Participant with such a
balance may elect Investment Options with respect thereto in accordance with and
subject to the provisions of Section 7(d).

                    SECTION THREE - PARTICIPATION IN THE PLAN

     (a) Participation on the Amended and Restated Effective Date. A Participant
in the  Predecessor  Plan on the  Amended  and  Restated  Effective  Date  shall
continue to be a  Participant  in the Plan. An Employee who is not a Participant
as of the Amended and Restated Effective Date but is an Eligible Employee, shall
become a Participant as of the Amended and Restated  Effective Date if he or she
completes  and  files  in a  timely  manner  all  forms  required  to  become  a
Participant in the Plan in accordance  with the enrollment  procedures set forth
below.

     (b)  Participation  after the  Amended  and  Restated  Effective  Date.  An
Employee who is an Eligible Employee on the Amended and Restated Effective Date,
and who does not  initially  elect to become a  Participant,  or an Employee who
first becomes an Eligible Employee after the Amended and Restated Effective Date
during a Plan  Year,  may  commence  participation  in the Plan as set  forth in
Section 3(c) and (d) below.

     (c) Enrollment Requirements. As a condition to participation, each Eligible
Employee who elects to  participate  in the Plan shall  complete,  execute,  and
return to the  Recordkeeper  such forms as are required from time to time by the
Administrator,  and all such forms must be submitted to the Recordkeeper  within
thirty (30) days (or such other time period as the  Administrator  determines in
its sole  discretion)  of the date that an Employee is first notified that he or
she is an Eligible Employee.  In addition,  the Administrator may establish from
time to time such other  enrollment  requirements  as it  determines in its sole
discretion are appropriate.

     (d)  Commencement  of  Participation.  Except as provided  in Section  3(a)
above, once an Eligible Employee has met all of the enrollment  requirements set
forth in the  Plan,  including  returning  all  required  documents  within  the
specified time period, the Eligible Employee shall commence participation in the
Plan on the  first day of the month  following  the month in which the  Eligible
Employee  completes  all  enrollment  requirements;  provided,  however that the
Administrator may designate,  in its sole discretion,  another commencement date
that is administratively  reasonable.  If an Eligible Employee fails to meet all
of the enrollment  requirements  within the period  required in accordance  with
Section 3(c),  that Employee  shall not be eligible to  participate  in the Plan
again until the first day of the  following  Plan Year,  again subject to timely
delivery to and acceptance by the Recordkeeper of the required forms.

                     SECTION FOUR - DEFERRALS UNDER THE PLAN

     (a) Deferral of Base Salary and/or Bonus Compensation.

          (1)  Subject  to  the  following  sentence,  for  each  Plan  Year,  a
     Participant  may  designate a percentage  of his or her Base Salary  and/or
     Bonus  Compensation  that  is  payable  in a Plan  Year to be  deferred  in
     accordance with Section 6. To be eligible to make a deferral of Base Salary
     (but not Bonus  Compensation) into the Plan, six percent (6%) of the amount
     of Base Salary  elected must be deferred in accordance  with the Plan for a
     Plan  Year to be  deferred  under  the AHPC  SESP for the same Plan Year in
     accordance  with the AHPC SESP's  rules.  The  remaining  elected  deferral
     amount under the Plan shall then be deferred into the Plan.

          (2) For each Base Salary and/or Bonus Compensation  deferral (adjusted
     to reflect Investment  Earnings/Losses with respect thereto), a Participant
     shall make appropriate  distribution elections in accordance with Section 8
     below with respect to such deferral amounts.  Notwithstanding any provision
     of the Plan to the contrary,  all  elections  with respect to the 2002 Plan
     Year and each Plan Year  thereafter  shall be  required  to provide for the
     same  Short-Term  Payout Date,  Retirement  Benefit Lump Sum Payout Date or
     Retirement  Benefit  Installment  Payout Dates, as the case may be, for all
     deferrals of Base Salary and Bonus Compensation in the same Plan Year.

          (3) A deferral  election  described  above in this  Section  4(a) with
     respect to any Plan Year may not be revoked,  except that a Participant may
     revoke completely a deferral election for Base Salary not yet earned at the
     time of the Participant's revocation election (which revocation will itself
     be irrevocable for the remainder of the Plan Year).

     (b) Deferral of Severance Payments.

          (1) A Participant may designate a percentage of any Severance  Payment
     that is payable in a Plan Year to be deferred in accordance with Section 6,
     provided,  however, that such designation shall be given effect only if the
     Participant is Retirement Eligible at the time of his or her termination of
     employment.

          (2) For any Severance Payment deferral (adjusted to reflect Investment
     Earnings/Losses with respect thereto), a Participant shall make appropriate
     distribution  elections in accordance  with Section 8 below with respect to
     each such deferral.

     (c) Deferral of Executive Retirement Payments.

          (1) A  Participant  may designate a percentage of his or her Executive
     Retirement  Payments to be deferred in accordance with Section 6, provided,
     however,   that  such  designation  shall  be  given  effect  only  if  the
     Participant is Retirement Eligible at the time of his or her termination of
     employment.

          (2) For  each  Executive  Retirement  Payment  deferral  (adjusted  to
     reflect  Investment  Earnings/Losses  with respect thereto),  a Participant
     shall make appropriate  distribution elections in accordance with Section 8
     below.  A  Participant  shall  be  permitted  to make a  separate  deferral
     election  with  respect  to amounts  transferred  to the Plan from the AHPC
     SERP, the AHPC ERP and/or the AHPC SESP.

     (d) Minimum/Maximum  Amount of Deferral.  For each Plan Year, a Participant
may elect to defer Base Salary,  Bonus  Compensation,  Severance Payments and/or
Executive  Retirement  Payments,  if  applicable,   under  Section  4(a)-(c)  in
increments  of at least five percent (5%) (unless the  Administrator  determines
otherwise  in its sole  discretion)  up to a  maximum  deferral  of one  hundred
percent  (100%) of each type of  deferral  the  Participant  elects to make with
respect to that Plan Year.

                    SECTION FIVE - INVESTMENT EARNINGS/LOSSES

     (a) Deemed Interest Prior to the Amended and Restated Effective Date. Prior
to the Amended and Restated  Effective Date, amounts credited to the Predecessor
Plan shall be deemed to have earned interest at the Deemed Rate of Interest then
in effect,  as adjusted.  Such Deemed Interest shall be credited to the Deferral
Accounts of Participants in accordance with the crediting  provisions of Section
7(g).

     (b)  Investment  Earnings/Losses  On and After  the  Amended  and  Restated
Effective  Date.  On and after the  Amended and  Restated  Effective  Date:  (i)
amounts in the Plan on the Amended and Restated Effective Date, (ii) Base Salary
and/or Bonus  Compensation  deferred under the Plan, (iii) Executive  Retirement
Payments deferred under the Plan, and (iv) Severance Payments deferred under the
Plan, shall be deemed to have realized Investment  Earnings/Losses  based on the
Investment  Option  or  Options  selected  from  time to time by the  respective
Participants.  Such Investment  Earnings/Losses shall be credited and debited to
the  Deferral  Accounts of  Participants  in  accordance  with the  debiting and
crediting provisions of Section 7(g).

                        SECTION SIX - DEFERRAL ELECTIONS

     (a) Deferral  Elections.  All deferrals  made in accordance  with Section 4
shall be evidenced by the Participant's  properly  executing and submitting such
Election  Forms  and  other  forms as may be  required  by the  Recordkeeper  in
accordance with its rules and the rules set forth in this Section 6.

     (b)  Deferrals  of Base  Salary  and/or  Bonus  Compensation.  Except for a
Participant's  first year of Plan  participation,  a  Participant's  election to
defer Base Salary and/or Bonus Compensation in accordance with Section 4(a) with
respect to a particular Plan Year must be received by the  Recordkeeper no later
than the last day of the preceding Plan Year. For a Participant's  first year of
Plan  participation,  deferral elections must be made in accordance with Section
3(c) and shall only apply to Base  Salary  earned and Bonus  Compensation  first
determined  after the election.  Each Participant must designate on the Election
Form the  timing  and form of  distribution  of such Base  Salary  and/or  Bonus
Compensation  (adjusted  to  reflect  Investment  Earnings/Losses  with  respect
thereto) in accordance with the distribution options described in Section 8.

     (c) Deferrals of Severance  Payments.  A Participant's  election to defer a
Severance  Payment in  accordance  with  Section  4(b) must be  received  by the
Recordkeeper  prior to the date the applicable Change in Control following which
a  Participant   becomes  entitled  to  receive  such  Severance  Payment.   The
Participant  must  designate  on the  Election  Form  the  timing  and  form  of
distribution  of  the  Severance   Payment   (adjusted  to  reflect   Investment
Earnings/Losses  with respect thereto) in accordance with the options  described
in Section 8.

     (d) Deferrals of Executive Retirement Payments. A Participant's election to
defer  Executive  Retirement  Payments in  accordance  with Section 4(c) must be
received by the Recordkeeper prior to the date of the Participant's  Retirement.
The Participant  must designate on the Election Form the timing and form of such
distribution of Executive  Retirement  Payments  (adjusted to reflect Investment
Earnings/Losses  with respect thereto) in accordance with the options  described
in Section 8.  Notwithstanding  any other provision of the Plan to the contrary,
an election to defer such payments made after the Amended and Restated Effective
Date shall not apply (i) unless the payment elected is scheduled to commence not
less than twelve (12) months after the election is made,  or (ii) to any payment
scheduled to commence within twelve (12) months of such election.

                        SECTION SEVEN - DEFERRAL ACCOUNTS

     (a) Establishment of Deferral Accounts.The Recordkeeper shall establish and
maintain  an  individual  Deferral  Account  under  the Plan on  behalf  of each
Participant  by or on behalf of whom deferrals have been made under Section 4 to
track  the  Investment  Earnings/Losses  or other  elections  applicable  to the
Deferral  Account of the  Participant.  The Deferral Account of each Participant
may have  subaccounts  established  and maintained as appropriate to reflect the
Investment Option(s) and/or distribution elections selected by the Participant.

     (b) Crediting of Amounts Deferred.  A Participant's  Deferral Account shall
be credited by the  Recordkeeper  for  deferral  amounts  after such amounts are
withheld and deferred  pursuant to a Participant's  elections on the appropriate
Election Form with an amount equal to the amounts deferred by the Participant in
accordance  with  Section  7(g).  Such  amounts  shall be  allocated  among  the
available  Investment  Options in  accordance  with the  selections  made by the
Participant among the Investment Options pursuant to Section 7(f).

     (c) Crediting/Debiting of Deferral Account. In accordance with Section 7(g)
and subject to the rules and procedures that are  established  from time to time
by the  Administrator  and/or  the  Recordkeeper  (which  may  or may  not be in
writing),   Investment  Earnings/Losses  shall  be  credited  or  debited  to  a
Participant's Deferral Account.

     (d) Election of Investment  Options. A Participant,  in connection with his
or her  initial  deferral  election  under  the Plan or in  connection  with the
amendment and restatement of the Plan, shall elect, on the Election Form(s), one
or more  Investment  Option(s)  as described in Section 7(f) below to be used to
determine  the  additional  amounts  to be  credited  or  debited  to his or her
Deferral Account.  Such elections shall continue to apply to his or her Deferral
Account unless changed in accordance with the next sentence. The Participant may
(but is not required to) elect on any business  day, by  submitting  an Election
Form(s)  to  the  Recordkeeper  that  is  accepted  by the  Recordkeeper  (which
submission  may take the form of an electronic or  telephonic  transmission,  if
required  or  permitted  by the  Administrator),  to add or  delete  one or more
Investment  Option(s)  to be used to  determine  the  additional  amounts  to be
credited or debited to his or her Deferral Account,  or to change the portion of
his or her  Deferral  Account  allocated  to each  previously  or newly  elected
Investment  Option(s).  If an election is made in  accordance  with the previous
sentence,  it shall apply the next business day (unless otherwise  determined by
the Administrator) and shall continue until the Participant makes any changes to
those elections in accordance with the previous  sentence.  Notwithstanding  the
foregoing,  in no event may a Participant elect to add or delete the Deemed Rate
of Interest as an Investment  Option or add amounts to or transfer  amounts from
that  Investment  Option,  once any Retirement  Benefit  payment as described in
Section 8(b) has commenced.

     (e) Proportionate  Allocation.  In making any election described in Section
7(d) above, the Participant shall specify on the Election Form(s), in percentage
increments  of at least five percent (5%) (unless the  Administrator  determines
otherwise in its sole  discretion) the percentage of his or her Deferral Account
to be allocated to an Investment Option.

     (f) Investment  Options.  The  Administrator  may, in its sole  discretion,
amend or change available Investment Options in accordance with Section 1(w) and
subject to Section 1(o). Any  discontinuation  of an Investment Option shall not
take effect  prior to the first day of the  calendar  quarter that follows by at
least  thirty  (30)  days the day on which  the  Administrator  generally  gives
Participants  written  notice  of  such  change.  If any  Investment  Option  is
discontinued, Participants having selected such Investment Option must designate
another  Investment  Option  for  the  portion  by his or her  Deferral  Account
allocated  thereto  within the  timeframe  designated  by the  Administrator.  A
Participant may elect any new Investment  Option added by the  Administrator ten
(10) business days after being notified that the Investment Option was added. If
the  Recordkeeper  receives  an  initial  Election  Form  that  it  deems  to be
incomplete,  unclear or improper,  the Participant shall be deemed to have filed
no  direction  with  respect  thereto.  If the  Recordkeeper  receives a revised
Election Form that it deems to be incomplete,  unclear or improper,  or fails to
receive  a  revised  Election  Form  when  one  is  required  to be  filed,  the
Participant's  Investment Option election then in effect shall remain in effect,
except  in the case of a  discontinued  Investment  Option,  in  which  case the
Participant shall be deemed to have filed no direction with respect thereto.  If
the Recordkeeper  possesses (or is deemed to possess as provided in the previous
sentence) at any time  directions as to  Investment  Options of less than all of
the  Participant's  Deferral  Account,  the Participant  shall be deemed to have
elected for the  undesignated  portion of his or her Deferral Account the Deemed
Interest  Investment Option or such other Investment Option as determined by the
Administrator in its sole discretion. Each Participant hereunder, as a condition
to his or her participation hereunder, agrees to indemnify and hold harmless the
Committee,   the   Administrator,   and  the  Company,   and  their  agents  and
representatives,  from  any  losses  or  damages  of any  kind  relating  to the
Investment Options made available hereunder.

     (g)  Crediting  or  Debiting  Method.   The  performance  of  each  elected
Investment  Option  (either  positive or  negative)  will be  determined  by the
Recordkeeper,  in accordance with the rules  established by the Administrator in
its sole discretion,  based on the performance of the actual Investment  Options
themselves.  A  Participant's  Deferral  Account shall be credited or debited on
each business day, or as otherwise  determined by the Recordkeeper in accordance
with the rules  established  by the  Administrator  in its sole  discretion,  as
though:  (i) the amounts of the  Participant's  deferral  election were actually
deferred no later than the close of business on the third business day after the
day on which (x) such amounts were otherwise  payable to the Participant as Base
Salary,  Bonus  Compensation,  or a  Severance  Payment  and (y) in the  case of
Executive Retirement Payments the date of the Participant's  Retirement;  (ii) a
Participant's   Deferral  Account  was  actually   invested  in  the  Investment
Options(s)  selected  by the  Participant,  in the  percentages  elected  by the
Participant  as of such date, at the closing  price on such date;  and (iii) any
distribution  made to a Participant that decreases such  Participant's  Deferral
Account ceased being invested in the Investment  Options(s),  in the percentages
applicable  to such day, no earlier  than three (3)  business  days prior to the
distribution, at the closing price on such date.

     (h) No Actual Investment.  Notwithstanding any other provision of the Plan,
the  Investment  Options are to be used for  measurement  purposes  only,  and a
Participant's  election of any such Investment Options, the allocation to his or
her Deferral  Account  thereto,  the  calculation of additional  amounts and the
crediting or debiting of such amounts to a Participant's  Deferral Account shall
not be considered  or construed in any manner as an actual  investment of his or
her Deferral Account in any such Investment  Options. In the event that AHPC, in
its discretion, decides to invest funds in any or all of the Investment Options,
no  Participant  shall  have any  rights in or to such  investments  themselves.
Without  limiting the foregoing,  a Participant's  Deferral Account shall at all
times be a bookkeeping entry only and shall not represent any investment made on
his or her  behalf  by AHPC or the  Trust.  The  Participant  shall at all times
remain an unsecured creditor of AHPC.

                          SECTION EIGHT- DISTRIBUTIONS

     (a) Short-Term Payouts.

          (1) Commencement of Payment of Short-Term  Payouts. In connection with
     each election to defer Base Salary and/or Bonus Compensation, a Participant
     may elect to  receive  a  "Short-Term  Payout"  with  respect  to each such
     elected deferral.  Each Short-Term Payout shall be a lump-sum payment equal
     to the deferred amount, plus or minus Investment Earnings/Losses debited or
     credited thereto in the manner provided in Section 7(g),  determined at the
     time the Short-Term Payout becomes payable.  Each Short-Term Payout elected
     shall  be  payable  on  the  Short-Term   Payout  Date  designated  by  the
     Participant on the Election Form with respect thereto.  Short-Term  Payouts
     shall be made as soon as practicable after the applicable Short-Term Payout
     Date elected by the Participant on the applicable Election Form,  provided,
     that in no event  shall such  payment be made later than  thirty  (30) days
     after the relevant elected date.

          (2) Re-Deferral of Short Term Payout.  Notwithstanding anything in the
     Plan to the contrary,  a Participant who is an active  Employee,  may, with
     respect to each elected  Short-Term  Payout,  on a form  designated  by the
     Recordkeeper,  elect (on one or more occasions) to re-defer such Short-Term
     Payout to another allowable Short-Term Payout Date; provided, however, that
     any such re-deferral  election shall not apply (i) unless it is accepted by
     the   Recordkeeper  in  accordance  with  the  rules   established  by  the
     Administrator  in its sole  discretion,  and (ii) to any payment that would
     have been made under a prior election within twelve (12) months of the date
     of such new election.  In the event that a scheduled  Short-Term Payout, if
     paid,  would (or in the judgment of the  Administrator,  acting in its sole
     discretion,   would  be  reasonably  likely  to)  result  in  the  loss  of
     deductibility  for federal income tax purposes of any compensation  paid by
     the Company  due to the  limitations  of Section  162(m) of the Code in any
     given year,  then the scheduled  Short-Term  Payout shall be  automatically
     re-deferred for a period of three (3) years. Subject to the foregoing,  the
     last Election Form accepted by the Recordkeeper shall govern the Short-Term
     Payout  Date of that  Short-Term  Payout  (adjusted  to reflect  Investment
     Earnings/Losses with respect thereto).

          (3)  Changing  a  Short-Term  Payout  to  a  Retirement   Benefit.   A
     Participant  may change any  Short-Term  Payout  election up to the date of
     Retirement to an allowable  Retirement  Benefit  payout by submitting a new
     Election Form to the Recordkeeper;  provided that any such Election Form is
     (i) submitted at least twelve (12) months prior to the  Retirement  Benefit
     Lump Sum Payout Date or the initial Retirement  Benefit  Installment Payout
     Date, as the case may be, elected by the Participant,  and (ii) accepted by
     the   Recordkeeper  in  accordance  with  the  rules   established  by  the
     Administrator in its sole discretion; provided, further, that such election
     shall not apply to any  payment  that  would  have been made  under a prior
     election within twelve (12) months of the date of such new election.

     (b) Retirement Benefit Payout.

          (1)  Commencement  of Retirement  Benefit.  A Participant  who Retires
     shall  receive,  as a  "Retirement  Benefit",  the  portion  of  his or her
     Deferral  Account that he or she has not elected to be  distributed  in the
     form of a Short-Term  Payout, or that is not distributed in accordance with
     another  provision  of the Plan as a  result  of the  Participant's  death,
     Disability or termination of employment prior to Retirement.

          (2) Time of Payment of Retirement Benefit.  An active Participant,  in
     connection with each type of deferral of Retirement  Benefits,  shall elect
     to receive that deferral  (adjusted to reflect  Investment  Earnings/Losses
     with respect  thereto) on either a Retirement  Benefit Lump Sum Payout Date
     or  on  Retirement  Benefit   Installment  Payout  Dates  elected  by  such
     Participant.  A  Participant  may  change  any  Retirement  Benefit  payout
     election  up  to  the  date  of  Retirement  to  an  allowable  alternative
     Retirement  Benefit  payout date or dates by submitting a new Election Form
     to the Recordkeeper;  provided that any such Election Form is (i) submitted
     at least twelve (12) months prior to the Retirement Benefit Lump Sum Payout
     Date or the initial Retirement Benefit Installment Payout Date, as the case
     may be, elected by the  Participant,  and (ii) accepted by the Recordkeeper
     in  accordance  with rules  established  by the  Administrator  in its sole
     discretion;  and provided,  further,  that such election shall not apply to
     any payments that would have been made under a prior  election or the terms
     of any  other  plan  within  twelve  (12)  months  of the  date of such new
     election.  The last Election Form accepted by the Recordkeeper shall govern
     the payout date or dates of that  Retirement  Benefit  (adjusted to reflect
     Investment Earnings/Losses with respect thereto).

          (3)  Re-deferral of Retirement  Benefits.  A Retired  Participant  who
     Retires on or after the Amended and  Restated  Effective  Date may elect to
     re-defer  Retirement  Benefits  prior to the  commencement  of any payments
     thereof to another  allowable  Retirement  Benefit  Lump Sum Payout Date or
     other allowable Retirement Benefit Installment Payout Dates;  provided that
     such  re-deferral  election  shall  not apply  (i) to any  Retiree  to whom
     payment of any Retirement  Benefit has already commenced and (ii) unless it
     is accepted by the Recordkeeper in accordance with the rules established by
     the Administrator in its sole discretion; and provided,  further, that such
     re-deferral  election  shall not apply to any payments that would have been
     made under a prior  election or the terms of any other plan  within  twelve
     (12) months of the date of such new election.

          (4) Form of Distribution  of Retirement  Benefits.  A Participant,  in
     connection  with each  deferral  of  Retirement  Benefits,  shall  elect to
     receive the deferral (adjusted to reflect Investment  Earnings/Losses  with
     respect thereto) in a lump sum on a Retirement Benefit Lump Sum Payout Date
     elected by the Participant or in quarterly or yearly  installment  payments
     on Retirement Benefit  Installment Payout Dates elected by the Participant.
     A  Participant  may change his or her election up to the date of Retirement
     to an  allowable  alternative  form of payout by  submitting a new Election
     Form to the  Recordkeeper;  provided  that  any such  Election  Form is (i)
     submitted at least twelve (12) months prior to the Retirement  Benefit Lump
     Sum Payout Date or the initial Retirement Benefit  Installment Payout Date,
     as the case may be,  elected by the  Participant,  and (ii) accepted by the
     Recordkeeper in accordance with rules  established by the  Administrator in
     its sole discretion;  and provided,  further,  that such election shall not
     apply to any payments  that would have been made under a prior  election or
     the terms of any other plan  within  twelve (12) months of the date of such
     new  election.  (Changes  may  not  be  made  after  Retirement  except  in
     accordance  with Section  8(b)(3).)  The Election Form last accepted by the
     Recordkeeper  shall  govern the form of a Retirement  Benefit  (adjusted to
     reflect  Investment  Earnings/Losses  with  respect  thereto).   Retirement
     Benefit payments shall be made as soon as practicable  after the applicable
     Retirement Benefit Lump Sum Payout Date or Retirement  Benefit  Installment
     Payout Dates elected by the  Participant on the  applicable  Election Form;
     provided,  that in no event  shall such  payments be made later than thirty
     (30) days after the relevant elected dates.

          (5)  Installment   Payments  for  Retirement   Benefits  Allocated  to
     Investment Options (Other than the Deemed Interest Investment Option).  The
     amount  of each  installment  payment  with  respect  to the  portion  of a
     Deferral Account that is allocated to an Investment  Option (other than the
     Deemed  Interest  Investment  Option)  shall be  determined  by the  Yearly
     Installment   method,   if  the  Participant   elected  to  receive  annual
     installments  or the  Quarterly  Installment  Method,  if  the  Participant
     elected to receive quarterly installments.

          (6)  Installment  Payments for  Retirement  Benefits  Allocated to the
     Deemed Interest  Investment Option. The amount of each installment  payment
     with respect to the portion of a Deferral  Account that is allocated to the
     Deemed  Interest  Investment  Option shall be  determined  by the following
     annuity  methodology.  The  amount  of each  installment  payment  shall be
     calculated as an annuity at the beginning of the installment  payout period
     elected by the  Participant,  based on: (i) the  balance of the  applicable
     portion of the Deferral  Account  that is allocated to the Deemed  Interest
     Investment  Option  (adjusted  to  reflect  Deemed  Interest  with  respect
     thereto) on the business day prior to the payout date of each  installment,
     (ii) the  number  of  remaining  installments,  (iii)  the  Deemed  Rate of
     Interest  then in effect,  and (iv) a final value of zero dollars  ($0). To
     illustrate, assume a retiring Participant has a Plan balance of $100,000 as
     of June 30 and has elected to receive his/her payout over a ten-year period
     quarterly  installments,  commencing July 1. Assume further that the annual
     Deemed  Rate of Interest is 10%,  compounded  quarterly.  The amount of the
     installment payments to commence July 1 would be calculated based on a June
     30 Plan balance of  $100,000,  an interest  rate of 2.5% (i.e.,  the annual
     interest rate of 10% divided by four),  and forty (40) payments (i.e.,  ten
     years times four quarters).  Calculating an annuity at the beginning of the
     installment  period  selected by the  Participant,  and assuming the Deemed
     Rate of  Interest  remains  unchanged  throughout  the payout  period,  the
     Participant would receive forty quarterly  payments of $3,886.46.  Over the
     ten-year payout period,  the Participant  would receive  payments  totaling
     $155,458.40,   of  which  $100,000   represents  the  deferred  amount  and
     $55,458.40 represents Deemed Interest with respect thereto. Notwithstanding
     the  foregoing,  in the event that more than one Deemed Rate of Interest is
     applicable to a Deferral  Account (as  contemplated by Section 1(o) above),
     the foregoing  calculation shall be made separately for each portion of the
     Deferral Account allocated to the Deemed Rate of Interest Investment Option
     at each applicable Deemed Rate of Interest.

     (c) Payment Upon Separation From Service.  Notwithstanding  anything in the
Plan to the contrary, in the event a Participant  terminates employment with the
Company for reasons other than Retirement,  death or Disability, or in the event
that any  Subsidiary  that  employs a  Participant  ceases to be a  wholly-owned
Subsidiary of AHPC, the entire  balance of the  Participant's  Deferral  Account
(adjusted to reflect Investment  Earnings/Losses  with respect thereto) shall be
distributed  to the  Participant  in a single  lump sum within  ninety (90) days
thereafter.  The foregoing  shall not apply in the case of a Participant  who is
Retirement  Eligible as of his or her date of  termination  of employment or the
date on which such Subsidiary ceases to be a wholly-owned Subsidiary of AHPC, as
the case may be.

     (d)  Payment  Upon  Death.  Notwithstanding  anything  in the  Plan  to the
contrary,  in the event a Participant dies prior to the receipt of any or all of
his or her Deferral Account, the balance of such account shall be distributed in
a single lump sum to the Participant's  Beneficiary(ies) within ninety (90) days
following the date the Administrator is notified of his or her death.

     (e) Acceleration of Payments.  Notwithstanding  anything in the Plan to the
contrary,  during  the  twenty-four  (24)  month  period  following  a Change in
Control, a Participant may elect to accelerate any or all payments not currently
due under the Plan to a single  sum  payment to be made on (i) a date that is at
least  twelve  (12) months  subsequent  to such  election,  without a penalty or
forfeiture,  or (ii) with the  imposition  of a withdrawal  penalty equal to six
percent (6%) of the accelerated  payment,  any date within twelve (12) months of
such  election.  Payments  shall be made as soon as  practicable  after the date
elected for payment; provided, that in no event shall payment be made later than
thirty (30) days thereafter.

     (f) Disability Waiver.

          (1)  Waiver  of  Deferral.  A  Participant  who is  determined  by the
     Administrator  to be  suffering  from a  Disability  shall be excused  from
     fulfilling  that  portion  of any  current  deferral  election  that  would
     otherwise have been withheld for the Plan Year during which the Participant
     first  suffers  a  Disability.   During  the  period  of  Disability,   the
     Participant shall not be allowed to make any additional deferral elections,
     but will continue to be considered a Participant  for all other purposes of
     the Plan.

          (2) Return to Work.  If a Participant  returns to employment  with the
     Company  after a  Disability  ceases,  the  Participant  may elect to defer
     additional  amounts in accordance with the Plan for the Plan Year following
     his or her  return  to  employment  or  service  and for  every  Plan  Year
     thereafter  while an  Eligible  Employee  and  Participant,  provided  such
     deferral  elections are otherwise allowed and an Election Form is delivered
     to and accepted by the Recordkeeper.

          (3) Continued Eligibility; Disability Benefit. A Participant suffering
     a Disability  shall,  for benefit  purposes under the Plan,  continue to be
     considered to remain a Participant to be eligible for the benefits provided
     for in this Section 8 in accordance  with its  provisions.  Notwithstanding
     the  above,  the  Administrator  shall  have  the  right  to,  in its  sole
     discretion and for purposes of the Plan only, with respect to a Participant
     who has been  determined to have suffered a Disability,  pay out his or her
     Deferral Account balance in a lump-sum.

     (g) Other Distributions. Any distributions that are required to be made due
to the provisions of the Predecessor  Plan with respect to a type of deferral no
longer  eligible to be deferred as of the Amended and Restated  Effective  Date,
shall be made in accordance with Section 2.

                          SECTION NINE - MISCELLANEOUS

     (a) Funding of the Plan. The Plan is unfunded and AHPC has no obligation to
set  aside,  earmark,  or  place  in  trust  any  funds  with  which  to pay its
obligations  under  the Plan.  AHPC's  obligation  under  the Plan  shall not be
secured in any way and a  Participant's  rights  shall not be secured in any way
and a  Participant's  rights  shall  in no way be  preferred  over  the  general
creditors of AHPC.

     (b)  Employment.  Neither  the Plan nor any  agreement,  document,  form or
instrument  delivered or entered into pursuant hereto  constitutes an employment
contract between the Company and a Participant.  Nothing herein or therein shall
be  construed to give a  Participant  the right to be retained in the service of
the  Company,  nor  interfere  with the right of the  Company  to  terminate  or
discipline a Participant at any time.

     (c) Governing  Law. The Plan shall be construed and  interpreted  under the
laws of the State of New Jersey  (without  giving  effect to the  principles  of
conflicts of laws) and applicable provisions of federal law.

     (d) Taxes.  The Company  shall have the right to deduct from  distributions
otherwise  payable  from any  deferral  under the Plan any taxes  required to be
withheld  under  federal,  state,  or local  law.  For each Plan Year in which a
deferral is being  deducted for a  Participant,  the Company shall withhold from
that portion of the Participant's  Base Salary and/or Bonus Compensation that is
not being deferred,  in a manner  determined by the Company,  the  Participant's
share of FICA and other employment taxes on such deferral amounts. If necessary,
the Company may reduce any amount deferred in order to comply with this Section.

     (e) Non-Assignable.  A Participant's right to receive the amounts in his or
her Deferral Account under the Plan may not be anticipated,  assigned (either at
law or equity),  alienated,  pledged,  encumbered,  or subjected to  attachment,
garnishment,  levy, execution, or other legal process, and any attempt to effect
any of the foregoing shall be void.

     (f) Minors  and  Incompetents.  If the  Administrator  determines  that any
person to whom a payment is due hereunder is a minor or incompetent by reason of
physical or mental disability,  the Administrator  shall have the power to cause
the  payments  then due to such  person to be made to another for the benefit of
the minor or incompetent,  without responsibility of the Company, the Committee,
the Administrator or the Recordkeeper to see to the application of such payment,
unless claim prior to such payment is made  therefor by a duly  appointed  legal
representative. Payments made pursuant to such power shall operate as a complete
discharge of the Company, the Committee, and the Administrator.

     (g) Trust Fund.  In  connection  with the Plan,  AHPC may, but shall not be
required to, establish a grantor trust for the purpose of accumulating  funds to
satisfy the  obligations  incurred by AHPC under the Plan. At any time, AHPC may
transfer assets to the trust to satisfy all or part of the obligations  incurred
by AHPC,  subject  to the  return  of such  assets  at a time as  determined  in
accordance with the terms of such trust. Any assets of the trust shall remain at
all times  subject  to the  claims of  creditors  of AHPC in the event of AHPC's
insolvency,  and no asset or other funding  medium used to pay benefits  accrued
under the Plan shall result in the Plan not being considered as "unfunded" under
ERISA.  Notwithstanding  the  establishment  of  the  trust,  the  right  of any
Participant to receive future  payments under the Plan shall remain an unsecured
claim against the general assets of AHPC.

     (h)  Severability.  In the event any  provision  of the Plan  shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining  provisions  of the Plan,  and the Plan shall be  constructed  and
enforced as if the  illegal or invalid  provision  had not been  included in the
Plan.

     (i)  Beneficiary.  Each  Participant  shall have the right, at any time, to
designate his or her  Beneficiary(ies)  (both primary as well as  contingent) to
receive any benefits payable under the Plan upon the death of a Participant. The
Beneficiary(ies)  designated under the Plan may be the same as or different from
the  Beneficiary  designation  under  any  other  plan  of  AHPC  in  which  the
Participant   participates.   A   Participant   shall   designate   his  or  her
Beneficiary(ies) by completing and signing the beneficiary designation form, and
returning it to the  Administrator or its designated  agent. A Participant shall
have the right to change his or her Beneficiary(ies) by completing,  signing and
otherwise  complying with the terms of the beneficiary  designation form and the
Administrator's  rules and procedures,  as in effect from time to time. Upon the
acceptance by the  Administrator  of a new  beneficiary  designation  form,  all
Beneficiary  designations  previously filed shall be canceled. The Administrator
shall be entitled to rely on the last beneficiary  designation form filed by the
Participant  and  accepted by the  Administrator  prior to his or her death.  No
designation or change in designation of a Beneficiary  shall be effective  until
received and  acknowledged  in writing by the  Administrator  or its  designated
agent. If a Participant fails to designate a Beneficiary(ies)  as provided above
or, if all designated  Beneficiaries  predecease the Participant or die prior to
complete distribution of the Participant's benefits, then the benefits remaining
under the Plan to be paid to a  Beneficiary  shall be payable to the executor or
personal representative of the Participant's estate.

     (j)  Insurance.  AHPC, on its own behalf or on behalf of the Trustee of the
trust,  and, in its sole discretion,  may apply for and procure insurance on the
life of some or all Participants,  in such amounts and in such forms as AHPC may
choose.  AHPC or the Trustee of the trust, as the case may be, shall be the sole
owner and  beneficiary  of any such  insurance.  The  Participant  shall have no
interest  whatsoever in any such policy or policies,  and at the request of AHPC
shall submit to medical  examinations  and supply such  information  and execute
such documents as may be required by the insurance  company or companies to whom
AHPC has applied for insurance.

                         SECTION TEN - EMERGENCY BENEFIT

     In the  event  that the  Administrator,  upon the  written  request  of the
Participant,  determines  that the  Participant  has  suffered an  unforeseeable
financial  emergency,  the Administrator shall in accordance with the request of
the Participant  (i) pay to the  Participant as soon as possible  following such
determination,  an amount  not in excess of the  amount  needed to  satisfy  the
emergency  and any taxes  payable on those  amounts,  and/or  (ii)  suspend  any
deferrals  required to be made to the Plan by the  Participant.  The Participant
making the request must document to the satisfaction of the  Administrator  that
the  distribution of the amount  requested is necessary to satisfy the financial
emergency  and the amount  requested  is not in excess of the  amount  needed to
satisfy the emergency and the taxes payable on those amounts.  For this purpose,
an "unforeseeable  financial emergency" means an unanticipated emergency that is
caused by an event  beyond the  control  of the  Employee  that would  result in
severe financial  hardship if the emergency  distribution were not permitted and
would include (i) a sudden and unexpected illness or accident of the Participant
or a dependent of the Participant, (ii) a loss of the Participant's property due
to casualty,  or (iii) such other extraordinary and unforeseeable  circumstances
arising as a result of events  beyond the  control  of the  Participant,  all as
determined in the sole discretion of the Administrator.

                   SECTION ELEVEN - ADMINISTRATION OF THE PLAN

     The Plan shall be administered by the  Administrator  which shall have full
discretionary authority to interpret the Plan; to make all determinations as may
be  necessary  or  advisable;   and  to  adopt,  amend  or  rescind  any  rules,
regulations,  and  procedures  as it  deems  necessary  or  appropriate  for the
administration of the Plan. The  interpretations,  determinations,  actions, and
decisions of the Administrator  shall be binding and conclusive for all purposes
and  upon  all  persons.  The  Administrator  may  delegate  part  or all of its
responsibilities  under  the  Plan to  such  party  or  parties  as it may  deem
necessary or appropriate.

                   SECTION TWELVE - AMENDMENT AND TERMINATION

     The Board of Directors  may amend or revise the terms of the Plan from time
to time, or may discontinue the Plan, in whole or in part, at any time. However,
such amendment,  revision or discontinuance of the Plan may not adversely affect
a  Participant's  benefit(s)  accrued  under the Plan  prior to the date of such
action.

                       SECTION THIRTEEN - CLAIMS PROCEDURE

     If a Participant  does not receive the timely  payment of the benefits that
he or she believes are due under the Plan, the  Participant may make a 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  Participant.  Claims
shall be submitted to the  Administrator.  If the  Participant  does not furnish
sufficient  information  with the claim for the  Administrator  to determine the
validity of the claim, the  Administrator  shall indicate to the Participant any
additional  information,  which is necessary for the  Administrator to determine
the validity of the claim.  Each claim  hereunder shall be acted on and approved
or  disapproved  by the  Administrator  within  ninety (90) days  following  the
receipt by the Administrator of the information  necessary to process the claim.
In the event the Administrator  denies a claim for benefits in whole or in part,
the  Administrator  shall notify the Participant in writing of the denial of the
claim and notify the Participant of his right to a review of the Administrator's
decision by the Committee or such entity or person  delegated  such authority by
the  Committee.  Such  notice by the  Administrator  shall also set forth,  in a
manner  calculated to be understood by the Participant,  the specific reason for
such denial,  the specific  provisions of the Plan on which the denial is based,
and a description of any additional material or information necessary to perfect
the claim,  with an explanation of the Plan's appeals  procedure as set forth in
this Section 13. If the Administrator  takes no action on a Participant's  claim
within ninety (90) days after receipt by the Administrator,  such claim shall be
deemed to be  denied  for  purposes  of the  following  appeals  procedure.  Any
Participant  whose  claim for  benefits is denied in whole or in part may appeal
for a review of the  decision  by the  Administrator.  Such  appeal must be made
within three (3) months after the applicant has received  actual or constructive
notice of the denial as provided  above.  An appeal must be submitted in writing
within such period and must:

     (a) request a review by the  Administrator  of the claim for benefits under
the Plan;

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

     (c) set forth any issues or comments that the  Participant  deems pertinent
to the appeal.  The  Administrator  shall act upon each appeal within sixty (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
Administrator  as soon as  possible  but not later than one  hundred  and twenty
(120) days after the appeal is  received.  The  Administrator  may  require  the
Participant to submit such additional facts,  documents or other evidence as the
Administrator  in its  discretion  deems  necessary  or  advisable in making its
review.  The  Participant  shall be given the  opportunity  to review  pertinent
documents  or  materials   upon   submission   of  a  written   request  to  the
Administrator,  provided  the  Administrator  finds the  requested  documents or
materials  are  pertinent  to the  appeal.  On the  basis  of  its  review,  the
Administrator  shall  make an  independent  determination  of the  Participant's
eligibility  for benefits under the Plan. The decision of the  Administrator  on
any  appeal  of a claim for  benefits  shall be final  and  conclusive  upon all
parties thereto. In the event the Administrator  denies an appeal in whole or in
part,  it shall give written  notice of the decision to the  Participant,  which
notice  shall  set  forth,  in a  manner  calculated  to be  understood  by  the
Participant,  the specific reasons for such denial and which shall make specific
reference to the pertinent  provisions of the Plan on which the  Administrator's
decision is based.

<PAGE>

                                   APPENDIX A
                       AMERICAN HOME PRODUCTS CORPORATION
                           DEFERRED COMPENSATION PLAN
                               INVESTMENT OPTIONS

     1. Balanced Portfolio

     2. S&P 500 Index Portfolio or Total Stock Market Index Portfolio

     3. International Equity Portfolio

     4. Deemed  Interest Option - a hypothetical  investment  option which earns
        interest at the Deemed Rate of Interest<PAGE>   1
                                                                     EXHIBIT 4.1

                           RAINBOW TECHNOLOGIES, INC.
                       2001 NONSTATUTORY STOCK OPTION PLAN

        1.      Purpose. This Plan has been established as a broad based stock
option plan to attract and retain eligible persons whose present and potential
contributions are important to the success of the Corporation by enabling them
to acquire a proprietary interest, or otherwise increase their proprietary
interest in, the Corporation. Capitalized terms not defined in the text of the
Plan are defined in Section 20 hereof.

        2.      Structure. The Plan shall be divided into two separate equity
programs:

                (a) the Discretionary Option Grant Program under which eligible
                persons may, at the discretion of the Committee, be granted
                Options to purchase Shares: and

                (b) the Automatic Option Grant Program under which eligible
                non-employee Board members shall automatically receive Options
                at periodic intervals to purchase Shares.

        All Options granted will be nonstatutory stock options, which are
options not intended to satisfy the requirements of incentive stock options
under Section 422 of the Code, or comply with the requirements for employee
stock purchase plans under Section 423 of the Code. No other form of Option may
be made under this Plan

        The provisions of Sections 1 through 5 and Sections 7 through 20 shall
apply to all equity programs under the Plan and shall govern the interests of
all persons under the Plan.

        3.      Administration.

               3.1 Committee Authority. This Plan will be administered by the
Committee or by the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Without
limitation, the Committee will have the authority to:

                        (a) establish such rules as it may deem appropriate for
                        proper administration of the Plan, to make all factual
                        determinations, to construe and interpret the provisions
                        of the Plan and the Options thereunder and to resolve
                        any and all ambiguities thereunder;

                        (b) determine, with respect to Options granted under the
                        Discretionary Option Grant Program, which eligible
                        persons are to receive such Options, the time or times
                        when such Options are to be granted, the number of
                        Shares to be covered by each such Option, the vesting
                        schedule (if any) applicable to the Option, the status
                        of a granted Option and the maximum term for which the
                        Option is to remain outstanding;

                        (c) amend, modify or cancel any outstanding Option with
                        the consent of the holder or accelerate the vesting of
                        such Option;

                        (d) take such other discretionary actions as permitted
                        pursuant to the terms of the applicable program;

                        (e) correct any defects, supply any omission or
                        reconcile any inconsistency in this Plan any Option or
                        any Option Agreement; and

                        (f) make all other determinations necessary or advisable
                        for the administration of this Plan.

All actions, determinations, and interpretations of the Board or Committee with
respect to this Plan or any Options granted hereunder shall be final and binding
upon the Corporation and all interested parties.

                                       1

<PAGE>   2
               3.2 Committee Membership. Members of the Committee shall serve
for such period of time as the Board may determine and may be removed by the
Board at any time. The Board may also at any time terminate the functions of the
Committee and reassume all powers and authority previously delegated to the
Committee.

               3.3 Liability of Committee Members. Service on the Committee
shall constitute service as a Board member, and members of the Committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on the Committee. No member of the Committee shall be
liable for any act or omission made in good faith with respect to this Plan or
any Options granted under this Plan.

        4.      Eligibility.

               4.1 Discretionary Grant Program. The persons eligible to
participate in the Discretionary Option Grant Program are as follows:

                        (a) employees of the Corporation (or Subsidiary),

                        (b) non-employee members of the Board or the board of
                        directors of any Subsidiary, and

                        (c) consultants, advisors and other parties who provide
                        bona fide services to the Corporation (or Subsidiary).

               4.2 Automatic Option Grant Program. Only non-employee Board
members shall be eligible to participate in the Automatic Option Grant Program.

        5.      Shares Subject to the Plan.

               5.1 Number of Shares Available. Subject to Sections 5.2, and 16,
(a) the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be Two Million Five Hundred Thousand (2,500,000)
Shares, and (b) Shares that are subject to issuance upon exercise of an Option
but cease to be subject to such Option for any reason other than exercise of
such Option will again be available for grant and issuance in connection with
future grants of Options. Should the Exercise Price of an Option be paid with
Shares or should Shares otherwise issuable under the Plan be withheld by the
Corporation in satisfaction of the withholding taxes incurred in connection with
the exercise of an Option under the Plan, then the number of Shares available
for issuance under the Plan shall be reduced by the gross number of Shares for
which the Option is exercised, and not by the net number of Shares issued to the
Optionee. At all times the Corporation shall reserve and keep available a
sufficient number of Shares as shall be required to satisfy the requirements of
all outstanding Options granted under this Plan.

               5.2 Adjustment of Shares. If any change is made to the number of
Shares by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Shares as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the maximum number
and/or class of securities issuable under this Plan, (ii) the number and/or
class of securities for which grants are subsequently to be made under the
Automatic Option Grant Program to new and continuing non-employee Board members,
and (iii) the number and/or class of securities and the Exercise Price per Share
in effect under each outstanding Option. Such adjustments to the outstanding
options are to be effected in a manner which shall preclude the enlargement or
dilution of rights and benefits under such options. The adjustments determined
by the Committee shall be final, binding and conclusive.

        6.      Option Programs

               6.1 Discretionary Grant Program. The Committee will have the
discretion to determine, the number of Shares subject to the Options, the
Exercise Price of the Options, the period during which the Options may be
exercised, and all other terms and conditions of the Options granted under the
Discretionary Grant Program, subject to the following:

                                       2

<PAGE>   3
               6.2 Automatic Grant Option Program . Each individual who is
elected or appointed as a non-employee Board member shall automatically be
granted on the date of election or appointment, an Option to purchase Fifteen
Thousand (15,000) Shares; provided, however, that if an individual is appointed
as a non-employee Board member prior to the Corporation's annual stockholders
meeting (the "Annual Stockholders Meeting"), the number of Shares covered by the
Option shall be reduced prorata based on the number of days that has elapsed
since the last Annual Stockholders Meeting, with any partial Shares being
rounded downward to the nearest whole Share. During the month of each Annual
Stockholders Meeting beginning with the 2001 Annual Stockholders Meeting, each
individual who continues to serve as a non-employee Board member immediately
following such meeting shall automatically be granted an Option to purchase
Fifteen Thousand (15,000) Shares. The annual automatic grant for non-employee
Board members shall be limited to 15,000 total for all Company option plans that
include an automatic option grant provision.

        7.      Terms & Conditions

               7.1 Form of Option Grant. Each Option granted will be evidenced
by a written Option Agreement, which will be in such form and contain such
provisions (which need not be the same for each Participant) as the Committee
may from time to time approve, and which will comply with and be subject to the
terms and conditions of this Plan.

               7.2 Date of Grant. The date of grant of an Option will be the
date on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The date of an Automatic Grant Option will
occur in the month of each Annual Stockholder Meeting.

               7.3 Vesting. Options will vest and become exercisable within the
times or upon the events determined by the Committee as set forth in the Option
Agreement governing such Option. The Committee may provide for the exercise of
Options to become exercisable at one time or from time to time, periodically or
otherwise, in such number of Shares or percentage of Shares as the Committee
determines.

               7.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may be not less than
100% of the Fair Market Value of the Shares on the date of grant. Payment for
the Shares purchased may be made in accordance with Section 8 of this Plan.

               7.5 Term. Each Option granted shall be for such term as
determined by the Committee and set forth in the Stock Option Agreement
governing such Option; provided, however, that no Option granted will be
exercisable after the expiration of ten (10) years from the date the Option is
granted.

               7.6 Method of Exercise. Options may be exercised only by delivery
to the Corporation of a written stock option exercise agreement (the "Exercise
Agreement") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding the Participant's
investment intent and access to information and other matters, if any, as may be
required or desirable by the Corporation to comply with applicable securities
laws, together with payment in full of the Exercise Price for the number of
Shares being purchased.

               7.7 Limitations on Exercise. The Committee may specify a
reasonable minimum number of Shares that must be purchased on any exercise of an
Option, provided that such minimum number will not prevent the Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.

               7.8 Modification, Extension or Renewal. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. The Committee may reduce the Exercise Price of
outstanding Options without the consent of the Participants affected by a
written notice to them; provided, however that the Exercise Price may not be
reduced below the minimum Exercise Price that would be permitted under Section
7.4 of this Plan for Options granted on the date the action is taken to reduce
the Exercise Price.

                                       3

<PAGE>   4
        8.      Payment for Share Purchases.

               8.1 Payment. Payment for Shares purchased pursuant to this Plan
may be made in cash (by check) or, where expressly approved for the Participant
by the Committee and where permitted by law as follows:

                        (a) provided that a public market for the Corporation's
                        stock exists:

                                (1) through a "same day sale" commitment from
                                the Participant and a broker-dealer that is a
                                member of the National Association of Securities
                                Dealers (an "NASD Dealer") whereby the
                                Participant irrevocably elects to exercise the
                                Option and to sell a portion of the Shares so
                                purchased to pay for the Exercise Price, and
                                whereby the NASD Dealer irrevocably commits upon
                                receipt of such Shares to forward the Exercise
                                Price directly to the Corporation; or

                                (2) through a "margin" commitment from the
                                Participant and a NASD Dealer whereby the
                                Participant irrevocably elects to exercise the
                                Option and to pledge the Shares so purchased to
                                the NASD Dealer in a margin account as security
                                for a loan from the NASD Dealer in the amount of
                                the Exercise Price, and whereby the NASD Dealer
                                irrevocably commits upon receipt of such Shares
                                to forward the Exercise Price directly to the
                                Corporation; or

                        (b) by any combination of the foregoing, or by such
                        other method as is approved by the Committee and
                        otherwise permitted by law.

        9.      Transferability and Termination of Options. During the lifetime
of a Participant, the Options may be exercised only by the Participant and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution, except that an Option may be assigned in whole or in part
during a Participant's lifetime to one or more members of the Participant's
immediate family or to a trust or other entity in which the Participant and/or
one or more of such family members have more than fifty percent (50%) of the
beneficial interests. The terms applicable to the assigned portion of the Option
shall be the same as those in effect for the Option immediately prior to the
assignment, and shall be set forth in such documents issued to the assignee as
the Committee may deem appropriate.

        Except as otherwise determined by the Committee and set forth in the
Option Agreement, exercise of an Option is subject to the following:

                (a) If the Participant is Terminated for any reason except death
                or Disability, then the Participant may exercise such
                Participant's Options no later than three (3) months after the
                Termination Date , but only to the extent that such Options
                would have been exercisable upon the Termination Date, and in
                any event, no later than the expiration date of the Options.

                (b) If the Participant is Terminated because of the
                Participant's death or Disability (or the Participant dies
                within three (3) months after a Termination other than due to
                Participant's death or Disability), then the Participant's
                Options may be exercised only to the extent that such Options
                would have been exercisable by the Participant on the
                Termination Date and must be exercised by the Participant (or
                the Participant's legal representative or authorized assignee)
                no later than twelve (12) months after the Termination Date, but
                in any event no later than the expiration date of the Options.

                (c) Notwithstanding (a) and (b) above, if the Participant is
                Terminated for Misconduct (as defined herein) any Option not
                exercised in full prior to such termination will be deemed
                automatically canceled and may not be exercised on or after the
                Termination Date.

        10.     Withholding Taxes.

               10.1 Withholding Generally. Whenever Shares are to be issued in
satisfaction of Options granted under this Plan, the Corporation may require the
Participant to remit to the Corporation an amount sufficient to

                                       4

<PAGE>   5
satisfy federal, state, and local withholding tax requirements prior to the
delivery of any certificate or certificates for such Shares.

        11.     Rights as a Stockholder. No Participant will have any of the
rights of a stockholder with respect to any Shares until the Shares are issued
to the Participant. No adjustment shall be made for dividends or distributions
or other rights for which the record date is prior to the date such certificate
or certificates are issued.

        12.     Certificates. All certificates for Shares delivered under this
Plan will be subject to such stock transfer orders, legends and other
restrictions as the Committee may deem necessary or advisable, including
restrictions under any applicable federal, state or foreign securities law, or
any rules, regulations and other requirements of the SEC or any stock exchange
or automated quotation system upon which the Shares may be listed or quoted.

        13.     Exchange of Options. The Committee may, at any time or from time
to time with the consent of the respective Participants issue new Options in
exchange for the surrender and cancellation of existing Options. The Committee
may at any time buy from a Participant an Option previously granted with payment
in cash, Shares or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.

        14.     Securities Law and Other Regulatory Compliance. An Option will
not be effective unless such Option is in compliance with all applicable federal
and state securities laws, rules and regulations of any governmental body, and
the requirements of any stock exchange or automated quotation system upon which
the Shares may then be listed or quoted, as they are in effect on the date of
grant of the Option and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Corporation will have no
obligation to issue or deliver certificates for Shares under this Plan prior to:
(a) obtaining any approvals from governmental agencies that the Corporation
determines are necessary or advisable; and/or (b) completion of any registration
or other qualification of such Shares under any state or federal law or ruling
of any governmental body that the Corporation determines to be necessary or
advisable.

        15.     No Obligation to Employ. Nothing in this Plan or any Option
granted under this Plan will confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Corporation or any Subsidiary of the Corporation or limit in any way
the right of the Corporation or Subsidiary of the Corporation to terminate any
Participant's employment or other relationship at any time, with or without
cause.

        16.     Corporate Transactions.

               16 .1 Assumption or Replacement of Awards by Successor. Each
Option outstanding at the time of a Change in Control but not otherwise
fully-vested shall automatically accelerate so that each such Option shall,
immediately prior to the effective date of the Change in Control, become
exercisable for all of the Shares at the time subject to that Option. However,
an outstanding Option shall not so accelerate if and to the extent: (i) such
Option is, in connection with the Change in Control, assumed or otherwise
continued in full force and effect by the successor corporation (or parent
thereof) pursuant to the terms of the Change in Control, (ii) such Option is
replaced with a cash incentive program of the successor corporation which
preserves the spread existing at the time of the Change in Control on the Shares
for which the Option is not otherwise at that time exercisable and provides for
subsequent payout in accordance with the same vesting schedule applicable to
those Shares or (iii) the acceleration of such Option is subject to other
limitations imposed by the Committee at the time of it was granted. Immediately
following the consummation of the Change in Control, all outstanding Options
shall terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) or otherwise expressly continued in
full force and effect pursuant to the terms of the Change in Control. Each
Option which is assumed in connection with a Change in Control shall be
appropriately adjusted, immediately after such Change in Control, to apply to
the number and class of securities which would have been issuable to the
Participant in consummation of such Change in Control had the Option been
exercised immediately prior to such Change in Control. Appropriate adjustments
to reflect such Change in Control shall also be made to (i) the Exercise Price
payable per Share under each outstanding Option, provided the aggregate Exercise
Price payable for such securities shall remain the same, and (ii) the maximum
number and/or class of securities available for issuance over the remaining term
of the Plan. The Committee may at any time provide that one or more Options will
automatically accelerate in connection with a Change in Control, whether or not
those Options are assumed or otherwise continued in full force and effect

                                       5

<PAGE>   6
pursuant to the terms of the Change in Control. Any such Option shall
accordingly become exercisable, immediately prior to the effective date of such
Change in Control, for all of the Shares at the time subject to that Option.

               16.2 Other Treatment of Options. Subject to any greater rights
granted to the Participants under the foregoing provisions of this Section 16
and in the event of the occurrence of any transaction described in Section 16.1,
any outstanding Options will be treated as provided in the applicable agreement
or plan of merger, consolidation, dissolution, liquidation, sale of assets or
other "corporate transaction."

               16.3 Assumption of Awards by the Corporation. The Corporation,
from time to time, also may substitute or assume outstanding options or similar
awards granted by another company, whether in connection with an acquisition of
such other company or otherwise, by either; (a) granting an Option under this
Plan in substitution of such other company's award; or (b) assuming such award
as if it had been granted under this Plan if the terms of such assumed award
could be applied to an Option granted under this Plan. Such substitution or
assumption will be permissible if the holder of the substituted or assumed award
would have been eligible to be granted an Option under this Plan if the other
company had applied the rules of this Plan to such grant. In the event the
Corporation assumes an award granted by another company, the terms and
conditions of such award will remain unchanged (except that the exercise price
per share and the number and nature of shares issuable upon exercise of any such
award will be adjusted appropriately). In the event the Corporation elects to
grant a new Option rather than assuming an existing award, such new Option may
be granted with a similarly adjusted Exercise Price.

        17.     Term of Plan. The Plan shall be unlimited in duration and, in
the event of Plan termination, shall remain in effect as long as any Options
under it are outstanding.

        18.     Amendment or Termination of Plan. The Board may at any time
terminate or amend the Plan without the approval of the stockholders of the
Corporation, unless such approval is required by law (including Section 16(b) of
the Exchange Act), The Nasdaq Market Marketplace Rules, or otherwise.
Notwithstanding the foregoing, no amendment or termination may, in the absence
of written consent by the affected Participant (or, if the Participant is not
then living, the affected beneficiary), adversely affect the rights of any
Participant or beneficiary under any Option granted under the Plan prior to the
date such amendment or termination is adopted by the Board; provided that
adjustments pursuant to Section 5.2 and 16 shall not require the consent of any
Participant.

        19.     No Impairment of Authority. Neither the adoption of this Plan by
the Board, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases. Outstanding Options shall in no way affect the right of the Corporation
to adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.

        20.     Definitions.

               "Automatic Option Grant Program" means the automatic option grant
program in effect under the Plan.

               "Board" means the Board of Directors of the Corporation.

               "Change in Control" means a change in ownership or control of the
Corporation effected through any of the following transactions:

                (a) a merger, consolidation or reorganization approved by the
                Corporation's stockholders, unless securities representing more
                than fifty percent (50%) of the total combined voting power of
                the voting securities of the successor corporation are
                immediately thereafter beneficially owned, directly or
                indirectly and in substantially the same proportion, by the
                persons who beneficially owned the Corporation's outstanding
                voting securities immediately prior to such transaction,

                (b) any stockholder-approved complete liquidation of the
                Corporation, or transfer or other disposition of all or
                substantially all of the Corporation's assets,

                                       6

<PAGE>   7
               (c) the acquisition, directly or indirectly by any person or
               related group of persons (other than the Corporation or a person
               that directly or indirectly controls, is controlled by, or is
               under common control with, the Corporation), of beneficial
               ownership (within the meaning of Rule 13d-3 of the Exchange Act)
               of securities possessing more than fifty percent (50%) of the
               total combined voting power of the Corporation's outstanding
               securities; or

                (d) a majority of the directors of the Corporation shall be
                persons other than persons:

                        (i) for whose election proxies shall have been solicited
                        by the Board; or

                        (ii) who are then serving as directors appointed by the
                        Board to fill vacancies on the Board caused by death or
                        resignation (but not by removal) or to fill
                        newly-created directorships.

               "Code" means the Internal Revenue Code of 1986, as amended.

               "Committee" means a committee of the Board comprised of two or
more "non-employee directors" within the meaning of Rule 16b-3 of the Exchange
Act appointed to administer this Plan, or if no such committee is appointed, the
Board. During all times that the Corporation is subject to Section 16 of the
Exchange Act, the Corporation will take appropriate steps to comply with the
administration requirements of Section 16(b) of the Exchange Act.

               "Common Stock" means the common stock of the Corporation.

               "Corporation" means RAINBOW TECHNOLOGIES, Inc., a Delaware
corporation, or any successor corporation.

               "Disability" means a disability, whether temporary or permanent,
partial or total, within the meaning of Section 22(e)(3) of the Code, as
determined by the Committee.

               "Discretionary Option Grant Program" means the discretionary
option grant program in effect under the Plan.

               "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

               "Exercise Price" means the price at which a holder of an Option
may purchase the Shares issuable upon exercise of the Option.

               "Fair Market Value" means, as of any date, the value of a share
of the Corporation's Common Stock determined as follows:

                (a) if such Common Stock is then quoted on the Nasdaq National
                Market, its closing price on the Nasdaq National Market on the
                date of determination (if such day is a trading day), and, if
                such date of determination is not a trading day, then on the
                last trading day prior to the date of determination;

                (b) if such Common Stock is publicly traded and is then listed
                on a national securities exchange, its closing price on the
                principal national securities exchange on which the Common Stock
                is listed or admitted to trading on the date of determination
                (if such day is a trading day), and, if such date of
                determination is not a trading day, then on the last trading day
                prior to the date of determination;

                (c) if such Common Stock is publicly traded but is not quoted on
                the Nasdaq National Market nor listed or admitted to trading on
                a national securities exchange, the average of the closing bid
                and asked prices on the date of determination (if such day is a
                trading day), and, if such date of

                                       7

<PAGE>   8
                determination is not a trading day, then on the last trading day
                prior to the date of determination; or

                (d) if none of the foregoing is applicable, by the Committee in
                good faith.

               "Misconduct" means the commission of any act of fraud,
embezzlement or dishonesty by the Participant, any unauthorized use or
disclosure by such person of confidential information or trade secrets of the
Corporation (or Subsidiary), or any intentional wrongdoing by such person,
whether by omission or commission, which adversely affects the business or
affairs of the Corporation (or Subsidiary) in a material manner. This shall not
limit the grounds for the dismissal or discharge of any person in the service of
the Corporation (or Subsidiary).

               "Option" means an option to purchase Shares granted pursuant to
this Plan.

               "Option Agreement" means, with respect to each Option, the signed
written agreement between the Corporation and the Participant setting forth the
terms and conditions of the Option.

               "Participant" means a person who receives an Option under this
Plan.

               "Plan" means this RAINBOW TECHNOLOGIES, Inc. 2001 Nonstatutory
Stock Option Plan, as amended from time to time.

               "SEC" means the Securities and Exchange Commission.

               "Shares" means shares of the Corporation's (and any successor
entity's) authorized but unissued or reacquired Common Stock, including shares
repurchased by the Corporation (or such successor entity) on the open market.

               "Subsidiary" means any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation if, at the
time of granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

               "Termination" or "Terminated" means, for purposes of this Plan
with respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, director, consultant, independent contractor or
advisor to the Corporation or Subsidiary of the Corporation, except in the case
of sick leave, military leave, or any other leave of absence approved by the
Committee, provided that such leave is for a period of not more than ninety (90)
days, or reinstatement upon the expiration of such leave is guaranteed by
contract or statute. The Committee will have sole discretion to determine
whether a Participant has ceased to provide services and the effective date on
which the Participant ceased to provide services (the "Termination Date").

                                       8

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