Document:

EX-10.2

 

Exhibit 10.2

AETNA INC.

NON-EMPLOYEE DIRECTOR COMPENSATION PLAN

SECTION 1. ESTABLISHMENT OF PLAN; PURPOSE.

     The Plan is hereby established to permit Eligible Directors of the Company, in recognition of
their contributions to the Company, to receive Shares in the manner described below. The Plan is
intended to enable the Company to attract, retain and motivate qualified Directors and to enhance
the long-term mutuality of interest between Directors and stockholders of the Company.

SECTION 2. DEFINITIONS.

     When used in this Plan, the following terms shall have the definitions set forth in this
Section:

     “Accounts” shall mean an Eligible Director’s Stock Unit Account and Interest Account, as
described in Section 9.

     “Affiliate” shall mean any corporation or other entity (other than the Company or one of its
Subsidiaries) in which the Company directly or indirectly owns at least twenty percent (20%) of the
combined voting power of all classes of stock of such entity or at least twenty percent (20%) of
the ownership interests in such entity.

     “Board of Directors” shall mean the Board of Directors of the Company.

     “Code” shall mean the Internal Revenue Code of 1986, as amended, and the regulations
thereunder.

     “Committee” shall mean the Nominating and Corporate Governance Committee of the Board of
Directors or such other committee of the Board as the Board shall designate from time to time.

     “Company” shall mean Aetna U.S. Healthcare Inc., a Pennsylvania corporation. Following
consummation of the transactions contemplated by the Merger Agreement, Aetna U.S. Healthcare Inc.
will change its name to Aetna Inc.

     “Compensation” shall mean the annual retainer fees earned by an Eligible Director for service
as a Director, the annual retainer fee, if any, earned by an Eligible Director for service as a
member of a committee of the Board of Directors; and any fees earned by an Eligible Director for
attendance at meetings of the Board of Directors and any of its committees.

     “Director” shall mean any member of the Board of Directors, whether or not such member is an
Eligible Director.

     “Disability” shall mean an illness or injury that lasts at least six months, is expected to be
permanent and renders a Director unable to carry out his/her duties.

     “Effective Date” shall mean the date on which the transactions contemplated by the Merger
Agreement are consummated.

     “Eligible Director” shall mean a member of the Board of Directors who is not an employee of
the Company.

     “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

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     “Fair Market Value” shall mean on any date, with respect to a Share, the closing price of a
Share as reported by the Consolidated Tape of the New York Stock Exchange Listed Shares on such
date, or if no shares were traded on such Exchange on such date, on the next date on which the
Common Stock is traded.

     “Government Service” shall mean the appointment or election of the Eligible Director to a
position with the federal, state or local government or any political subdivision, agency or
instrumentality thereof.

     “Grant” shall mean a grant of Units under Section 5, Options under Section 7 and Other Stock
Based Awards under Section 12.

     “Interest Account” shall mean the bookkeeping account established to record the interests of
an Eligible Director with respect to deferred Compensation that is not deemed invested in Units.

     “Merger Agreement” shall mean the Agreement and Plan of Restructuring and Merger among ING
America Insurance Holdings, Inc., ANB Acquisition Corp., the Former Parent and for limited purposes
only, ING Groep N.V., dated as of July 19, 2000.

     “Option” shall mean the right granted under Section 7 to purchase the number of shares of
Stock specified by the Board of Directors, at a price and for the term fixed by the Board of
Directors in accordance with the Plan and subject to any other limitations and restrictions as this
Plan and the Board of Directors shall impose, which such option is not intended to qualify as an
“incentive stock option” under Section 422 of the Code.

     “Other Stock Based Awards” means any right granted under Section 12.

     “Prior Plan” shall mean the Aetna Inc. Non-Employee Director Deferred Stock and Deferred
Compensation Plan.

     “Retirement” shall mean termination of service as a Director on account of the Company’s
mandatory Director retirement policy as may be in effect on the date of such termination of
service.

     “Shares” shall mean shares of Stock.

     “Stock” shall mean the Common Shares, $.01 par value, of the Company.

     “Stock Unit Account” shall mean, with respect to an Eligible Director who has elected to have
deferred amounts deemed invested in Units, a bookkeeping account established to record such
Eligible Director’s interest under the Plan related to such Units.

     “Subsidiary” shall mean any entity of which the Company possesses directly or indirectly fifty
percent (50%) or more of the total combined voting power of all classes of stock of such entity.

     “Unit” shall mean a contractual obligation of the Company to deliver a Share or pay cash based
on the Fair Market Value of a Share to an Eligible Director or the beneficiary or estate of such
Eligible Director as provided herein.

     “Year of Service as a Director” shall mean a period of 12 months of service as a Director,
measured from the effective date of a Unit.

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SECTION 3. ADMINISTRATION.

     The Plan shall be administered by the Board of Directors. The Board of Directors shall have
the responsibility of construing and interpreting the Plan and of establishing and amending such
rules and regulations as it deems necessary or desirable for the proper administration of the Plan.
Any decision or action taken or to be taken by the Board of Directors, arising out of or in
connection with the construction, administration, interpretation and effect of the Plan and of its
rules and regulations, shall, to the maximum extent permitted by applicable law, be within its
absolute discretion (except as otherwise specifically provided herein) and shall be conclusive and
binding upon all Eligible Directors and any person claiming under or through any Eligible Director.

     Subject to the terms of the Plan and applicable law, and in addition to other express powers
and authorizations conferred on the Board of Directors by the Plan, the Board of Directors shall
have full power and authority to: (i) determine the number of Shares to be covered by, or with
respect to which payments, rights, or other matters are to be calculated in connection with, Units
and Options; (ii) determine the terms and conditions of any Option; (iii) interpret and administer
the Plan and any instrument or agreement relating to, or Grant made under, the Plan; (iv)
establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; and (v) make any other determination
and take any other action that the Board of Directors deems necessary or desirable for the
administration of the Plan.

     The Plan shall be administered such that awards under the Plan shall be deemed to be exempt
under Rule 16b-3 of the Securities and Exchange Commission under the Exchange Act (“Rule 16b-3”),
as such Rule is in effect on the Effective Date of the Plan and as it may be subsequently amended
from time to time.

SECTION 4. SHARES AUTHORIZED FOR ISSUANCE.

     4.1 Maximum Number of Shares. The aggregate number of Shares with respect to which Grants may
be awarded to Eligible Directors under the Plan shall not exceed 250,000 Shares, subject to
adjustment as provided in Section 4.2 below, plus that number of Shares equal to the aggregate
number of Shares credited to each Eligible Director’s Stock Unit Account as a result of transfers
of stock units from the Prior Plan pursuant to Section 9.10. If any Unit or Option is settled in
cash or is forfeited without a distribution of Shares, the Shares otherwise subject to such Unit or
Option shall again be available for Grants hereunder. As of March 11, 2005 the shares available
for issuance under the Plan were adjusted pursuant to Section 4.2 as a result of the Company’s
2-for-1 stock split.

     4.2 Adjustment for Corporate Transactions. In the event that any stock dividend,
extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up,
spin-off, combination, exchange of shares, warrants or rights offering to purchase Stock at a price
substantially below Fair Market Value, or other similar event affects the Stock such that an
adjustment is required to preserve, or to prevent enlargement of, the benefits or potential
benefits made available under the Plan, then the Board of Directors shall adjust the number and
kind of shares which thereafter may be awarded under the Plan and the number of Units and Options
and the exercise price thereof that have been, or may be, granted under the Plan. Additionally,
the Board of Directors may make provisions for a cash payment to an Eligible Director.

SECTION 5. UNIT GRANTS.

     5.1 Unit Awards. Each Eligible Director (other than any Eligible Director who has received an
award under the Prior Plan) who is first elected or appointed to the Board of Directors
on or after the Effective Date of the Plan shall be awarded 3,000 Units on such date (or such other
number of Units as the Board shall determine). In addition, on the date of each Annual Meeting of
Shareholders of the Company occurring after 2000 and during the term of the Plan an eligible
Director serving as a Director on such date shall be awarded 700 Units (or such other number of
Units as the Board shall determine).

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     5.2 Delivery of Shares. Subject to satisfaction of the applicable vesting requirements set
forth in Section 6 and except as otherwise provided in Section 8, all Shares that are subject to
any Units shall be delivered to an Eligible Director and transferred on the books of the Company on
the date which is the first business day of the month immediately following the termination of such
Eligible Director’s service as a Director. Notwithstanding the foregoing, an Eligible Director may
elect that all or a portion of his or her Units shall be payable in cash as soon as practicable
following the first business day of the month immediately following the termination of such
Eligible Director’s service as a Director. Any fractional Shares to be delivered in respect of
Units shall be settled in cash based upon the Fair Market Value on the date any whole Shares are
transferred on the books of the Company to the Eligible Director or the Eligible Director’s
beneficiary. The amount of any cash payment shall be determined by multiplying the number of Units
and the number of Units subject to a cash payment election by the Fair Market Value on the last
business day preceding the payment date. Upon the delivery of a Share (or cash with respect to a
whole or fractional Share) pursuant to the Plan, the corresponding Unit (or fraction thereof) shall
be canceled and be of no further force or effect.

     5.3 Dividend Equivalents. An Eligible Director shall have no rights as a shareholder of the
Company with respect to any Units until Shares are delivered to the Director pursuant to this
Section 5 hereof; provided that, each Eligible Director shall have the right to receive an amount
equal to the dividend per Share for the applicable dividend payment date (which, in the case of any
dividend distributable in property other than Shares, shall be the per Share value of such
dividend, as determined by the Company for purposes of income tax reporting) times the number of
Units held by such Eligible Director on the record date for the payment of such dividend (a
“Dividend Equivalent”). Each Eligible Director may elect, prior to any calendar year, whether the
Dividend Equivalent is (i) payable in cash, on or as soon as practicable after each date on which
dividends are paid to shareholders with respect to Shares; (ii) treated as reinvested in an
additional number of Units determined by dividing (A) the cash amount of any such dividend by (B)
the Fair Market Value on the related dividend payment date; or (iii) deferred and credited to the
Eligible Director’s Interest Account pursuant to Section 9.4.

SECTION 6. UNIT VESTING.

     6.1 Service Requirements. Except as otherwise provided in this Section 6 or Section 8, an
Eligible Director shall vest in his or her Units as provided in this Section 6.1. If an Eligible
Director terminates service prior to the completion of three Years of Service as a Director, the
number of Shares to be delivered to such Eligible Director in respect of Units granted upon his or
her election to the Board shall equal the amount obtained by multiplying 3,000 by a fraction, the
numerator of which is the number of full months of service completed by such Director from the
applicable date of Unit grant and the denominator of which is 36. If an Eligible Director
terminates service prior to the completion of one Year of Service as a Director from the date of
Unit grant with respect to any annual grant of Units made hereunder, the number of Shares to be
delivered to such Eligible Director in respect of such Unit grant shall equal the amount obtained
by multiplying 700 by a fraction, the numerator of which is the number of full months of service
completed by such Director from the applicable date of Unit grant and the denominator of which is
12. Notwithstanding the foregoing, and except as provided in Section 6.2, if the Eligible Director
terminates service by reason of his/her death, Disability, Retirement, or acceptance of a position
in Government Service prior to the completion of the period of service required to be performed to
fully vest in any Unit grant, all Shares that are the subject of such Unit grant (or, if elected by
the Eligible Director, the value thereof in cash) shall be delivered to such Eligible Director (or
the Eligible Director’s beneficiary or estate).

     6.2 Six Months’ Minimum Service. If an Eligible Director has completed less than six
consecutive months of service as a Director, all Units held by such Eligible Director shall be
immediately forfeited. If an Eligible Director has completed less than six consecutive months of
service from any date on which any annual grant of Units is made, all Units held by such Eligible
Director that relate to such annual grant of units shall be immediately forfeited.

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     6.3 Distribution on Death. Except as provided in Section 6.2, in the event of the death of an
Eligible Director, the Shares corresponding to such Units or, at the election of the Eligible
Director’s beneficiary or estate, the Fair Market Value thereof in cash shall be delivered to the
beneficiary designated by the Eligible Director on a form provided by the Company, or, in the
absence of such designation, to the Eligible Director’s estate.

SECTION 7. STOCK OPTIONS.

     (a) Grant. Subject to the provisions of the Plan, the Board of Directors shall have the
authority to award Options to an Eligible Director and to determine (i) the number of Shares to be
covered by each Option, (ii) subject to Section 7(b), the exercise price of the Option and (iii)
the conditions and limitations applicable to the exercise of the Option.

     (b) Exercise Price. The exercise price of an Option shall not be less than 100% of the Fair
Market Value on the date of grant.

     (c) Exercise. Each Option shall be exercised at such times and subject to such terms and
conditions as the Board of Directors may specify at the time of the award of such Option or
thereafter. No shares shall be delivered pursuant to any exercise of an Option unless arrangements
satisfactory to the Board of Directors have been made to assure full payment of the exercise price
therefor. Without limiting the generality of the foregoing, payment of the exercise price may be
made in cash or its equivalent or, if and to the extent permitted by the Board of Directors by
exchanging Shares owned by the Eligible Director (which are not the subject of any pledge or other
security interest) either actually or by attestation, or by a combination of the foregoing,
provided that the combined value of all cash and cash equivalents and the Fair Market Value of any
such Shares so tendered to the Company, valued as of the date of such tender, is at least equal to
such exercise price.

     (d) No Eligible Director shall have any rights as a shareholder with respect to any Shares to
be issued pursuant to any Option under the Plan prior to the issuance thereof.

SECTION 8. CHANGE IN CONTROL.

     8.1 Immediate Vesting. Upon the occurrence of a Change in Control, each Eligible Director’s
right and interest in Units and Options which have not previously vested shall become vested and
nonforfeitable.

     8.2 Cash Settlement. (a) (i) Upon the occurrence of a Change in Control, in lieu of
delivering Shares with respect to the Units then held by an Eligible Director, the Company shall
pay such Eligible Director, not later than 60 days after the Change in Control occurs, cash in an
aggregate amount equal to the product of (x) the number of Shares that are subject to all Units
credited to such Eligible Director at the time of the Change in Control multiplied by (y) the Fair
Market Value on the date of the Change in Control.

     (ii) Upon the occurrence of a Change in Control, the Company shall pay to each Eligible
Director cash in an amount equal to the accrued value of such Eligible Director’s Interest Account.

     (b) Upon the occurrence of a Change in Control, in lieu of delivering Shares with respect to
each Option then held by an Eligible Director, the Company shall pay such Eligible Director, not
later than 60 days after the Change in Control occurs, cash in an aggregate amount equal to the
product of (i) the number of Shares that are subject to each Option held by such Eligible Director
at the time of the Change in Control multiplied by (ii) the amount by which the Fair Market Value
on the date of the Change of Control exceeds the exercise price of such Option.

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     8.3 Definition. “Change in Control” shall mean the occurrence of any of the following events:

     (i) When any “person” as defined in Section 3(a)(9) of the Exchange Act and as used in
Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) of the Exchange
Act but excluding the Company and any Subsidiary thereof and any employee benefit plan sponsored or
maintained by the Company or any Subsidiary (including any trustee of such plan acting as trustee),
directly or indirectly, becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange
Act, as amended from time to time), of securities of the Company representing 20 percent or more of
the combined voting power of the Company’s then outstanding securities;

     (ii) When, during any period of 24 consecutive months the individuals who, at the beginning of
such period, constitute the Board (the “Incumbent Directors”) cease for any reason other than death
to constitute at least a majority thereof, provided that a Director who was not a Director at the
beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and
be an Incumbent Director) if such Director was elected by, or on the recommendation of or with the
approval of, at least two-thirds of the Directors who then qualified as Incumbent Directors either
actually (because they were directors at the beginning of such 24-month period) or by prior
operation of this Paragraph (ii); or

     (iii) The occurrence of a transaction requiring stockholder approval for the acquisition of
the Company by an entity other than the Company or a Subsidiary through purchase of assets, or by
merger, or otherwise.

     Notwithstanding the foregoing, in no event shall a Change in Control be deemed to have
occurred (i) as a result of the formation of a Holding Company, or (ii) with respect to a
Director if the Director is part of a “group”, within the meaning of Section 13(a)(3) of the
Exchange Act as in effect on the effective date of the Change in Control transaction. In
addition, for purposes of the definition of “Change in Control” a person engaged in the
business as an underwriter of securities shall not be deemed to be a “beneficial owner” of,
or to “beneficially own”, any securities acquired through such person’s participation in
good faith in a firm commitment underwriting until the expiration of forty days after the
date of such acquisition.

     For purposes of this Section 8.3, the term Holding Company means an entity that becomes
a holding company for the Company or its business as part of any reorganization, merger,
consolidation or other transaction, provided that the outstanding shares of common stock of
such entity and the combined voting power of the then outstanding voting securities of such
entity entitled to vote generally in the election of directors is, immediately after such
reorganization, merger, consolidation or other transaction, beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were the
beneficial owners of the outstanding shares of Common Stock and the combined voting power of
the outstanding voting securities, respectively, of the Company immediately prior to such
reorganization, merger, consolidation or other transaction in substantially the same
proportions as their ownership, immediately prior to such reorganization, merger,
consolidation or other transaction, of such outstanding voting stock.

SECTION 9. DEFERRED COMPENSATION PROGRAM.

     9.1 Election to Defer. On or before December 31 of any calendar year, an Eligible Director
may elect to defer receipt of all or any part of any Compensation payable in respect of the
calendar year following the year in which such election is made, and to have such amounts credited,
in whole or in part, to a Stock Unit Account or an Interest Account. Any person who shall become
an Eligible Director during any calendar year may elect, not later than the 30th day
after his or her term as a Director begins, to defer payment of all or any part of his or her
Compensation payable for the portion of such calendar year following such election.

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     9.2 Method of Election. A deferral election shall be made by written notice filed with the
Corporate Secretary of the Company. Such election shall continue in effect (including with respect
to Compensation payable for subsequent calendar years) unless and until the Eligible Director
revokes or modifies such election by written notice filed with the Corporate Secretary of the
Company. Any such revocation or modification of a deferral election shall become effective as of
the end of the calendar year in which such notice is given and only with respect to Compensation
payable for services rendered thereafter. Amounts credited to the Eligible Director’s Stock Unit
Account prior to the effective date of any such revocation or modification of a deferral election
shall not be affected by such revocation or modification and shall be distributed only in
accordance with the otherwise applicable terms of the Plan. An Eligible Director who has revoked
an election to participate in the Plan may file a new election to defer Compensation payable for
services to be rendered in the calendar year following the year in which such election is filed.

     9.3 Investment Election. At the time an Eligible Director elects to defer receipt of
Compensation pursuant to Section 9.1, the Eligible Director shall designate in writing the portion
of such Compensation, stated as a whole percentage, to be credited to the Interest Account (or such
other account as may be established from time to time by the Committee) and the portion to be
credited to the Stock Unit Account. If an Eligible Director fails to notify the Corporate
Secretary as to how to allocate any Compensation between the Accounts, 100% of such Compensation
shall be credited to the Interest Account. By written notice to the Corporate Secretary of the
Company, an Eligible Director may change the manner in which the Compensation payable with respect
to services rendered after the end of such calendar year are allocated among the Accounts.

     9.4 Dividend Equivalents. In addition to the deferral of Compensation permitted under Section
9.1, an Eligible Director may elect, in the manner and at the time described in Section 5.3, to
have Dividend Equivalents payable in respect of his or her Units credited to his or her Interest
Account in the manner and at the time described in such Section 5.3.

     9.5 Interest Account. Any Compensation allocated to the Interest Account shall be credited to
the Interest Account as of the date such Fees would have been paid to the Eligible Director. Any
amounts credited to the Interest Account shall be credited with interest at the same rate and in
the manner in which interest is credited under the Fixed Investment Fund (or, if such fund no
longer exists, the fund with the investment criteria most clearly comparable to that of such Fund)
under the Aetna Inc. Incentive Savings Plan (or any successor thereto).

     9.6 Stock Unit Account. Any Compensation allocated to the Stock Unit Account shall be deemed
to be invested in a number of Units equal to the quotient of (i) such Compensation divided by (ii)
the Fair Market Value on the date the Fees then being allocated to the Stock Unit Account would
otherwise have been paid. Fractional Units shall be credited, but shall be rounded to the nearest
hundredth percentile, with amounts equal to or greater than .005 rounded up and amounts less than
..005 rounded down. Whenever a dividend other than a dividend payable in the form of Shares is declared with respect to the Shares, the number of Units
in the Eligible Director’s Stock Unit Account shall be increased
by the number of Units determined by dividing (i) the product of (A) the number of Units in the Eligible Director’s Stock
Unit Account on the related dividend record date, and (B) the amount of any cash dividend declared
by the Company on a Share (or, in the case of any dividend distributable in property other than
Shares, the per share value of such dividend, as determined by the Company for purposes of income
tax reporting), by (ii) the Fair Market Value on the related dividend payment date. In the case of
any dividend declared on Shares which is payable in Shares, the Eligible Director’s Stock Unit
Account shall be increased by the number of Units equal to the product of (i) the number of Units
credited to the Eligible Director’s Stock Unit Account on the related dividend record date, and
(ii) the number of Shares (including any fraction thereof) distributable as a dividend on a Share.

     9.7 Distribution Election. At the time an Eligible Director makes a deferral election
pursuant to Section 9.1, the Eligible Director shall also file with the Corporate Secretary of the
Company a written election ( a “Distribution Election”) with respect to whether:

     (i) the aggregate amount, if any, credited to the Interest Account at any time and the value
of any Units credited to the Stock Unit Account shall be distributed in cash, in Shares or in a
combination thereof at the election of the Director;

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     (ii) such distribution shall commence as soon as practicable following the first business day
of the calendar month following the date the Eligible Director ceases to be a Director or on the
first business day of any calendar year following the calendar year in which the Eligible Director
ceases to be a Director; and

     (iii) such distribution shall be in one lump sum payment or in such number of annual
installments (not to exceed ten) as the Eligible Director may designate.

     The amount of any installment payment shall be determined by multiplying the amount credited
to the Accounts of an Eligible Director immediately prior to the distribution by a fraction, the
numerator of which is one and the denominator of which is the number of installments (including the
current installment) remaining to be paid. An Eligible Director may at any time, and from time to
time, change any Distribution Election applicable to his or her Accounts,
provided that no election to change the timing of any final distribution shall be effective unless
it is made in writing and received by the Corporate Secretary of the Company at least one full
calendar year prior to the time at which the Eligible Director ceases to be a director.

     9.8 Financial Hardship Withdrawal. Any Eligible Director may, after submission of a written
request to the Corporate Secretary of the Company and such written evidence of the Eligible
Director’s financial condition as the Committee may reasonably request, withdraw from his Interest
Account up to such amount as the Committee shall determine to be necessary to alleviate the
Eligible Director’s financial hardship.

     9.9 Timing and Form of Distributions. Any distribution to be made hereunder, whether in the
form of a lump sum payment or installments, following the termination of an Eligible Director’s
service as a Director shall commence in accordance with the Distribution Election made by the
Eligible Director pursuant to Section 9.7. If an Eligible Director fails to specify a form of
payment for a distribution in accordance with Section 9.7, the distribution from the Interest
Account shall be made in cash and the distribution from the Stock Unit Account shall be made in
Shares. If an Eligible Director fails to specify in accordance with Section 9.7 a commencement
date for a distribution or whether such distribution shall be made in a lump sum payment or a
number of installments, such distribution shall be made in a lump sum payment and commence on the
first business day of the month immediately following the date on which the Eligible Director
ceases to be a Director. In the case of any distribution being made in annual installments, each
installment after the first installment shall be paid on the first business day of
each subsequent calendar year, or as soon as practical thereafter, until the entire amount subject
to such Distribution Election shall have been paid.

     9.10 Effect on Prior Plan. Subject to approval of the Company’s sole shareholder and the
consummation of the transactions contemplated by the Merger Agreement, the amounts standing to the
credit of each Eligible Director’s stock unit account under the Prior Plan shall be transferred to
the Plan and credited to the Eligible Director’s Stock Unit Account. Any elections in effect under
such Prior Plan shall be deemed to be an election made pursuant to and in accordance with the terms
of this Section 9 unless and until the Eligible Director elects to change such elections in
accordance with the provisions of this Section 9.

SECTION 10. UNFUNDED STATUS.

     The Company shall be under no obligation to establish a fund or reserve in order to pay the
benefits under the Plan. A Unit represents a contractual obligation of the Company to deliver
Shares or pay cash to a Director as provided herein. The Company has not segregated or earmarked
any Shares or any of the Company’s assets for the benefit of a Director or his/her beneficiary or
estate, and the Plan does not, and shall not be construed to, require the Company to do so. The
Director and his/her beneficiary or estate shall have only an unsecured, contractual right against
the Company with respect to any Units granted or amounts credited to a Director’s Accounts
hereunder, and such right shall not be deemed superior to the right of any other creditor. Units shall not
be deemed to constitute options or rights to purchase Stock.

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SECTION 11. AMENDMENT AND TERMINATION.

     The Plan may be amended at any time by the Board of Directors, provided that, except as
provided in Section 4.2, the Board of Directors may not, without approval of the shareholders of
the Company increase the number of Shares which may be awarded under the Plan. The Plan shall
terminate on April 30, 2010. Notwithstanding the foregoing, no amendment or termination of the
Plan shall materially and adversely affect any rights of any Director under any Grant made pursuant
to the Plan. Unless the Board otherwise specifies at the time of such termination, a termination
of the Plan will not result in the distribution of the amounts credited to an Eligible Director’s
Accounts.

SECTION 12. OTHER STOCK-BASED AWARDS.

     The Board of Directors shall have authority to grant to Eligible Directors an “Other
Stock-Based Award”, which shall consist of any right which is (i) not a Grant described in Sections
5 or 7 above and (ii) a Grant of Shares or a Grant denominated or payable in, valued in whole or in
part by reference to, or otherwise based on or related to, Shares (including, without limitation,
securities convertible into Shares ), as deemed by the Board of Directors to be consistent with the
purposes of the Plan; provided that any such rights must comply, to the extent deemed desirable by
the Board of Directors, with Rule 16b-3 and applicable law. Subject to the terms of the Plan and
any applicable award agreement, the Board of Directors shall determine the terms and conditions of
any such Other Stock-Based Award.

SECTION 13. GENERAL PROVISIONS.

     13.1 No Right to Serve as a Director. This Plan shall not impose any obligations on the
Company to retain any Eligible Director as a Director nor shall it impose any obligation on the
part of any Eligible Director to remain as a Director of the Company.

     13.2 Construction of the Plan. The validity, construction, interpretation, administration and
effect of the Plan, and the rights relating to the Plan, shall be determined solely in accordance
with the laws of the State of Connecticut.

     13.3 No Right to Particular Assets. Nothing contained in this Plan and no action taken
pursuant to this Plan shall create or be construed to create a trust of any kind or any fiduciary
relationship between the Company and any Eligible Director, the executor, administrator or other
personal representative or designated beneficiary of such Eligible Director, or any other persons.
Any reserves that may be established by the Company in connection with Units granted under this
Plan shall continue to be treated as the assets of the Company for federal income tax purposes and
remain subject to the claims of the Company’s creditors. To the extent that any Eligible Director
or the executor, administrator, or other personal representative of such Eligible Director,
acquires a right to receive any payment from the Company pursuant to this Plan, such right shall be
no greater than the right of an unsecured general creditor of the Company.

     13.4 Listing of Shares and Related Matters. If at any time the Board of Directors shall
determine in its discretion that listing, registration or qualification of the Shares covered by
this Plan upon any national securities exchange or under any state or federal law, or the consent
or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in
connection with, the delivery of Shares under this Plan, no Shares will be delivered unless and
until such listing, registration, qualification, consent or approval shall have been effected or
obtained, or otherwise provided for, free of any conditions not acceptable to the Board of
Directors.

     13.5 Severability of Provisions. If any provision of this Plan shall be held invalid or
unenforceable, such invalidity or unenforceability shall not effect any other provisions hereof,
and this Plan shall be construed and enforced as if such provision had not been included.

Page 9

 

     13.6 Incapacity. Any benefit payable to or for the benefit of a minor, an incompetent person
or other person incapable of receipting therefor shall be deemed paid when paid to such person’s
guardian or to the party providing or reasonably appearing to provide for the care of such person,
and such payment shall fully discharge any liability or obligation of the Board of Directors, the
Company and all other parties with respect thereto.

     13.7 Nontransferability. No Grant may be assigned or transferred, in whole or in part, either
directly or by operation of law (except in the event of an Eligible Director’s death by will or
applicable laws of descent and distribution), including, but not by way of limitation, by
execution, levy, garnishment, attachment, pledge, bankruptcy or in any other manner, and no such
right or interest of any Eligible Director in the Plan shall be subject to any obligation or
liability of such Eligible Director.

     13.8 Headings and Captions. The headings and captions herein are provided for reference and
convenience only, shall not be considered part of this Plan, and shall not be employed in the
construction of this Plan.

Page 10<PAGE>

                                                                    EXHIBIT 10.6

                        SEVERANCE AGREEMENT AND RELEASE

      This Severance Agreement and Release (this "Agreement") is made as of the
24th day of NOVEMBER, 2004, by and among GTECH HOLDINGS CORPORATION
("Holdings"), GTECH Corporation ("GTECH Corporation" and together with Holdings
and their respective direct and indirect subsidiaries and affiliates,
collectively, "GTECH" or the "Company") and KATHLEEN MCKEOUGH ("Ms. McKeough",
and together with GTECH, sometimes referred to collectively as the "Parties").

                                   WITNESSETH:

      WHEREAS, Ms. McKeough has been employed by GTECH since May 2000 as its
Senior Vice President of Human Resources; and

      WHEREAS, GTECH has sought for its own convenience that Ms. McKeough and
GTECH sever their relationship and Ms. McKeough has sought to sever her
relationship as an employee and officer of GTECH; and

      WHEREAS, the parties entered into a Separation Agreement dated June 28,
2000 (the "Separation Agreement") detailing the rights and obligations of the
parties upon Ms. McKeough's separation from employment with GTECH; and

      WHEREAS, the parties wish to set forth their agreement respecting the
terms and conditions thereof.

      NOW, THEREFORE, the parties hereby agree as follows:

      1. TERMINATION OF EMPLOYMENT. It is hereby agreed that: (a) Ms. McKeough's
employment terminates effective December 31, 2004 (the "Termination Date"), and
(b) as of the Termination Date, Ms. McKeough shall no longer serve as: (i) an
employee of Holdings; (ii) an employee of GTECH Corporation; or (iii) an
employee or director of any direct or indirect subsidiary or other affiliate of
GTECH. Notwithstanding the foregoing, except as GTECH may otherwise request, Ms.
McKeough will not be required to report to GTECH's offices after December 3,
2004. Additionally, Ms. McKeough shall cease to be an officer of GTECH
(including any direct or indirect subsidiary or other affiliate of GTECH)
effective on November 30, 2004.

      2. CONTINUATION OF BASE SALARY. (a) For the period commencing January 1,
2005 through December 31, 2005 (the "Post-Termination Period"), GTECH shall
continue to pay Ms. McKeough her base salary as of the Termination Date
(annualized at $280,000.00), subject to all applicable deductions and otherwise
in accordance with GTECH's normal payroll practices. In the event of Ms.
McKeough's death, any remaining severance payments to which she would have been
entitled under this Agreement will be made to her estate.

      (b) These payments and the other benefits provided for in this Agreement
constitute the entire obligation of GTECH, represent full and complete
satisfaction by GTECH of all obligations under the Separation Agreement, and
constitute full and complete settlement of any

<PAGE>

claim under law or equity that Ms. McKeough might otherwise assert against GTECH
for compensation, benefits or remuneration of any form.

      3. BENEFITS. From and after the Termination Date, Ms. McKeough shall not
be eligible for any GTECH benefits or perquisites (including, without
limitation, any management incentive bonus with respect to GTECH's 2005 fiscal
year), and shall no longer be eligible to participate in any GTECH benefit
program or plan, except as expressly set forth below:

      (a) During the Post-Termination Period, or until Ms. McKeough's earlier
death, and subject to payment by Ms. McKeough of the employee contribution
portion of the applicable monthly benefits cost, GTECH shall continue to provide
Ms. McKeough with the life insurance coverage, and the medical, dental and
vision coverage, and accidental death and dismemberment insurance, available
under Company plans.

      (b) Commencing on January 1, 2006, GTECH will respect Ms. McKeough's
rights, if any, to continued coverage at her own expense under the Consolidated
Omnibus Budget Reconciliation Act ("COBRA") through June 30, 2007.

      (c) Commencing on January 1, 2006 (or if Ms. McKeough shall have elected
to continue coverage at her own expense under COBRA, upon the termination of the
period of such COBRA coverage), GTECH shall permit Ms. McKeough to participate
in GTECH's Retiree Benefits Plan at her own expense.

      (d) On or before January 15, 2005, GTECH shall pay to Ms. McKeough an
amount equal to the value, calculated in accordance with GTECH's standard
policy, of Ms. McKeough's accrued but unused vacation as of the Termination
Date.

      (e) GTECH shall pay, or reimburse Ms. McKeough, in accordance with GTECH's
standard policy for one executive physical examination provided that such
physical is performed prior to June 1, 2005.

      (f) Ms. McKeough and GTECH are parties to certain Restricted Stock
Agreements and Non-Qualified Stock Option Agreements that are described on
Exhibit A attached hereto and made a part hereof. The Restricted Stock
Agreements and the Non-Qualified Stock Option Agreements are collectively
referred to as the "Executive's Stock Related Agreements". The Parties hereby
agree that the Executive's Stock Related Agreements are amended with effect from
the date of this Agreement: (i) to provide for the immediate vesting of such
stock options, and shares of restricted stock, granted under the Executive's
Stock Related Agreements that are specifically identified on Exhibit A; and (ii)
to provide that all of Ms. McKeough's rights to exercise options to acquire
stock under the Executive's Stock Related Agreements shall expire on June 30,
2005. The Parties hereby agree that Exhibit A fully and accurately sets forth
with respect to the Executive's Stock-Related Agreements, as amended hereby: (A)
with respect to the options, the grant date, the number of options granted, the
grant price and the number of options for which vesting is accelerated as of the
Termination Date; and (B) with respect to the restricted stock, the award date,
the number of shares awarded, the number of shares forfeited under plan rules
and the number of shares for which vesting has been accelerated as of the
Termination Date. Except as expressly provided herein, nothing in this Agreement
is intended to amend or alter the Executive's Stock Related Agreements, which
remain in full force and effect

                                      -2-
<PAGE>

in accordance with their terms (including, without limitation, the restrictions
on the transfer of shares contained therein).

      (g) On or before May 1, 2005, GTECH shall pay to Ms. McKeough $55,000, in
accordance with GTECH's Executive Perquisites Program.

      4. CONTINUING OBLIGATIONS. Ms. McKeough further covenants with GTECH as
follows:

      (a) For a period of three years after the Termination Date, Ms. McKeough,
upon reasonable notice, shall furnish such information and proper assistance to
GTECH as may reasonably be required in connection with any third party claims,
investigations, litigation or similar proceedings which may involve GTECH with
respect to the period of Ms. McKeough's employment with GTECH. GTECH shall
reimburse Ms. McKeough for all reasonable expenses including, but not limited
to, travel costs associated with fulfilling her duty of cooperation under this
Section 4(a).

      (b) Ms. McKeough shall not knowingly use for her own benefit or disclose
or reveal to any unauthorized person any trade secret or other confidential
information relating to GTECH, including, without limitation, any customer
lists, customer needs, price and performance information, processes,
specifications, hardware, software, firmware, programs, devices, supply sources
and characteristics, business opportunities, marketing, promotional, pricing and
financing techniques, or other information relating to the business of GTECH,
provided that such restriction shall not apply to information which is (i)
proven to be generally available in the industry, (ii) disclosed in published
literature, (iii) obtained by Ms. McKeough after the Termination Date from a
third party without binder of secrecy, or (iv) required to be disclosed by Ms.
McKeough by court order or other process of law, provided however, that Ms.
McKeough shall to the extent the circumstances allow, provide GTECH with prior
written notice of any such requirement and with the opportunity to assist in
opposing such court order or other process of law. Ms. McKeough agrees that,
except as otherwise agreed by GTECH, she will return to GTECH, promptly upon
request, any physical embodiment of such confidential information.

      (c) All rights, title and interest in and to any ideas, inventions,
technology, processes, know-how, works, hardware, software, firmware, programs,
devices, trade secrets, trade names, trademarks or service marks, which Ms.
McKeough may have conceived, created, organized, prepared or produced during the
period of her employment with GTECH and which relate to the business of GTECH,
and all rights, title and interest in and to any patents, patent applications,
copyright registrations and copyright applications resulting therefrom, are
owned by GTECH, and Ms. McKeough agrees to execute instruments or documents,
provide evidence and testimony, and to otherwise assist GTECH in establishing,
enforcing and maintaining such rights, title and interest of GTECH.

      5. INDEMNIFICATION. During the Post-Termination Period and thereafter,
GTECH shall indemnify, defend, and hold harmless Ms. McKeough from and against
all suits, claims, demands, charges, judgments, costs and liabilities, including
reasonable attorneys fees, arising from or relating to her being an employee or
officer of GTECH to the same extent and in the same manner as other officers of
GTECH.

                                      -3-
<PAGE>

      6. RELEASE. Ms. McKeough acknowledges that the payments and benefits
provided for in Sections 2 and 3 of this Agreement are greater than any to which
she may have otherwise been entitled under the Separation Agreement or any
existing Company separation, benefit or compensation policy. In consideration of
the foregoing, Ms. McKeough hereby releases and forever discharges GTECH, its
present and former directors, officers, employees, agents, subsidiaries,
shareholders, successors and assigns from any and all liabilities, causes of
action, debts, claims and demands (including without limitation claims and
demands for monetary payment) both in law and in equity, known or unknown, fixed
or contingent, which she may have or claim to have based upon or in any way
related to employment (as an officer, director or employee), or termination of
such employment by GTECH and Ms. McKeough hereby covenants not to file a lawsuit
or charge to assert any such claim; provided, however, that this release shall
not be construed to apply to claims of breach of this Agreement or to enforce
this Agreement. This release includes but is not limited to claims of breach of
contract and wrongful termination and claims arising under the federal Age
Discrimination in Employment Act of 1967, as amended, and any other federal,
state or local law prohibiting employment discrimination, or claims growing out
of any legal restrictions on GTECH's right to terminate its employees.

      7. ADVICE OF COUNSEL. Ms. McKeough understands that various state and
federal laws prohibit employment discrimination based on age, sex, race, color,
national origin, religion, disability or veteran status. These laws are enforced
through the Equal Employment Opportunity Commission (EEOC), Department of Labor
and state human rights agencies. Ms. McKeough acknowledges that she has been
advised by GTECH to discuss this Agreement with her attorney and has been
encouraged to take this Agreement home for up to forty-five days so that she can
thoroughly review and understand the effect of this Agreement before acting on
it.

      8. NON-COMPETITION AND OTHER RESTRICTIONS. Ms. McKeough further covenants
with GTECH as follows and expressly agrees that all payments and benefits due to
her under this Agreement are subject to her compliance with the following
provisions.

      (a) During the Post-Termination Period, Ms. McKeough shall not engage or
propose to engage, directly or indirectly (which includes owning, managing,
operating, controlling, being employed by, acting as a consultant to, giving
financial assistance to, participating in or being connected in any material way
with any business or person so engaged) in the Lottery and Gaming Business (as
defined below). As used herein, the "Lottery and Gaming Business" shall mean the
provision of products or services of every nature relating to the operation of
all manner of lotteries, games of chance and parimutuel wagering however and
wherever conducted. Ms. McKeough shall not be deemed to have violated this
Section 7(a) merely by virtue of employment by a non-competitive division or
subsidiary of a business entity or consolidated group that includes one or more
divisions or subsidiaries that does in fact compete with a business carried on
by GTECH. Ms. McKeough's ownership as a passive investor of less than one
percent of the issued and outstanding stock or equity, or $100,000 principal
amount of any debt securities, of any corporation, partnership or other entity
engaged in the Lottery and Gaming Business shall not by itself by deemed to
constitute engagement by Ms. McKeough.

      (b) Further, during the Post-Termination Period, Ms. McKeough shall not
(i) disturb or interfere with any business relationship between GTECH and any of
its employees, dealers,

                                      -4-
<PAGE>

customers, suppliers or other business associates, or (ii) solicit or cause to
be solicited any officer, employee, customer or shareholder of GTECH to
terminate such person's relationship with GTECH; provided, however, that this
Section 8(b) shall not be construed to prevent Ms. McKeough from being engaged
as a human resources or general business consultant (x) by any of GTECH's
dealers or suppliers, or (y) without the prior written consent of GTECH (which
consent shall not be unreasonably withheld or delayed), by any of GTECH's
employees, customers, suppliers or other business associates.

      (c) Ms. McKeough shall at no time make or cause to be made any derogatory
or disparaging comments regarding GTECH, its business, or its present or past
directors, officers or employees. Ms. McKeough agrees to direct all reference
inquiries to GTECH's Human Resources Department, who will respond to such
inquiries by providing Ms. McKeough's dates of employment, and position held.

      (d) Ms. McKeough recognizes that the possible restrictions on Ms.
McKeough's activities which may occur as a result of her performance of her
obligations under this Section 7 and Section 4 are required for the reasonable
protection of GTECH and its investments, and Ms. McKeough expressly acknowledges
that such restrictions are fair and reasonable for that purpose. Ms. McKeough
further expressly acknowledges that damages alone will be an inadequate remedy
for any breach or violation of any of the provisions of this Section 7 and
Section 4, and that GTECH, in addition to all other remedies hereunder and at
law or equity, shall be entitled, as a matter of right, to injunctive relief,
including specific performance, with respect to any such breach or violation, in
any court of competent jurisdiction. If any of the provisions of this Section 7
are held to be in any respect an unreasonable restriction upon Ms. McKeough then
they shall be deemed to extend only over the maximum period of time, geographic
area, and/or range of activities as to which they may be enforceable.

      9. CHANGE OF ADDRESS. Ms. McKeough agrees to promptly notify GTECH of any
change in address, and/or non-Company employment or business activity occurring
within twelve (12) months of the Termination Date. Such notice shall include the
name and address of each such employer or business associated as well as the
nature of each such non-Company employment or business activity.

      10. RETURN OF PROPERTY. Ms. McKeough shall return to GTECH any GTECH
property in her possession, custody or control within seven days of the
Termination Date.

      11. TAX WITHHOLDING. GTECH may withhold from any compensation or benefits
payable under this agreement all Federal, State, City, or other taxes as shall
be required pursuant to any law or governmental regulations or ruling.

      12. NO ADMISSION. The execution of this Agreement does not represent and
shall not be construed as an admission of a violation of any statute or law or
breach of any duty or obligation by either GTECH or Ms. McKeough.

      13. SEVERABILITY. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid and
unenforceable provisions were omitted.

                                      -5-
<PAGE>

      14. NON-ASSIGNABILITY. (a) Neither this Agreement nor any rights or
interest hereunder shall be assignable by Ms. McKeough, her beneficiaries, or
legal representatives without GTECH's prior written consent.

      (b) This Agreement shall be binding upon, and accrue to the benefit of,
Ms. McKeough and GTECH and their respective heirs, executors, administrator,
successors and permitted assigns, including, in the case of GTECH, any person or
entity acquiring all or substantially all of GTECH's assets.

      15. GOVERNING LAW. This Agreement is made pursuant to and shall be
governed by the laws of the State of Rhode Island, without regard to its rules
regarding conflict of laws. In any dispute concerning this Agreement, the
non-prevailing party shall pay the prevailing party's reasonable attorney's fees
and costs, together with interest on any unpaid amount due at the rate of twelve
percent per annum (but not in excess of the highest rate allowed by law).

      16. ENTIRE AGREEMENT. This Agreement, together with the Executive's Stock
Related Agreements, contains the entire understanding between Ms. McKeough and
GTECH regarding the subject matter hereof and, except as expressly set forth
herein, supersedes any prior agreements, written or oral, including without
limitation, the Separation Agreement.

      17. CONFIDENTIALITY. This Agreement is confidential and neither the
Agreement nor any of its terms or contents shall be made public by Ms. McKeough
or otherwise disclosed by her to any person other than her immediate family,
attorney, tax advisor or accountant, except as required by law or if necessary
to enforce this Agreement. GTECH shall treat the terms and contents contained
herein as confidential and shall only disclose them (i) to its employees,
advisors and other individuals who have a business purpose for receiving such
information, or (ii) as required by law as determined in GTECH's discretion, or
(iii) if necessary to enforce this Agreement.

      18. MODIFICATION. This Agreement may not be changed orally but only by an
instrument in writing signed by the parties hereto. Ms. McKeough acknowledges
that she has not relied upon any representation or statement, written or oral,
not set forth in this Agreement.

            [The remainder of this page is left blank intentionally.]

                                      -6-
<PAGE>

      19. REVOCATION; EFFECTIVE DATE. Ms. McKeough may revoke her agreement to
the terms hereof at any time during the seven-day period immediately following
the date of her signature below ("Revocation Period") by delivering written
notice of her revocation to GTECH. This Agreement shall become effective upon
the expiration of the Revocation Period.

      IN WITNESS WHEREOF, the parties have executed this Agreement on the date
set forth below.

GTECH Holdings Corporation                  Attest:

By: /s/                                    /s/
   ------------------------------------    ------------------------------------

Date:
      ---------------------------------

GTECH Corporation                           Attest:

By:  /s/                                   /s/
   ------------------------------------    ------------------------------------

Date:
      ---------------------------------

                                            Witness:
/s/                                        /s/
---------------------------------------    ------------------------------------
Kathleen McKeough

Date:
     ---------------------------------

                                      -7-
<PAGE>

                                    EXHIBIT A

LIST OF EXECUTIVE'S STOCK RELATED AGREEMENTS

      A. RESTRICTED STOCK AGREEMENTS

            1.    GTECH Holdings Corporation Restricted Stock Agreement
                  effective as of April 1, 2003 by and between GTECH Holdings
                  Corporation and Kathleen E. McKeough to acquire 10,000 shares
                  of Common Stock, pre stock split adjustment.

            2.    GTECH Holdings Corporation Restricted Stock Agreement
                  effective as of April 13, 2001 by and between GTECH Holdings
                  Corporation and Kathleen E. McKeough to acquire 5,000 shares
                  of Common Stock, pre stock split adjustment.

      B. NON-QUALIFIED STOCK OPTION AGREEMENTS

            1.    GTECH Holdings Non-Qualified Stock Option Agreement effective
                  as of April 1, 2003 by and between GTECH Holdings Corporation
                  and Kathleen E. McKeough for an option to acquire 30,000
                  shares of Common Stock at a grant price of $16.70 per share,
                  adjusted for stock split.

            2.    GTECH Holdings Non-Qualified Stock Option Agreement effective
                  as of April 3, 2002 by and between GTECH Holdings Corporation
                  and Kathleen E. McKeough for an option to acquire 30,000
                  shares of Common Stock at a grant price of $11.65 per share,
                  adjusted for stock split.

            3.    GTECH Holdings Non-Qualified Stock Option Agreement effective
                  as of April 4, 2001 by and between GTECH Holdings Corporation
                  and Kathleen E. McKeough for an option to acquire 26,000
                  shares of Common Stock at a grant price of $6.70 per share,
                  adjusted for stock split, of which 17,500 shares, adjusted for
                  stock split.

OPTIONS

<TABLE>
<CAPTION>
Date of Grant      No. of Options     Grant Price        Plan
-------------      --------------     -----------      ---------
<S>                <C>                <C>              <C>
April 4, 2001          17,500          $    6.70       2000 OSOP
April 3, 2002          20,000          $   11.65       2000 OSOP
April 1, 2003          10,000          $   16.70       2002 OSOP
</TABLE>

RESTRICTED STOCK

<TABLE>
<CAPTION>
Date of Award       No. of Shares        Plan
-------------       -------------        ----
<S>                 <C>                <C>
April 13, 2001          3,500          2000 OSOP
April 1, 2003           3,500          2002 OSOP
</TABLE>

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