Document:

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                                                                   Exhibit 10.31

                      THE PEARSON LONG-TERM INCENTIVE PLAN

PREAMBLE

The Long-Term Incentive Plan has two elements:

-     the Stock Option element. This involves the grant of options to acquire
      Shares, normally having regard to corporate performance over the three
      years prior to grant, but without normally needing to satisfy a corporate
      performance target after grant; and

-     the Restricted Stock element. This involves the grant of rights to acquire
      Shares. The vesting of such grants may, but need not, be subject to a
      corporate performance target.

DEFINITIONS

1.1   In this Plan, unless the context otherwise requires, the following words
and expressions shall have the following meanings, namely:

ADOPTION DATE means the date of the adoption of the Plan by the Company in
general meeting;

ADSS means American Depositary Shares representing Shares;

AWARD means a right to acquire Shares under the rules of this Plan, comprising
either Stock Option and/or Restricted Stock elements;

THE COMMITTEE means the personnel committee of the board of directors of the
Company, or other duly authorised committee thereof;

THE COMPANY means Pearson plc;

CONTROL has the meaning given to that word by section 840 of the Income and
Corporation Taxes Act 1988;

DATE OF GRANT means the date on which an Award is granted;

DEALING DAY means any day on which the London Stock Exchange is open for
business;

EXECUTIVE means any employee or executive director of any member of the Group;

GRANT PERIOD means any day (other than a day on which dealings in Shares are
prohibited under the Model Code for Dealing in Securities) on which the
Committee considers it appropriate to grant Awards;

THE GROUP means the Company and the Subsidiaries and MEMBER OF THE GROUP shall
be construed accordingly;

ITEPA means the Income Tax (Earnings and Pensions) Act 2003;

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OPTION EXERCISE PRICE means the price per Share (expressed in sterling or US
dollars) payable on the exercise of a Stock Option as determined by the
Committee (subject to adjustment under rule 10) being not less than the Share
Price on the Date of Grant (PROVIDED THAT, in the case of any Stock Option under
which Shares are to be issued, the Option Exercise Price shall also not be less
than the nominal value of a Share);

OPTION PERIOD means, in relation to an Option or Option Tranche, the period
commencing on the Option Vesting Date and expiring on the tenth anniversary of
the Date of Grant;

OPTION TRANCHE means each tranche of Shares comprised in a Stock Option,
becoming exercisable in the manner described in rule 5.3 and 5.4;

OPTION VESTING DATE means the date on which a Stock Option, or each tranche
thereof where granted as Option Tranches, normally become exercisable;

PARTICIPANT means any individual who holds a subsisting Award (including, where
the context permits, the legal personal representatives of a deceased
Participant);

THE PLAN means this Plan as amended from time to time;

RESTRICTED STOCK means a right granted under the Plan to call for Shares without
payment;

RESTRICTED STOCK VESTING DATE means:

(a)   where the Restricted Stock is subject to a performance condition (unless
      the Committee specifies otherwise at its Date of Grant), the third
      anniversary of the Date of Grant of the Restricted Stock (or, if later,
      the date of publication of the final set of accounts of the Company which
      are relevant to the determination of the applicable performance
      condition); and

(b)   where the Restricted Stock is not subject to a performance condition, the
      date on which the Restricted Stock is expressed to vest (as specified by
      the Committee).

SPECIFIED AGE means age 55 for the purposes of paragraph 35A of Schedule 4 to
ITEPA;

STOCK OPTION means a right granted under the Plan to subscribe for or purchase
Shares at the Option Exercise Price;

SHARE OPTION PLAN means any employee share option plan established by the
Company;

SHARE PRICE means:

(a)   in relation to a Share on any Dealing Day, the middle market quotation for
      a Share as derived from the Daily Official List of The London Stock
      Exchange; and

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(b)   in relation to an ADS on any Dealing Day, the closing price for an ADS on
      the New York Stock Exchange.

SHARES means fully paid and irredeemable ordinary shares of 25p each in the
capital of the Company or shares representing those shares following any
reorganisation of the share capital of the Company (and, where the context
requires, shall include the equivalent thereof in ADSs);

SUBSIDIARY means any subsidiary of the Company within the meaning of section 736
of the Companies Act 1985 over which the Company has Control; and

TRUSTEE means the trustee from time to time of the Pearson plc Employee Share
Ownership Trust or such other trust as the Company shall specify from time to
time.

1.2   Where the context permits the singular shall include the plural and vice
versa. Headings shall be ignored in construing the Plan.

1.3   References to any act shall include any statutory modification, amendment
or re-enactment thereof.

GRANT OF AWARDS

2.1   The Committee may, during a Grant Period, grant Awards to Executives
selected by the Committee in its absolute discretion. For the avoidance of
doubt, no Executive shall have the right or expectation to participate in the
Plan in any year.

2.2   Each Award shall comprise such proportions of Stock Options and Restricted
Stock as the Committee thinks fit in its absolute discretion.

2.3   The grant of an Award and/or the delivery of Shares upon exercise thereof
shall be conditional on the Executive agreeing to comply with any arrangements
specified by the Company for the payment of taxation and social security
contributions (including without limitation the right to sell on his or her
behalf sufficient Shares to satisfy any taxation or social security
contributions liability on his or her part for which any member of the Group may
be liable) in respect of an Award.

2.4   As soon as practicable after the Date of Grant the Committee shall procure
the issue to such Executive of certificates in respect of an Award. Such
certificates shall be issued under the seal of the Company or otherwise to take
effect as a deed, or may refer to another document evidencing the legal
enforceability of the Award.

2.5   Any Executive to whom an Award is granted may, by notice in writing to the
Company given within 30 days after the Date of Grant, renounce in whole or in
part his or her rights under the Award. In such a case, the Award shall, to the
extent renounced, be treated as never having been granted and (if already
issued) the relevant certificate(s) shall be returned to the Company for
cancellation or amendment. No consideration shall be payable by the Company for
any such renunciation.

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2.6   No Award shall be granted under the Plan later than the fifth anniversary
of the Adoption Date.

2.7   Every Award granted hereunder shall be personal to the Participant and,
except to the extent necessary to enable a personal representative to exercise
the Award following the death of a Participant, neither the Award nor the
benefit thereof may be transferred, assigned, charged or otherwise alienated.
Any transfer of an Award otherwise than as permitted under this rule 2.7 shall
cause the Award to lapse.

PLAN LIMITS

3.1   Restricted Stock may only be satisfied using existing issued Shares, and
the Company shall provide (and shall procure, where appropriate, that any member
of the Group which employs Participants shall provide) sufficient monies to
enable the Trustee to acquire sufficient Shares to satisfy all Restricted Stock.
Such monies shall be provided to the Trustee no later than the date on which the
Restricted Stock vests.

3.2   Stock Options may be satisfied using existing issued Shares (in which case
the provisions of rule 3.1 shall apply mutatis mutandis) or with new Shares
issued to the Participant at the time of exercise or to the Trustee (in which
case rule 3.3 shall apply).

3.3   No Stock Option to subscribe for Shares (whether by the Participant or the
Trustee) shall be granted to the extent that the result of that grant would be
that the aggregate number of Shares that could be issued on the exercise of that
Stock Option and any other Stock Options granted at the same time:

(a)   when added to the number of Shares that:

      (i)   could be issued on the exercise of any other subsisting share
            options granted during the preceding ten years under any Share
            Option Plan (including Stock Options under the Plan);

      (ii)  have been issued on the exercise of any share options granted during
            the preceding ten years under any Share Option Plan (including Stock
            Options under the Plan); and

      (iii) have been issued during the preceding ten years under any profit
            sharing or other employee share incentive scheme (not being a Share
            Option Plan),

      would exceed 10 per cent of the ordinary share capital of the Company for
      the time being in issue PROVIDED THAT no date earlier than 1 January 1997
      shall be taken into account in applying the ten year period referred to in
      (i), (ii) and (iii) above; or

(b)   when added to the number of Shares that could be issued on the exercise of
      Stock Options granted during the same calendar year, would exceed 1.5 per
      cent of the ordinary share capital of the Company for the time being in
      issue.

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3.4   Reference in this rule 3 to the ISSUE of Shares shall, for the avoidance
of doubt, mean the issue and allotment (but not transfer) of Shares.

INDIVIDUAL LIMITS

4.1   Prior to granting Awards, the Committee shall, taking such independent
expert advice as it thinks fit, determine the implied value of the Awards
(expressed on a per Share basis) at the Date of Grant. Stock Options shall be
valued by reference to the Black Scholes method of valuation, taking account of
the Option Exercise Prices, certain variables specified in the Black Scholes
model relating to Shares (including the dividend growth rate and Share price
volatility), and the period during which Stock Options may be exercised.
Restricted Stock shall be valued on such basis as the Committee thinks fit,
having regard to the probability of any applicable performance target being met.

4.2   The number of Shares comprised in Awards granted to any Executive shall be
based on the valuation mechanism described in rule 4.1. The Committee shall, in
respect of each Executive, set an expected value for his or her Awards on that
occasion, and the aggregate value of the elements of the Awards shall not exceed
that expected value. The maximum expected value of Awards for executive
directors will have regard to market practice, and will generally equate to the
value of long-term incentive opportunity required to bring expected total
compensation to the upper quartile of market practice for a selected group of
comparable companies in the US and UK.

SPECIFIC PROVISIONS RELATING TO STOCK OPTIONS

5.1   The Committee will not grant Stock Options unless it considers that a
grant is supported by the underlying performance of the Company's business. For
these purposes the Committee intends to measure corporate performance by
reference to the Company's real earnings per share (EPS) growth over the three
financial years prior to the grant, determined in accordance with Schedule One.
No Stock Options will be granted unless the Company's average real EPS growth
over this period exceeds 3% per annum. Grants will be calibrated on a sliding
scale to corporate performance once this level of EPS growth is achieved, and
will be made at the maximum level only if real EPS growth exceeds 3% per annum
by a substantial margin.

5.2   All Stock Options will be subject to a demanding performance condition
which the Committee will normally apply before grant (to determine the number of
Shares granted under the Stock Option), but may apply after grant (to determine
the number of Shares over which the Stock Option is exercisable).

5.3   Where the Committee determines to grant Stock Options in Option Tranches,
such Stock Options will, unless otherwise permitted in these rules, only become
exercisable on the following dates:

(a)   as to the First Option Tranche, on the first anniversary of the Date of
      Grant;

(b)   as to the Second Option Tranche, on the second anniversary of the Date of
      Grant;

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(c)   as to the Third Option Tranche, on the third anniversary of the Date of
      Grant; and

(d)   as to the Final Option Tranche, on the fourth anniversary of the Date of
      Grant PROVIDED THAT the Final Option Tranche shall lapse in the event that
      the First, Second or Third Option Tranches have been exercised under this
      rule prior to the fourth anniversary of the Date of Grant.

5.4   Notwithstanding rule 5.3, the Committee may, if it thinks fit, grant Stock
Options in Option Tranches that become exercisable on different anniversaries to
those stated in rule 5.3. In that event:

(a)   the earliest date on which an Option Tranche shall become exercisable
      shall be the first anniversary of the Date of Grant;

(b)   the Stock Option shall not become exercisable in full before the third
      anniversary of the Date of Grant; and

(c)   such part of the Stock Option as the Committee shall specify shall lapse
      if any Option Tranche is exercised before the third anniversary of the
      Date of Grant (or such later anniversary as the Committee shall specify).
      Such part of the Stock Option which lapses shall be treated as the FINAL
      OPTION TRANCHE for the purposes of these rules.

5.5   Where the Committee grants a Stock Option, but not in Option Tranches
under rule 5.3 or 5.4, the Stock Option will not become exercisable until the
third anniversary of the Date of Grant, unless otherwise permitted in these
rules.

5.6   A Participant may exercise a Stock Option in whole or in part by giving
notice in writing to the Company in the form prescribed by the Company
specifying the Stock Option being exercised on that occasion, the number of
Shares in respect of which the Option (or Option Tranche thereof) is being
exercised and enclosing or arranging to provide cash payment in full of the
aggregate Option Exercise Price in respect of those Shares. If the Stock Option
is exercised in respect of some only of the Shares comprised in a Stock Option,
the Company shall procure the issue of a certificate to the Participant in
respect of the balance or call in the original certificate for endorsement.

5.7   Notwithstanding any other provision in these rules, a Stock Option shall
lapse automatically on the earliest of:

(a)   the expiry of the Option Period;

(b)   the Participant ceasing to be an employee of a member of the Group (save
      as provided in rule 7);

(c)   any of the dates specified in rule 9; and

(d)   the Participant being declared bankrupt or entering into any general
      composition with or for the benefit of his or her creditors.

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SPECIFIC PROVISIONS RELATING TO RESTRICTED STOCK

6.1   Restricted Stock consists of a right to call for a number of Shares at any
time within the time periods referred to in these rules. All Restricted Stock in
respect of which Participant has not made a written request to call will lapse
at the end of such period or at any earlier date specified in the rules.

6.2   Where a Restricted Stock Award is subject to a performance condition:

(a)   the number of Shares that vest (the VESTING SHARES) shall be determined by
      the extent to which an objective performance measure is satisfied by the
      Restricted Stock Vesting Date. The performance measure initially attaching
      to such Restricted Stock shall consist of the Free Cash Flow Performance
      Target set out in Schedule Two to this Plan. If the Committee wishes to do
      so, it may at the time of granting Restricted Stock, at its absolute
      discretion, add a further performance measure (in relation to a particular
      business or participant) or impose a performance measure other than that
      set out in Schedule Two;

(b)   75% of the Vesting Shares (the MAIN TRANCHE) may be called for at any time
      within the period of 6 months following the Restricted Stock Vesting Date;

(c)   25% of the Vesting Shares (the DEFERRED TRANCHE) may be called for at any
      time within the period of 6 months following the second anniversary of the
      Restricted Stock Vesting Date PROVIDED THAT the Participant has not
      disposed of any Shares comprised in the Main Tranche (other than Shares
      sold to satisfy tax liabilities associated with the vesting or calling for
      the Shares comprised in the Main Tranche) and in the event that the
      Participant has so disposed of Shares the Deferred Tranche shall lapse in
      full.

6.3   The Committee may grant Restricted Stock which is not subject to a
performance condition, in order to achieve retention or recruitment objectives.
The Restricted Stock Vesting Date, and such other conditions as the Committee
thinks fit, shall be specified by the Committee at the Date of Grant.

6.4   A Participant may call for Restricted Stock (in full only, to the extent
then exercisable) by giving written notice to the Company, requesting the Shares
to which he or she is entitled.

6.5   Alternatively, the Committee may grant Restricted Stock Awards on terms
that Vested Shares are delivered automatically to a Participant as soon as
practicable on or after the relevant Restricted Stock Vesting Date. Where
Restricted Stock Awards are granted on such terms, references in these Rules in
relation to Restricted Stock to "call for", "called for" and "calling for" shall
be construed as meaning "receive delivery of", "delivered" and "delivery of"
respectively

CESSATION OF EMPLOYMENT - STOCK OPTIONS AND RESTRICTED STOCK

7.1   Save as otherwise provided in these rules, an Award shall lapse
automatically on the Participant ceasing to be an employee of a member of the
Group.

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7.2   Where a Participant ceases to be an employee of a member of the Group by
reason of:

(a)   injury, disability, ill-health or redundancy (as determined by the
      Committee);

(b)   retirement at or after the date on which he or she is bound to retire
      under his or her contract of employment;

(c)   his or her employing company or business ceasing to be part of the Group;
      or

(d)   any other reason if the Committee so decides in its absolute discretion

then the following provisions shall apply:

(i)   any Stock Option (whether or not it is already exercisable at the date the
      Participant ceases employment) may be exercised in full at any time within
      the period of six months following cessation of employment, and will then
      lapse PROVIDED THAT the Committee may specify a later date (not being
      later than the expiry of the Option Period) on which the Stock Option
      shall lapse;

(ii)  any Restricted Stock which has not already vested or lapsed shall remain
      in force, and a Participant may call for the Shares under the Restricted
      Stock (if and to the extent that the relevant performance conditions are
      met) at any time up to 6 months after the relevant Restricted Stock
      Vesting Date and the Restricted Stock will then lapse PROVIDED THAT:

      (aa)  the number of Shares which vest in accordance with Schedule Two
            shall be reduced by the fraction A/B where A is the number of
            complete months from the Participant's leaving date to the relevant
            Restricted Stock Vesting Date, and B is the number of complete
            months from the Date of Grant to the relevant Restricted Stock
            Vesting Date. However, the Committee may in its absolute discretion
            determine (no later than the relevant Restricted Stock Vesting Date)
            that the Participant's entitlement should not be scaled down or
            should be scaled down in part only (the extent of scaling down being
            determined by the Committee in its absolute discretion); and

      (bb)  the Shares comprised in the Deferred Tranche may be called for
            without regard to the condition in rule 6.2(c).

7.3   For the purposes of rules 7.1 and 7.2 a female Participant shall not be
treated as ceasing to be an employee of a member of the Group if absent from
work wholly or partly because of pregnancy until she ceases to be entitled to
exercise a right to return to work.

DEATH OF PARTICIPANT - STOCK OPTIONS AND RESTRICTED STOCK

8.    If a Participant dies while in service (or at any time after leaving
service when he or she holds an Award at the time of his or her death) the
Committee shall determine in its absolute discretion what proportion (if any) of
an Award may be

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exercised and the time at which or within which it may be exercised by his or
her legal personal representatives. For the avoidance of doubt, an Award
exercisable under this rule may lapse at an earlier date by virtue of rule 9.

GENERAL OFFER FOR THE COMPANY, ETC - STOCK OPTIONS AND RESTRICTED STOCK

GENERAL OFFER

9.1   If any person (either alone or together with any person acting in concert
with him or her) obtains Control of the Company as a result of a general offer
to acquire the whole of the share capital of the Company (other than those
Shares which are already owned by him or her and/or any person acting in concert
with him or her), then the following provisions shall apply:

(i)   any Stock Option (whether or not it is already exercisable at the date on
      which the offer becomes unconditional in all respects) may be exercised at
      any time within the period referred to in rule 9.2 (and will then lapse);
      and

(ii)  any Restricted Stock which has not already vested or lapsed at the date on
      which the offer becomes unconditional in all respects may be exercised
      within the period referred to in rule 9.2 if and to the extent that the
      relevant performance conditions (that is, initially those set out in
      Schedule Two by reference to the Company's most recent published annual
      accounts or half-yearly accounts if the Committee thinks fit) are met over
      the foreshortened period ending on the date of change of Control (and will
      then lapse). For these purposes, the Shares comprised in the Deferred
      Tranche may be called for without regard to the condition in rule 6.2(c).
      In the event of a change of Control prior to the first anniversary of the
      Date of Grant of Restricted Stock, the Committee may release such number
      of Shares as it thinks fit.

9.2   Following a change of Control pursuant to rule 9.1 any Award which has not
been exercised (including non-exercise by reason of performance conditions not
being met) shall (unless validly exchanged under rule 9.6) lapse on the earlier
of the following dates:

(a)   two months from the date on which the offer becomes unconditional in all
      respects; and

(b)   one month after the date on which any person becomes bound or entitled to
      acquire Shares under sections 428 to 430F of the Companies Act 1985.

SCHEME OF ARRANGEMENT

9.3   If a court shall direct that a meeting of the holders of Shares be
convened pursuant to section 425 of the Companies Act 1985 for the purposes of
considering a scheme of arrangement involving the reconstruction of the Company
or its amalgamation with any other company or companies then (unless rule 8.4
applies) a Participant may take the following action conditionally on either the
scheme of arrangement being approved by the shareholders' meeting or sanctioned
by the court

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(as determined by the Committee in its absolute discretion) (the RELEVANT
CONDITION), between the date of the court's direction and twelve noon on the day
immediately preceding the date for which the shareholders' meeting (the RELEVANT
DATE) is convened:

(i)   any Stock Option (whether or not it is already exercisable at the Relevant
      Date) may be conditionally exercised; and

(ii)  any Restricted Stock which has not already vested or lapsed at the
      Relevant Date may be conditionally exercised if and to the extent that the
      relevant performance conditions (that is, initially those set out in the
      Schedule by reference to the Company's most recent published annual
      accounts or half-yearly accounts if the Committee thinks fit) are met over
      the foreshortened period ending on the Relevant Date. For these purposes,
      the Shares comprised in the Deferred Tranche may be called for without
      regard to the condition in rule 6.2(c). If the Relevant Date occurs prior
      to the first anniversary of the Date of Grant of Restricted Stock, the
      Committee may release such number of Shares as it thinks fit.

Any Award not exercised by twelve noon on the Relevant Date shall cease to be
exercisable between that time and the first date on which it can be determined
whether or not the relevant condition is satisfied. If the Relevant Condition is
not satisfied, Awards shall continue. If the Relevant Condition is satisfied
Awards shall, unless validly exchanged under rule 9.6, lapse automatically on
the date on which the scheme of arrangement is sanctioned by the court.

Where new Shares would be issued on exercise of a Stock Option, the Committee
shall endeavour to procure that, provided a Participant has conditionally
exercised his or her Stock Option as described above prior to twelve noon on the
Relevant Date, the scheme of arrangement shall be extended to such Participant
as if each Share in respect of which the Stock Option was conditionally
exercised had been allotted and issued to him or her by that time.

9.4   Awards shall not without the consent of the Committee be exercisable under
rule 9.3 if the purpose and effect of the scheme of arrangement is to create a
new holding company for the Company, such company having substantially the same
shareholders and proportionate shareholdings as those of the Company immediately
prior to the scheme of arrangement. In that event, the Committee shall endeavour
to procure that an exchange of Awards is effected under rule 9.6.

VOLUNTARY WINDING-UP

9.5   If notice is duly given of a resolution for a voluntary winding-up of the
Company then a Participant may takes the following action within the period of
two months from the date of the resolution, failing which exercise the Awards
shall lapse automatically:

(i)   any Stock Option (whether or not it is already exercisable) may be
      exercised; and

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(ii)  any Restricted Stock which has not already vested or lapsed may be
      exercised if and to the extent that the relevant performance conditions
      (that is, initially those set out in Schedule Two by reference to the
      Company's most recent published annual accounts or half-yearly accounts if
      the Committee thinks fit) are met over the foreshortened period ending on
      the winding-up. For these purposes, the Shares comprised in the Deferred
      Tranche may be called for without regard to the condition in rule 6.2(c).
      In the event of a winding-up prior to the first anniversary of the Date of
      Grant of Restricted Stock, the Committee may release such number of Shares
      as it thinks fit.

EXCHANGE OF AWARDS

9.6   If any company (the ACQUIRING COMPANY) obtains Control of the Company as a
result of an event referred to in rules 9.1 or 9.3, each Participant may, at any
time within one month of the change of Control, with the agreement of the
Acquiring Company, release any Stock Option or Restricted Stock which has not
lapsed (the OLD RIGHT) in consideration of the grant to him or her of a new
award, which in the opinion of the Committee and the Acquiring Company is
equivalent to the Old Right but relates to shares in a different company
(whether the Acquiring Company itself or another company its group).

ADJUSTMENT OF AWARDS

10.   In the event of:

(i)   any variation in the share capital or reserves of the Company (including,
      without limitation, by way of capitalisation or rights issue or any
      consolidation, sub-division or reduction); or

(ii)  the implementation by the Company of a demerger or the payment by the
      Company of a super-dividend which would otherwise materially affect the
      value of an Award,

then

(a)   in relation to Stock Options, the Option Exercise Price and the number of
      Shares comprised in a Stock Option shall be adjusted in such manner as the
      Committee shall determine in its absolute discretion;

(b)   in relation to Restricted Stock, the number of Shares subject to the
      Restricted Stock and any performance conditions to which the Restricted
      Stock is subject shall be adjusted in such manner as the Committee shall
      determine in its absolute discretion.

PROVIDED THAT:

(aa)  in relation to both Stock Options and Restricted Stock, no adjustment
      shall be made pursuant to this rule unless and until the auditors for the
      time being of the Company (acting as experts not arbitrators) shall
      confirm in writing to the Committee that such adjustment is in their
      opinion fair and reasonable; and

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(bb)  in the case of Stock Options, no adjustment shall be made pursuant to this
      rule which would increase the aggregate amount payable on exercise of the
      Stock Options.

ALLOTMENT OR TRANSFER OF SHARES ON EXERCISE OF AWARDS

11.1  Subject to any necessary consents, to payment being made for the Shares
and to compliance by the Participant with the terms of the Plan, not later than
30 days after receipt of any valid notice of exercise, the Company shall either
allot and issue, or procure the transfer of, Shares to the Participant (or to
his or her nominee). The Company shall (unless the Shares are to be issued in
uncertificated form) as soon as practicable deliver to the Participant (or his
or her nominee) a definitive share certificate or other evidence of title in
respect of such Shares.

11.2  The Company shall not be obligated to issue or deliver Shares in
connection with any Award or take any other action under the Plan in a
transaction subject to the requirements of any applicable securities law, any
requirement under any listing agreement between the Company and any securities
exchange or automated quotation system or any other law, regulation or
contractual obligation of the company until the Company is satisfied that such
laws, regulations, and other obligations of the Company have been complied with
in full. The Company may require any Participant to make such representations
and furnish such information as it may consider appropriate in connection with
the issuance or delivery of Shares under the Plan. Certificates representing
Shares will be subject to such stop-transfer orders and other restrictions as
may be applicable under such laws, regulations and other obligations of the
Company, and a legend or legends may be placed thereon to reflect such
restrictions.

RIGHTS ATTACHING TO SHARES ALLOTTED OR TRANSFERRED PURSUANT TO AWARDS

12.1  All Shares allotted or transferred upon the exercise of an Option shall
rank pari passu in all respects with the Shares in issue at the date of exercise
save as regards any rights attaching to such Shares by reference to a record
date prior to the date of exercise.

12.2  Any Shares acquired on exercise of Awards shall be subject to the articles
of association of the Company from time to time.

AVAILABILITY OF NEW SHARES

13.1  The Company shall at all times keep available for issue sufficient
authorised but unissued Shares to permit the exercise of all unexercised Stock
Options under which Shares may be allotted or shall otherwise procure that
Shares are available for transfer in satisfaction of the exercise of Stock
Options.

13.2  The Company will, at its expense, make application to The London Stock
Exchange for admission to the Official List of Shares allotted on the exercise
of any Stock Options, and will take equivalent steps with the New York Stock
Exchange in relation to ADSs.

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ADMINISTRATION AND AMENDMENT

14.1  The decision of the Committee shall be final and binding in all matters
relating to the Plan and it may at any time discontinue the grant of further
Awards or amend any of the provisions of the Plan in any way it thinks fit
PROVIDED THAT:

(a)   the Committee shall not make any amendment that would materially prejudice
      the interests of existing Participants except with the prior consent or
      sanction of Participants who, if they exercised their Awards in full,
      would thereby become entitled to not less than three-quarters of all the
      Shares which would fall to be allotted or transferred upon exercise in
      full of all outstanding Awards; and

(b)   no amendment to the advantage of Executives or Participants may be made
      to:

            (i)   the definition of EXECUTIVE in rule 1.1;

            (ii)  the limit on the number of Shares available for issue under
                  the Plan;

            (iii) the basis for determining the number of Shares comprised in
                  either Stock Options or Restricted Stock;

            (iv)  the terms of Shares to be provided under the Plan; and

            (v)   the adjustment provisions of rule 10 of the Plan

      without the prior approval of the Company in general meeting except in the
      case of minor amendments to benefit the administration of the Plan, to
      take account of a change in legislation or developments in the law
      affecting the Plan or to obtain or maintain favourable tax, exchange
      control or regulatory treatment for Executives and Participants or any
      member of the Group; and

(c)   without prejudice to any provision of the Plan which provides for the
      lapse of an Award, the Committee may not cancel an Award unless the
      Participant agrees in writing to such cancellation.

14.2  Notwithstanding any other provision of the Plan, the Committee may
establish appendices to the Plan for the purpose of granting Awards to
Executives who are or may become primarily liable to tax outside the United
Kingdom on their remuneration, subject to such modifications as may be necessary
or desirable to take account of overseas tax, exchange control or securities
laws provided that any Shares made available under such appendices shall count
towards the limit set out in rule 3 hereof.

GENERAL

15.1  Any member of the Group may provide money to the trustees of any trust or
any other person to enable them or him or her to acquire Shares to be held for
the purposes of the Plan, or enter into any guarantee or indemnity for those
purposes, to the extent not prohibited by section 151 of the Companies Act 1985.

                                                                         Page 13
<PAGE>

15.2  The rights and obligations of a Participant under the terms and conditions
of his or her office or employment shall not be affected by his or her
participation in the Plan or any expectation or right which (notwithstanding
rule 2.1) he or she believes he or she may have to participate in the Plan. An
individual who participates in the Plan waives all and any rights to
compensation or damages in consequence of the termination of his or her office
or employment with any company for any reason whatsoever insofar as those rights
arise, or may arise, from his or her ceasing to have rights under or be entitled
to exercise any Award under the Plan as a result of such termination or from the
loss or diminution in value of such rights or entitlements. If necessary, the
Participant's terms of employment shall be deemed to be varied accordingly.

15.3  The existence of any Award shall not affect in any way the right or power
of the Company or its shareholders to make or authorise any or all adjustments,
recapitalisations, reorganisations or other changes in the Company's capital
structure, or any merger or consolidation of the Company, or any issue of
shares, bonds, debentures, preferred or prior preference stocks ahead of or
convertible into, or otherwise affecting the Shares or the rights thereof, or
the dissolution or liquidation of the Company or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.

15.4  Any notice or other document required to be given under or in connection
with the Plan may be delivered to a Participant or sent by post to him or her at
his or her home address according to the records of his or her employing company
or such other address as may appear to the Company to be appropriate. Notices
sent by post shall be deemed to have been given on the day following the date of
posting. Any notice or other document required to be given to the Company under
or in connection with the Plan may be delivered or sent by post to it at its
registered office (or such other place or places as the Committee may from time
to time determine and notify to Participants).

15.5  Benefits under the Plan shall not be pensionable.

15.6  The Company, or where the Committee so directs any Subsidiary, shall pay
the appropriate stamp duty on behalf of Participants in respect of any transfer
of Shares on the exercise of Awards, and the stamp duty reserve tax costs of
creating ADSs.

15.7  These rules shall be governed by, and construed in accordance with, the
laws of England.

                                                                         Page 14
<PAGE>

                                  SCHEDULE ONE

       STOCK OPTIONS - REAL GROWTH IN EPS PRE-GRANT PERFORMANCE CONDITION

This Schedule shall be used to determine real EPS growth for the purpose of rule
5.1. In particular, no Stock Option shall be granted unless the percentage
growth in the Company's Annualised EPS over the Prescribed Period prior to the
Grant of a Stock Option (comparing the Base Year with the final year in the
Prescribed Period) is an average of at least 3 per cent. per annum greater than
the percentage increase, if any, in the RPI Index, as adjusted (if appropriate)
pursuant to paragraphs 3 and 4 below, over that Prescribed Period.

The following provisions apply for the purposes of this Schedule.

1.    In this Schedule, unless the context otherwise requires, the following
words and expressions shall have the following meanings, namely:

ACCOUNTS means the consolidated accounts of the Company for a Financial Year;

ACCOUNTS DATE means the date on which the Accounts are published;

ANNUALISED EPS means Earnings per Share (adjusted proportionately upwards or
downwards in a case where the relevant Financial Year is greater than or less
than one calendar year);

AUDITORS means the auditors for the time being of the Company (acting as experts
not arbitrators);

BASE YEAR means, in relation to the Company, the Financial Year ending
immediately before the start of the Prescribed Period;

EARNINGS PER SHARE means, for any Financial Year of the Company, the earnings
per ordinary share of the Company calculated in accordance with Financial
Reporting Standard No. 3 issued by the Accounting Standards Board Limited or any
modification thereto provided that to ensure comparability of Financial Years of
the Company within a Prescribed Period and for the Base Year the Committee may:

(a)   adjust the figure for earnings per share as calculated in accordance with
      the relevant accounting standard to arrive at a figure which reflects the
      underlying business performance of the Group (and may, without limitation,
      adjust by excluding any or all extraordinary or exceptional items from the
      earnings per share calculation);

(b)   adjust the figure for any tax charge to ensure that the deduction for
      taxation in respect of the final year of the Prescribed Period shall be at
      the average tax rate applicable to the Base Year; and

(c)   ensure that the relevant accounting standards are applied on a consistent
      basis in respect of years falling within the Prescribed Period and for the
      Base Year;

                                                                         Page 15
<PAGE>

FINANCIAL YEAR means an accounting reference period as defined in accordance
with section 224 of the Companies Act 1985;

PRESCRIBED PERIOD means the period of three consecutive Financial Years ending
with the latest Financial Year for which Accounts have been published; and

RPI INDEX means the Index of Retail Prices (All Items) published the UK
Government.

2.    Prior to the grant of Stock Options, the Committee shall calculate the
percentage growth in Annualised EPS over the Prescribed Period and shall
determine whether that percentage growth is an average of at least 3 per cent.
per annum above the percentage increase, if any, in the RPI Index, as adjusted
(if appropriate) pursuant to paragraphs 3 and 4 below, over that Prescribed
Period.

3.    Where a Financial Year within a Prescribed Period or the Base Year is
greater than or less than one calendar year, the percentage increase in the RPI
Index for that Financial Year shall be adjusted proportionately upwards or
downwards as appropriate in order to secure that such percentage increase is
annualised in a manner consistent with the Annualised EPS.

4.    For the purposes of paragraph 2 the Committee shall make such adjustments
as they may consider appropriate to take account of any intervening capital
reorganisation of the Company including, without limitation, any capitalisation
issue, rights issue, sub-division or consolidation of share capital, reduction
of capital or demerger within the meaning of section 213 to 218 of the Income
and Corporation Taxes Act 1988 and any modifications to the relevant accounting
standard.

5.    If the composition of the RPI Index changes or the RPI Index is replaced
by another similar index, the Committee may make such adjustments to any
calculations using the RPI Index (or any replacement index) as they consider to
be fair and reasonable.

                                                                         Page 16
<PAGE>

                                  SCHEDULE TWO

         RESTRICTED STOCK - CUMULATIVE FREE CASH FLOW PERFORMANCE TARGET

1.    In this Schedule, unless the context otherwise requires, the following
words and expressions shall have the following meanings, namely:

CUMULATIVE FCF means the aggregate cumulative amount of Free Cash Flow over the
Test Period, expressed in pence per Share;

FREE CASH FLOW means the operating cash flow of the Company (expressed on a per
Share basis), as stated in the Company's accounts for each relevant Financial
Year, less tax liabilities on operating activities and interest paid (subject to
adjustment under paragraph 6 below);

FINANCIAL YEAR means an accounting reference period as defined in accordance
with section 224 of the Companies Act 1985; and

TEST PERIOD means, in relation to any Restricted Stock, the period of three
consecutive Financial Years commencing with the Financial Year starting
immediately before the Date of Grant of the relevant Restricted Stock.

2.    When granting any Restricted Stock which is subject to the performance
target contained in this Schedule, the Committee shall specify (and notify to
the Participant) the Threshold and Target levels of Cumulative FCF for the Test
Period that shall apply to the Restricted Stock.

3.    At the end of the Test Period, or as soon as is reasonably practicable
thereafter, the Committee shall calculate Cumulative FCF for the Test Period.

4.    Where a Financial Year within the Test Period is greater than or less than
one calendar year, Cumulative FCF shall be adjusted proportionately upwards or
downwards as appropriate in order to secure that this performance target is
calculated in a consistent manner.

5.    An Award of Restricted Stock shall vest to the extent of the percentage in
the right-hand column below according to Cumulative FCF achieved for the
relevant Test Period, as indicated in the left-hand column below (but, for the
avoidance of doubt, the remainder of the Award shall not vest and shall lapse in
respect of the Shares comprised in the unvested portion):

        CUMULATIVE FCF             PERCENTAGE OF RESTRICTED STOCK WHICH VESTS

At or above Target Cumulative FCF 100% of Shares comprised in Restricted Stock

At Threshold Cumulative FCF       50% of Shares comprised in Restricted Stock

Below Threshold Cumulative FCF    0% of Shares comprised in Restricted Stock

                                                                         Page 17
<PAGE>

6.    An Award of Restricted Stock may be exercised on a straight-line basis
where Cumulative FCF is between the Threshold and Target levels.

7.    In the event of a major revision to the Company's long-term capital
expenditure plans or material acquisitions or disposals of businesses by the
Company, the Committee may adjust Free Cash Flow in order to achieve
year-on-year comparability.

8.    The performance target set out in this Schedule may be calculated at an
earlier date than that set out in paragraph 3 above if any event set out in rule
9 of the Plan applies. In such circumstances the performance target shall be
calculated in accordance with the relevant sub-rule within rule 9 which is
applicable.

9.    As soon as practicable following determination of the performance target,
the Committee shall notify the Participant of the extent to which (if at all)
the Award of Restricted Stock is exercisable.

                                                                         Page 18
<PAGE>

                                   APPENDIX 1

                   UK INLAND REVENUE APPROVED PART OF THE PLAN

For any Executive to whom the Committee wishes to grant Stock Options under an
Inland Revenue approved Plan, the following provisions shall apply:

(A)   All the provisions of the Plan shall apply to the grant of Stock Options
under this Appendix subject to the modifications contained in the following
paragraphs.

(B)   The definition of EXECUTIVE shall be construed so that:

            (i)   no Stock Option may be granted under this Appendix to a
            director of any member of the Group unless such director is required
            to devote not less than 25 hours per week to the affairs of the
            Group; and

            (ii)  no Stock Option may be granted under this Appendix to an
            Executive who is ineligible to participate in the Plan by virtue of
            paragraph 9 of Schedule 4 to ITEPA.

(C)   The definition of SHARES shall be subject to the conditions that:

            (i)   they comprise ordinary shares in the capital of the Company
            (and not ADSs); and

            (ii)  they satisfy paragraphs 16 to 20 of Schedule 4 to ITEPA.

(D)   Rule 2.3 shall not apply to a Stock Option granted under this Appendix.

(E)   A new rule 4.3 shall be inserted as follows:

      "4.3  Notwithstanding any other provision of these rules, no Executive
            shall be granted a Stock Option which would, at the proposed Date of
            Grant, cause the aggregate of the market values (determined at their
            date of grant (in accordance with Part VIII of the Taxation of
            Chargeable Gains Act 1992)) of subsisting Stock Options held by him
            pursuant to a grant under this Appendix and subsisting options held
            by him under any Associated Plan, to exceed (pound)30,000 (or such
            other amount as shall be specified under paragraph 6 of Schedule 4
            of ITEPA from time to time)."

For the purposes of this paragraph (E) ASSOCIATED PLAN means any Share Option
Plan (other than the Plan) approved under Schedule 4 to ITEPA (but excluding any
savings-related share option scheme) and established by the Company or an
associated company of the Company within the meaning of section 416 of the
Income and Corporation Taxes Act.

(F)   Any performance condition imposed under rule 5.2, which applies after the
grant of the Stock Option, must be objective and must be approved in advance of
the date of grant by the Inland Revenue.

                                                                         Page 19
<PAGE>

(G)   Where Stock Options are granted in Option Tranches under rules 5.3 or 5.4,
the Committee may grant such Option Tranches as it thinks fit (if any) under
this Appendix.

(H)   For the purposes of rule 5.6, exercise of a Stock Option granted under
this Appendix shall not be effective unless and until the Company has received
payment for the Shares.

(I)   A new Rule 5.8 shall be inserted as follows:

(a)   In respect of a Stock Option granted under this Appendix before [DATE](1)
      2003, if a Tax Liability arises on the exercise of that Stock Option and
      at the time of exercise the Company either has not received the amount of
      such Tax Liability from the Participant or the Participant has not
      arranged another method of payment acceptable to the Company, then the
      Participant shall authorise the Company to sell or procure the sale of
      sufficient Shares acquired on the exercise of the Stock Option to satisfy
      such Tax Liability and to use the proceeds of such sale for the purposes
      of discharging the Tax Liability.

      For the purposes of this clause, a TAX LIABILITY arises where any current
      or former member of the Group is obliged to (or would suffer a
      disadvantage if it were not to) account for any taxation and employee's
      national insurance contributions for which the optionholder is liable by
      virtue of the exercise of the Stock Option.

(b)   A Stock Option granted under this Appendix on or after [DATE] 2003 may be
      granted subject to such conditions of exercise for payment of income tax,
      employees' national insurance contributions and employer's national
      insurance contributions liability as the Committee may determine
      (including the right to sell on the Participant's behalf sufficient Shares
      to satisfy any liability to taxation or employee national insurance
      contributions or employer national insurance contributions) and if any
      condition is imposed relating to the assumption, payment or reimbursement
      by the Participant of employer's national insurance contributions
      liability, such conditions shall comply with any applicable legislation or
      regulations and the Committee shall be entitled to waive in whole or in
      part the Participant's obligation in respect of such liability.

(J)   Any Stock Option granted under this Appendix may only be exercised by a
Participant who is not ineligible to participate in the Plan by virtue of
paragraph 9 of Schedule 4 to ITEPA.

(K)   Rule 8 shall be construed so that all Stock Options granted under this
Appendix shall be exercisable in full for a period of one year following the
date of death (and shall then lapse).

---------------
(1)   [DATE] - to insert the later of (1) the date on which the amendment is
      adopted by the Company and (2) the date on which the amendment is approved
      by the Inland Revenue

                                                                         Page 20
<PAGE>

(L)   Rule 9.6 shall not apply to a new Stock Option granted under this Appendix
following an event specified in rule 9.1 or 9.3. Instead a new rule 9.6 shall be
inserted as follows:

      "9.6A If any company (the ACQUIRING COMPANY):

      (a)   obtains Control of the Company as a result of making:

            (i)   a general offer to acquire the whole of the issued ordinary
                  share capital of the Company which is made on a condition such
                  that if it is satisfied the acquiring company will have
                  Control of the Company; or

            (ii)  a general offer to acquire all the Shares; or

      (b)   obtains Control of the Company in pursuance of a compromise or
            arrangement sanctioned by the Court under section 425 of the
            Companies Act 1985; or

      (c)   becomes bound or entitled to acquire shares in the Company under
            sections 428 to 430F of that Act,

      each Participant may at any time within the appropriate period (which
      expression shall be construed in accordance with paragraph 26(3) of
      Schedule 4 to ITEPA), by agreement with the acquiring company, release any
      Stock Option which has not lapsed (the OLD OPTION) in consideration of the
      grant to him of an option (the NEW OPTION) which (in accordance with rule
      9.6B below) is equivalent to the old option but relates to shares in a
      different company (whether the acquiring company itself or another company
      falling within paragraph 16(b) or (c) of Schedule 4) (the NEW GRANTOR).

      9.6B The new option shall not be regarded for the purposes of rule 9.6A as
      equivalent to the old option unless the conditions set out in paragraphs
      16 to 20 of Schedule 4 to ITEPA are satisfied and, in relation to the new
      option, the provisions of the Scheme shall be construed as if:

      (a)   the new option were an option granted under the Scheme at the same
            time as the old option;

      (b)   references to the COMPANY in rules 7 to 13 and 15 and in the
            definition of GROUP were references to the new grantor;

      (c)   references to the COMMITTEE in rules 7 to 13 and 15 were references
            to the remuneration committee of the new grantor;

      (d)   references to SHARES were references to shares in the new grantor;
            and

      (e)   any performance condition imposed under rule 5.2, which applies
            after the grant of the Stock Option, has been satisfied."

(M)   Rule 10(ii) shall not apply to a Stock Option granted under this Appendix.
      In construing rule 10(i) for the purposes of this Appendix the words "or
      reserves"

                                                                         Page 21
<PAGE>

      shall be deleted therefrom, and no adjustment pursuant to rule 10(i) in
      relation to a Stock Option granted under this Appendix shall take effect
      without the prior approval of the Inland Revenue.

(N)   In addition to its powers under rule 14.1(b), the Committee may make such
      amendments to this Appendix as are necessary or desirable to obtain or
      maintain Inland Revenue approval of this Appendix.

(O)   At a time when this Appendix is approved by the Inland Revenue, and if
      such approved status is to be maintained, no amendment to the rules of the
      Plan or this Appendix which amounts to an amendment to a key feature of
      [the Plan or] this Appendix for the purposes of Schedule 4 to ITEPA may
      take effect as regards this Appendix without the prior approval of the
      Inland Revenue (and if such approved status is not to be maintained, the
      Company shall notify the Inland Revenue of the relevant amendment).

                                                                         Page 22
<PAGE>

                                   APPENDIX 2

                         UNITED STATES PART OF THE PLAN

For any Executive whose remuneration is (or, at the time of Stock Option
exercise, is likely to be) subject to taxation in the United States of America
and to whom the Committee wishes to grant Stock Options under this Plan, the
following provisions shall apply:

(A)   All the provisions of the Plan shall apply to the grant of Stock Options
      subject to the modifications contained in the following paragraphs.

(B)   A Stock Option granted under this Appendix to an Executive shall be either
      an Incentive Stock Option or a Non-Qualified Stock Option, as determined
      by the Committee; provided that the number of Shares issued or transferred
      pursuant to the exercise of Incentive Stock Options shall not, in the
      aggregate, exceed 40 million Shares. The number of Shares available for
      issuance pursuant to the preceding sentence shall be subject to
      appropriate adjustment upon the occurrence of any event described in rule
      10.

      For the purposes of this Appendix:

            (i)   INCENTIVE STOCK OPTION means a Stock Option which, at the Date
                  of Grant, qualifies as an Incentive Stock Option within the
                  meaning of Section 422 of the Internal Revenue Code of 1986,
                  as amended (the CODE), and is designated by the Committee as
                  such; and

            (ii)  NON-QUALIFIED STOCK OPTION means a Stock Option which is not
                  an Incentive Stock Option.

(C)   In the case of any Incentive Stock Option granted to any person who owns
      more than 10% of the Shares for purposes of Section 422(b)(6) of the Code,
      the definition of OPTION EXERCISE PRICE in Rule 1.1 shall be modified by
      inserting "110% of" immediately prior to the words "Share Price on the
      Date of Grant", and the definition of OPTION PERIOD shall be modified by
      replacing "tenth" with "fifth".

(D)   In relation to the grant of Incentive Stock Options a new rule 4.2A shall
      apply as follows:

      "4.2A The United States dollar equivalent of the aggregate fair market
      value (determined as of the date the Incentive Stock Option is granted) of
      Shares with respect to which Incentive Stock Options are exercisable for
      the first time by an individual during any calendar year (under the Plan
      or any other Executive Plan) may not exceed $100,000; provided, that if
      the grant of any Incentive Stock Option shall exceed such limit, the
      excess shall be treated as a Non-Qualified Stock Option. In determining
      whether, and to what extent, the grant of an Incentive Stock Option
      exceeds such limit, Incentive Stock Options shall be taken into account in
      the order in which they are granted. The Committee shall determine the
      United States dollar equivalent of the

                                                                         Page 23
<PAGE>

      aggregate fair market value of the Shares on such good faith basis as they
      consider appropriate."

(E)   Rule 7.2 shall be modified by deleting subrule (b) therefrom (in the case
      of both Stock Options and Restricted Stock), and, in the case of any
      Incentive Stock Option, replacing "six months" with "three months" in
      subrule (i) (except where cessation of employment is by reason of
      disability within the meaning of Section 22(e)(3) of the Code). A Stock
      Option which loses its status as an Incentive Stock Option at the end of
      the three month period referred to in the preceding sentence shall
      nevertheless continue to be exercisable as a Non-Qualified Stock Option
      for any longer period specified in these rules.

(F)   If Shares acquired by exercise of an Incentive Stock Option are sold or
      otherwise disposed of within two years after the date of grant of the
      Incentive Stock Option or within one year after the transfer of such
      Shares to the Participant, the holder of the Shares immediately prior to
      the disposition shall promptly notify the Company in writing of the date
      and terms of the disposition and shall provide such other information
      regarding the disposition as the Company may reasonably require in order
      to secure any deduction then available against the Company's or any other
      corporation's taxable income.

(G)   For the purposes of this Appendix, any provisions of the Plan which are
      superseded by or otherwise inconsistent with the provisions of this
      Appendix as applied to an Executive who is employed or remunerated in the
      United States shall have no effect.

                                                                         Page 24
<PAGE>

                                APPENDIX - FRANCE

This Appendix is supplemental to the Pearson Long Term Incentive Plan (the
PLAN).

The rules of the Plan, in relation to any right granted to a person who is
resident for tax purposes in France, shall apply with the modifications set out
below:

1.    The definition of SUBSIDIARY shall be replaced with:

      "SUBSIDIARY means a company which is under the Control of the Company and
      a subsidiary of the Company within the meaning of Section 736 of the
      Companies Act 1985 and being a company in which the Company holds,
      directly or indirectly, at least 10% of the share capital."

2.    The following proviso shall be added to the definition of OPTION VESTING
      DATE:

      "Provided that the Option Vesting Date shall not be earlier than the
      fourth anniversary of the Date of Grant of a Stock Option Award".

3.    Rules 5.3 and 5.4 shall not apply.

4.    The following proviso shall be added to the definition of OPTION EXERCISE
      PRICE::

"Provided that:

(a)   in relation to Stock Options to subscribe for new Shares that are granted
      to Participants resident in France, the Option Exercise Price, at the date
      the Stock Option is granted, shall not be less than 80% of the average
      middle market quotation for a Share on the London Stock Exchange (as
      derived from the Daily Official List) for the 20 days in which dealings in
      Shares took place preceding the day on which the Stock Option is granted;
      and

(b)   in relation to Stock Options to acquire existing Shares that are granted
      to Participants resident in France, the Option Exercise Price, at the date
      the Stock Option is granted, shall not be less than the lower of (i) 80%
      of the average middle market quotation for a Share on the London Stock
      Exchange (as derived from the Daily Official List) for the 20 days in
      which dealings in Shares took place preceding the day on which the Stock
      Option is granted, and (ii) 80% of the average middle acquisition price of
      Shares acquired by the Company for the purpose of granting Stock Options
      and held by the Company for the same purpose as the date the Stock Option
      is granted."

5.    In applying rule 7.2 to any Stock Option which is not already exercisable
      at the date of cessation of employment, sub-paragraphs (b), (c) and (d)
      shall be disapplied, and the right of exercise in sub-paragraph (a) shall
      be restricted to circumstances of disability (and such of the events
      specified in rule 7.2A below as qualify under French law for favourable
      tax treatment for Stock Options prior to the fourth anniversary of grant).

                                                                         Page 25
<PAGE>

6.    A new rule 7.2A shall be inserted as follows:

"7.2A Where a Participant ceases, before the date on which a Stock Option
becomes exercisable, to be an employee of a member of the Group by reason of:

(a)   injury, ill-health or redundancy (as determined by the Committee);

(b)   retirement at or after the date on which he or she is bound to retire
      under his or her contract of employment;

(c)   his or her employing company or business ceasing to be part of the Group;
      or

(d)   any other reason if the Committee so decides in its absolute discretion

then, unless the exercise of that Stock Option qualifies under French law for
favourable tax treatment in any event (in which case rule 7.2 applies), that
Stock Option may only be exercised within the period of six months following the
Option Vesting Date, and will then lapse PROVIDED THAT the Committee may specify
a later date (not being later than the expiry of the Option Period) on which the
Stock Option shall lapse."

                                                                         Page 26<PAGE>
                                                                   Exhibit 10.32

                                THE PEARSON INC.
                                  PENSION PLAN

                           (RESTATED THROUGH 12/30/01)

                                                                               1
<PAGE>

                                THE PEARSON INC.

                                  PENSION PLAN

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                    <C>
ARTICLE 1. DEFINITIONS..........................................................         5
ARTICLE 2. PARTICIPATION........................................................        30
ARTICLE 3. RETIREMENT BENEFITS..................................................        33
ARTICLE 4 - LIMITATIONS ON BENEFITS.............................................        48
ARTICLE 5. VESTING..............................................................        56
ARTICLE 6. DISTRIBUTION.........................................................        57
ARTICLE 7. PRERETIREMENT DEATH BENEFITS.........................................        69
ARTICLE 8. FUNDING..............................................................        77
ARTICLE 9. ADMINISTRATION OF PLAN...............................................        79
ARTICLE 10. MANAGEMENT OF TRUST FUND............................................        82
ARTICLE 11. BENEFIT CLAIMS PROCEDURE............................................        83
ARTICLE 12. NON-ALIENATION OF BENEFITS..........................................        85
ARTICLE 13. DESIGNATION OF BENEFICIARY..........................................        86
ARTICLE 14. AMENDMENT...........................................................        87
ARTICLE 15. TERMINATION; MERGER, CONSOLIDATION OR TRANSFER OF ASSETS............        89
ARTICLE 16. ADOPTION AND WITHDRAWAL FROM PLAN BY AFFILIATED COMPANY.............        91
ARTICLE 17. TOP HEAVY PROVISIONS................................................        92
ARTICLE 18. MISCELLANEOUS.......................................................        98
SCHEDULE A - EFFECTIVE DATES....................................................       101
SCHEDULE B - ACTUARIAL ASSUMPTIONS..............................................       103
SCHEDULE C - PARTICIPATING EMPLOYERS............................................       106
SCHEDULE D - PEARSON PARTICIPANTS...............................................       107
SCHEDULE E - AWL PARTICIPANT....................................................       116
SCHEDULE F - BENEFITS FOR CERTAIN NON-RESIDENT ALIENS...........................       123
APPENDIX A......................................................................       126
APPENDIX B......................................................................       128
APPENDIX C......................................................................       130
APPENDIX D......................................................................       132
APPENDIX E......................................................................       133
APPENDIX F......................................................................       138
APPENDIX G......................................................................       144
APPENDIX H......................................................................       145
</TABLE>

                                                                               2
<PAGE>

                                THE PEARSON INC.

                                  PENSION PLAN

Pearson Inc., a Delaware corporation with its principal office at 1330 Avenue of
the Americas, New York, NY 10019, amends and restates, except as otherwise
provided in this Plan, effective as of January 1, 1998 and updated through
December 30, 2001, the retirement plan for its employees (which initially became
effective on January 1, 1944 and which was amended to a defined benefit plan on
May 1, 1965) as set forth below. Effective as of November 30, 1998 the Addison
Wesley Longman Retirement Plan (including employees of Simon & Schuster that
became covered under the AWL Plan on November 29, 1998) was merged into the
Plan. Effective as of February 29, 2000, the Plan became a multiple employer
plan as a result of the continued coverage of employees of the former
Interactive Data Corporation which as of this date was spunoff from the Pearson
Controlled Group and merged into Data Broadcasting Corporation (effective as of
June 15, 2001 renamed the Interactive Data Corporation).

The Penguin USA Pension Plan, the Pearson Inc. U.S. Retirement Plan and the FT
Publications Inc. Retirement Plan were merged as of January 1, 1994 and the
resulting plan was restated and renamed the Pearson Inc. Pension Plan. Pearson
Inc. is the sponsor of the merged plan. Penguin Books USA, Inc. sponsored the
Penguin USA Pension Plan. Penguin Books USA, Inc. was formed as a result of the
merger of Viking Penguin Inc. and NAL Penguin Inc. as of January 1, 1989.
Previously, employees of Viking Penguin Inc. participated in the Retirement Plan
of Viking Penguin Inc. and employees of New American Library (except those
employed by E.P. Dutton then

                                                                               3
<PAGE>

a division of NAL Penguin Inc. and employees of NAL Penguin Inc. who were
members of a collective bargaining unit) participated in the New American
Library Capital Accumulation Plan, a defined contribution profit sharing plan.
Prior to January 1, 1985, New American Library sponsored a defined benefit
pension plan, the New American Library Pension Plan, which was terminated as of
December 31, 1984. Prior to January 1, 1989, employees of E.P. Dutton
participated in the E.P. Dutton, a Division of New American Library, Pension
Plan, a defined benefit plan.

The Penguin Books USA Inc. Pension Plan was the continuation of the Retirement
Plan of Viking Penguin Inc. The Retirement Plan of Viking Penguin Inc. was
merged with the E.P. Dutton, a Division of New American Library, Pension Plan
effective as of December 31, 1988.

                                                                               4
<PAGE>

ARTICLE 1. DEFINITIONS

The following definitions and the definitions contained in Sections 4.1 and 17.1
apply for purposes of this Plan:

1.1   ACCRUED BENEFIT - the greater of a Participant's Section 3.2 Annuity
      payable at his Normal Retirement Date (or, if later, his Annuity Starting
      Date) or his Retirement Benefit determined under Section 3.4 payable in
      the form of a life annuity without ancillary benefits commencing on his
      Normal Retirement Date (or, if later, his Annuity Starting Date).

1.2   ACTUARIAL EQUIVALENT - a benefit or amount that replaces another and has
      the same value as the benefit or amount it replaces, based on actuarial
      assumptions as set forth in Schedule B to this Plan.

1.3   ACTIVE EMPLOYEE DEATH BENEFIT - the Preretirement Death Benefit payable to
      a Participant's Beneficiary under Section 7.2.

1.4   ACTUARY - a firm employing an "enrolled actuary" as defined in Section
      7701(a)(35) of the Internal Revenue Code appointed by the Retirement
      Committee under Section 9.9.

1.5   AFFILIATED COMPANY - an Employer and all other entities included in an
      Affiliated Group including that Employer.

1.6   1.6 AFFILIATED GROUP - a group of entities consisting of: (a) an Employer,
      and all companies within the controlled group of corporations of which the
      Employer is a member (including other Employers), (b) an unincorporated
      trade or business which is under

                                                                               5
<PAGE>

      common control with an Employer as determined in accordance with Section
      414(c) of the Internal Revenue Code, (c) a member of an affiliated service
      group with any Employer, as defined in Section 414(m) of the Internal
      Revenue Code or (d) any other entity that must be aggregated with an
      Employer under Section 414(o) (and Income Tax Regulations thereunder) of
      the Internal Revenue Code. A corporation or an unincorporated trade or
      business shall not be considered an Affiliated Group during any period it
      does not satisfy clause (a), (b), (c) or (d) of this definition. For
      purposes of this definition, a "controlled group of corporations" is a
      controlled group of corporations as defined in Section 1563(a) of the
      Internal Revenue Code (without regard to Sections 1563(a)(4) and (e)(3) of
      the Internal Revenue Code). In determining whether any limitations on
      benefits under Section 4.2 apply, the percentage in Section 1563(a)(1) of
      the Internal Revenue Code or in the regulations under Section 414(c) of
      the Internal Revenue Code shall be deemed to be more than 50% instead of
      at least 80%. For purposes of determining an Affiliated Group the
      following rules shall apply: (1) each Employer shall only be included in
      one Affiliated Group, (2) an Affiliated Group may include more than one
      Employer, (3) there shall be a separate Affiliated Group for each Employer
      that is not included in an Affiliated Group of another Employer.

1.7   ANNUITY STARTING DATE - the first date as of which distribution of
      Retirement Benefits to a Participant is to begin under Section 6.4 or the
      first date as of which distribution of Preretirement Death Benefits is to
      begin under Section 7.2(c) or 7.3(c).

1.8   AVERAGE ANNUAL COMPENSATION - the amount determined under paragraph (a) or
      (b) as set forth below:

                                                                               6
<PAGE>

      (a)   Subject to Paragraph (b), a Participant's average annual
            Compensation for the five consecutive calendar years out of the most
            recent ten calendar years during which the Participant received the
            highest Compensation. If a Participant has not been employed for
            five full calendar years then Average Annual Compensation shall be
            based on a Participant's average annual Compensation for the total
            number of his years and months of employment not in excess of five
            years.

      (b)   In the case of a Pearson Participant, Average Annual Compensation
            determined as of a date prior to January 1, 2000 shall be equal to
            the product of 12 and the Participant's average monthly Compensation
            during the 60 consecutive months in which the Participant received
            the greatest aggregate amount of Compensation out of the 120 months
            immediately prior to such date (or, if earlier, the Participant's
            Termination of Employment). In the case of a Participant who is
            employed for a period of less than 60 consecutive months prior to
            January 1, 2000, the Participant's Average Annual Compensation as of
            this date shall be based on his entire period of service.

            In determining Average Annual Compensation for this paragraph (b)
            any month which is not included in the Participant's Benefit Accrual
            Period of Service and during which the Participant either (1) has a
            Termination of Employment, Retirement or dies; or (2) does not
            perform any service (or performs service for less than 75% of the
            time that an Employee performing the same services and working on a
            full-time basis would perform) shall be disregarded.

      (c)   With respect to a determination of Average Annual Compensation for
            any Plan Year beginning on or after January 1, 1994 (i) Compensation
            shall not exceed the

                                                                               7
<PAGE>

            limitations on compensation under Section 401(a)(17) of the Internal
            Revenue Code (adjusted to reflect increases in the cost of living
            applicable before January 1, 2002); and (ii) any adjustments in the
            401(a)(17) limitation to reflect increases in the cost of living for
            a calendar year shall not apply to Compensation for the
            12-consecutive month period prior to the 12-consecutive month period
            which includes the first day of the calendar year.

1.9   AWL PARTICIPANT - an individual who actively participated in the AWL Plan
      on November 29, 1998.

1.10  AWL PLAN - the former Addison Wesley Longman Retirement Plan in effect on
      November 29, 1998.

1.11  BENEFICIARY - a person who is entitled to receive distributions under this
      Plan upon or after the death of a Participant.

1.12  BENEFIT ACCRUAL PERIOD OF SERVICE - the aggregate Periods of Service for
      an Employer of a Participant beginning on or after his Employment
      Commencement Date (or, if later, the date he satisfies the definition of
      an Eligible Employee other than the service requirement in paragraph (a)
      of Section 1.22) Eligible Employee, except that the following periods
      included in the Participant's Periods of Service shall be disregarded:

      (a)   any Periods of Service prior to the first day of the month
            coincident or next following the date the Participant is first
            employed by the Employer;

      (b)   any Periods of Severance or periods of Medical or Family Leave
            included in the Participant's Periods of Service;

                                                                               8
<PAGE>

      (c)   any periods preceding a Period of Severance of at least 60
            consecutive months if the Participant has no Vested Interest and the
            number of months of the Participant's Period of Severance is equal
            to (or greater than) the number of months of the Participant's
            Periods of Service preceding that Period of Severance;

      (d)   any 12 month period (or fraction thereof) before an Employee becomes
            a Participant, unless the Employee is credited with at least 1,000
            Hours of Service during that 12 month period (or, in the case of a
            Full-Time Employee, a Period of Service of at least three months);

      (e)   any periods disregarded under Section 3.10(d);

      (f)   in the case of a Pearson Participant for purposes of determining the
            Transition Credits under Section 3.4(a)(1) and (b)(1) or the Minimum
            Retirement Benefit under Section 3.5, Periods of Service in excess
            of 35 years;

      (g)   Periods of Service credited to a Participant before January 1, 1976,
            if those Periods of Service would have been disregarded under the
            rules then in effect with respect to breaks in service under this
            Plan;

      (h)   Service with the Former Interactive Data Corporation prior to
            September 1, 1995;

      (i)   in the case of an AWL Participant, service with the Longman Division
            prior to October 1, 1988, Dale Seymour Publications prior to July 1,
            1989, Cuissenaire prior to May 14, 1990, Peachpit prior to October
            1, 1994, Harper Collins prior to April 1, 1996, or McClanahan prior
            to July 2, 1997;

      (j)   Service for Putnam Berkley prior to January 1, 1998;

                                                                               9
<PAGE>

      (k)   in the case of a Former Simon & Schuster Participant, periods of
            service prior to November 30, 1998, except to the extent such
            service is specifically included under Section 3.5;

      (l)   in the case of an employee of Data Broadcasting Corporation (as
            renamed effective as of June 15, 2001 the Interactive Data
            Corporation) who is not a DBC Participant, service for Data
            Broadcasting Corporation prior to January 1, 2001; and

      (m)   except as otherwise specified in this Plan, any period during which
            the Participant is covered by another qualified defined benefit plan
            maintained by the Company or an Affiliated Company or a pension plan
            maintained by the Company or an Affiliated Company outside the
            United States.

      The Retirement Committee shall determine and credit to the Participant the
      additional Periods of Service necessary to provide the Participant with
      the benefit accrual credit to which he is entitled under Section 414(u) of
      the Internal Revenue Code for his military service.

      For purposes of determining an Employee's Benefit Accrual Period of
      Service, the following rules shall apply (1) Periods of Service shall be
      aggregated on the basis that 12 months of service are equal to one full
      year of service; (2) months of service which are less than a year of
      service shall equal a fraction of a year of service computed to the
      nearest .01% of a year; and (3) the month in which the Participant has a
      Termination of Employment (or if earlier, transfer from employment with an
      Employer) shall be credited as a full month of service regardless of the
      period actually worked unless such Termination of Employment occurs on the
      first day of the month.

                                                                              10
<PAGE>

1.13  BOARD - the board of directors of the Company.

1.14  BREAK IN SERVICE - a Plan Year in which an Employee (or former Employee)
      is not credited with more than 500 Hours of Service. For purposes of
      determining whether there has been a Break in Service an Employee shall be
      credited with Hours of Service for the period during which he is on
      Medical or Family Leave as follows: (a) the Employee shall be credited
      with the number of Hours of Service he would normally be credited with but
      for the absence (or if the Employee's normal Hours of Service cannot be
      determined, eight Hours of Service for each day of the absence), (b) the
      total number of Hours of Service credited for the absence shall not exceed
      501 and (c) the Hours of Service credited for the absence shall be
      credited to the Plan Year in which the absence begins if the Employee
      would be prevented from incurring a Break in Service in that Plan Year
      solely because of the crediting of Hours of Service in accordance with
      clauses (a) and (b) of this definition, or in any other case, the
      immediately following Plan Year. Solely for purposes of determining
      whether there has been a Break in Service, an Employee shall be credited
      with 40 Hours of Service for each week he is on Permitted Leave.

      For purposes of the definition of Eligible Employee (Section 1.22), and
      determining Participation upon Reemployment under Section 2.4, a Break in
      Service shall mean any consecutive 12-month period commencing with an
      Employee's first Hour of Service or any anniversary thereof in which an
      Employee (or former Employee) is not credited with more than 500 Hours of
      Service.

1.15  COMPANY - Pearson Inc. or any successor by merger, consolidation or sale
      of assets.

1.16  COMPENSATION - the applicable of (a), (b) or (c) below:

                                                                              11
<PAGE>

      (a)   The following definition shall apply for purposes of determining
            Compensation on or after January 1, 1999, for an Employee who is
            credited with an Hour of Service on or after September 1, 1999 - a
            monthly amount equal to all remuneration paid or made available for
            any calendar month by an Employer to an Employee for the Employee's
            services as salary, wages and including (1) sales related incentive
            payments and bonuses, (2) non-sales related bonuses, but not in
            excess of 50% of the amount of an Employee's annual rate of base pay
            as of December 31st of the prior year, (3) pay at premium rates
            (holiday, overtime or other), (4) amounts contributed on behalf of
            the Employee to a cafeteria plan or a cash or deferred arrangement
            and not includible in income under Section 125 or 402(g) of the
            Internal Revenue Code, (5) amounts excluded from income under
            Section 132(f) of the Internal Revenue Code, (6) unused vacation
            pay, (7) allowance for auto use, and (8) unused sick pay bonus, but
            excluding (1) severance pay, (2) any amounts paid for that month on
            account of the Employee under this Plan or under any other employee
            pension benefit plan (as defined in Section 3(2) of ERISA), (3) any
            amounts realized upon exercise of stock options granted by the
            Employer, and (4) any other amounts which are not includible in the
            Employee's income for federal income tax purposes.

      (b)   The following definition shall apply for purposes of determining
            Compensation for either (1) periods prior to January 1, 1999 or (2)
            in the case of an Employee who is not credited with an Hour of
            Service on or after September 1, 1999, all periods - compensation as
            defined in paragraph (a) except that the amount of bonuses
            includable in compensation shall be determined as follows: (1) in
            the case of bonuses paid to an AWL Participant or a Former Simon &
            Schuster Participant for

                                                                              12
<PAGE>

            periods prior to December 31, 1990, 100% of the amount of the bonus
            shall be includable in Compensation; (2) in the case of bonuses paid
            to an AWL Participant or a Former Simon & Schuster Participant for
            periods on or after January 1, 1991, annual bonus amounts which are
            not in excess of 50% of the Participant's base salary for that
            calendar year shall be includable in Compensation; (3) in the case
            of bonuses paid to an Employee other than an AWL Participant or a
            Former Simon & Schuster Participant, 100% of annual sales related
            incentive bonuses and annual non-sales related bonus amounts which
            are not in excess of 20% of the Employee's annual rate of base pay
            on December 31st of the prior year shall be includable in
            Compensation.

      (c)   in the case of an AWL Participant or a Former Simon & Schuster
            Participant Compensation for periods prior to January 1, 1986 shall
            be determined under Schedule E.

      (d)   In the case of an individual employed by The Economist, Compensation
            shall include amounts paid by The Economist for any period during
            which the individual's service for The Economist is included in his
            Period of Service.

            For purposes of Sections 4.1, 4.2, and 4.3, Compensation shall mean
            compensation as that term is used in Section 415(b)(3) of the
            Internal Revenue Code. For Plan Years beginning on or after January
            1, 1994, an Employee's Compensation shall not exceed $150,000 (or
            such higher amount as may be determined by the Secretary of the
            Treasury in accordance with Section 401(a)(17) of the Internal
            Revenue Code to reflect increase in the cost of living before
            January 1, 2002).

                                                                              13
<PAGE>

1.17  CREDITED LEAVE - an Employee's leave of absence which has been approved in
      writing by his Employer. In the case of an Employee who incurs a
      disability such Credited Leave shall not exceed a short-term disability
      period of nine months unless a longer period is specifically approved by
      his Employer.

1.18  DBC PARTICIPANT -  an individual who was an active Participant on
      February 29, 2000, and on March 1, 2000, was transferred to Interactive
      Data Corporation.

1.19  DEFINED BENEFIT PLAN - a defined benefit plan, as defined in Section 3(35)
      of ERISA, that (a) is maintained by one or more entities within an
      Affiliated Group, (b) is qualified under Sections 401 and 501 of the
      Internal Revenue Code and (c) is not a Defined Contribution Plan.

1.20  DEFINED CONTRIBUTION PLAN - a defined contribution plan, as defined in
      Section 3(34) of ERISA, that (a) is maintained by one or more entities
      within an Affiliated Group, and (b) is qualified under Sections 401 and
      501 of the Internal Revenue Code.

1.21  EARLY RETIREMENT DATE - Subject to the following sentence, the first day
      of the month next following a Participant's attainment of age 55 and being
      credited with a Vesting Period of Service of five years. In the case of an
      Employee other than an AWL Participant who is not credited with an Hour of
      Service on or after September 1, 1999, the first day of the month next
      following the Participant's attainment of age 55 and being credited with a
      Vesting Period of Service of ten years.

1.22  ELIGIBLE EMPLOYEE - an Employee employed by an Employer who (a) either (1)
      is employed on a basis in which he customarily completes at least 20 Hours
      of Service per week ("Full-Time Employee") and has completed a Period of
      Service of at least three months as a Full-

                                                                              14
<PAGE>

      Time Employee; or (2) is not a Full-Time Employee but has been credited
      with at least 1,000 Hours of Service for the 12-consecutive month period
      commencing with the Employee's first Hour of Service or has been credited
      with at least 1,000 Hours of Service for any Plan Year commencing on or
      after his first Hour of Service, (b) is not covered by a collective
      bargaining agreement (unless the collective bargaining agreement as
      defined in Section 410(b)(3)(A) of the Internal Revenue Code and related
      regulations expressly provides for inclusion of the Employee as a
      Participant); and (c) subject to Schedule F to this Plan, is not a
      non-resident alien as defined in Section 410(b)(3)(C) of the Internal
      Revenue Code and related regulations, and (d) is not an Employee who is
      actively covered by a pension plan maintained by an Affiliated Company
      outside of the United States. Any Full-Time Employee who is not an
      Eligible Employee on the Restatement Date shall become an Eligible
      Employee on the day the Employee satisfies the conditions of clauses, (a),
      (b) and (c) above. Any Employee who is not a Full-Time Employee and is not
      an Eligible Employee on the Restatement Date shall become an Eligible
      Employee on the day he satisfies the conditions of clauses (b) and (c)
      above or the last day of the 12-consecutive month period during which the
      Employee satisfies the requirements of clause (a) above, whichever is
      later.

      A Rehired Employee shall be deemed to be an Eligible Employee as of the
      day his employment recommences if the Employee has satisfied the
      requirements of this definition by the day his employment recommences and
      the Employee's most recent period of service has not been disregarded
      under Section 2.4(c).

      An individual shall not be included as an Eligible Employee for purposes
      of this Plan if he is either: (i) a leased employee (as defined in Section
      414(n) of the Internal Revenue Code)

                                                                              15
<PAGE>

      or (ii) any other individual classified by an Employer as performing
      services for an Affiliated Employer under an agreement or arrangement
      pursuant to which he is treated as an independent contractor or a leased
      employee (whether or not meeting the definition under Section 414(n) of
      the Internal Revenue Code) or an individual who is not classified by an
      Affiliated Company as an employee for purposes of withholding federal
      employment taxes (irrespective of whether the individual is subsequently
      reclassified or treated as an employee of an Affiliated Company under
      common-law employment principles by the Internal Revenue Service, any
      other governmental agency or authority, or a court).

1.23  EMPLOYEE - anyone who is employed by an Affiliated Company. A leased
      employee (as defined in Section 414(n) of the Internal Revenue Code) and
      any other individual required to be treated as an Employee under Section
      414(o) of the Internal Revenue Code shall be treated as an Employee for
      purposes of this Plan.

1.24  EMPLOYER - the Company or any other company which has adopted this Plan
      under Article 16 as listed on Schedule C. In the case of a Company that
      only adopts the Plan with respect to a portion of its employees the term
      Employer shall only refer to the portion of the Company that participates
      in the Plan.

1.25  EMPLOYMENT COMMENCEMENT DATE - (a) the day an Employee is first credited
      with an Hour of Service or (b) if an Employee has a Period of Severance,
      the Employee's first Hour of Service after a Period of Severance.

1.26  ERISA - the Employee Retirement Income Security Act of 1974, as it may
      from time to time be amended or supplemented. References to any section of
      ERISA shall be to that section as it may be renumbered, amended,
      supplemented or reenacted.

                                                                              16
<PAGE>

1.27  FIVE PERCENT OWNER - an Employee who owns more than five percent of an
      Affiliated Group (within the meaning of Section 416(i)(1)(B)(i) of the
      Internal Revenue Code).

1.28  FORMER INTERACTIVE DATA CORPORATION - the Interactive Data Corporation in
      existence on February 29, 2000, prior to merger with Data Broadcasting
      Corporation (as renamed effective June 15, 2001, the Interactive Data
      Corporation).

1.29  FORMER SIMON & SCHUSTER PLAN - the qualified defined benefit plan in
      effect prior to November 30, 1998, which covered Simon & Schuster
      employees transferred to Addison Wesley Longman on November 30, 1998.

1.30  FORMER SIMON & SCHUSTER BENEFIT SERVICE - service for the period during
      which a Participant was receiving service credit for benefit accrual
      purposes under the Former Simon & Schuster Plan for benefit accrual.

1.31  FORMER SIMON & SCHUSTER PARTICIPANT - an individual who was a participant
      in the Former Simon & Schuster Plan on November 29, 1998 and became an
      Employee of Addison Wesley Longman on November 30, 1998.

1.32  HOUR OF SERVICE - (a) an hour for which an Employee directly or indirectly
      receives, or is entitled to receive, remuneration from an Affiliated
      Company in relation to his employment, including hours credited for
      vacation, sickness or disability and hours for which back pay has been
      paid, awarded or agreed to (irrespective of mitigation of damages) by an
      Affiliated Company (which shall be credited to an Employee with respect to
      the period for which remuneration is paid). An Employee shall be credited
      with 35 Hours of Service for each week he is on Credited Leave. In no
      event shall more than 501 Hours of Service be credited to an Employee on
      account of any single period (other than a Credited Leave) during which

                                                                              17
<PAGE>

      the Employee performs no duties. For purposes of determining an Employee's
      Employment Commencement Date, an "Hour of Service" shall mean an hour for
      which an Employee receives or is entitled to receive remuneration from an
      Affiliated Company in relation to his employment. Hours of Service shall
      be credited to an Employee in accordance with the records of the
      Employee's Affiliated Company and Department of Labor Regulations Section
      2530.200b-2.

      (b) Hours of Service shall also include the following:

            (1)   In the case of a Participant who is an Employee on or after
                  January 1, 1997, prior service with The Economist shall be
                  included in Hours of Service solely for purposes of
                  determining the date on which such Participant became an
                  Eligible Employee; provided, that at the time such service was
                  rendered, Pearson PLC had at least a 50% ownership interest in
                  The Economist.

            (2)   In the case of an Employee who was employed by Putnam Berkley
                  prior to January 1, 1998, his Service for Putnam Berkley shall
                  be included in determining Hours of Service.

            (3)   In the case of a Former Simon & Schuster Participant, service
                  with Simon & Schuster prior to November 30, 1998 shall be
                  included in determining Hours of Service.

            (4)   In the case of an Employee who was employed by the Mueller
                  Data Division of Thompson Financial Services Management Group
                  ("Mueller Division") who became an Employee of the Former
                  Interactive Data Corporation on August 1, 1999, his service
                  for Mueller Division shall be included in

                                                                              18
<PAGE>

                  determining Hours of Service.

            (5)   In the case of a Participant who was employed by Avery
                  Publishing Company on September 30, 1999 and transferred to
                  Penguin Putnam on October 1, 1999, his service rendered to
                  Avery Publishing Company prior to October 1, 1999 shall be
                  included in determining Hours of Service.

            (6)   In the case of an Employee of Data Broadcasting Corporation
                  (renamed effective June 15, 2001 the Interactive Data
                  Corporation), his service prior to January 1, 2001 if not
                  already included in determining Hours of Service.

1.33  INTERNAL REVENUE CODE - the Internal Revenue Code of 1986, as it may from
      time to time be amended or supplemented. References to any section of the
      Internal Revenue Code shall be to that section as it may be renumbered,
      amended, supplemented or reenacted.

1.34  INVESTMENT MANAGER - anyone who (a) is granted the power to manage,
      acquire, or dispose of any asset of the Plan, (b) acknowledges in writing
      that he is a fiduciary with respect to the Plan and (c) is (1) an
      investment adviser registered under the Investment Advisers Act of 1940,
      (2) a bank (as defined in the Investment Advisers Act of 1940) or (3) an
      insurance company qualified under the laws of more than one state to
      manage the assets of employee benefit plans (as defined in Section 3(3) of
      ERISA).

1.35  LEARNING NETWORK PARTICIPANT - an individual who on or after June 30,
      2000, was an active Participant in the employ of an Employer other than
      Learning Network and immediately thereafter transferred to Learning
      Network.

1.36  LIMITATION YEAR - the Plan Year.

                                                                              19
<PAGE>

1.37  MEDICAL OR FAMILY LEAVE - an Employee's leave of absence from employment
      with an Affiliated Company because of (a) pregnancy, birth of the
      Employee's child, placement of a child with the Employee in connection
      with adoption of the child or caring for a child immediately following
      birth or adoption or (b) any other reason that would entitle the Employee
      to take a leave under the Family and Medical Leave Act of 1993. The
      Affiliated Company shall determine the first and last day of any Medical
      or Family Leave.

1.38  MERGED PLAN - any plan designated by the Board as a Merged Plan under
      Section 18.4.

1.39  NORMAL RETIREMENT DATE

      (a)   Subject to paragraph (b), the first day of the month coincident with
            or next following the Participant's 65th birthday.

      (b)   in the case of an AWL Participant, his Normal Retirement Date shall
            not be later than the first day of the month coincident with or
            immediately preceding the later of the Participant's 65th birthday
            and the Participant's fifth anniversary of participation in the
            Plan.

1.40  PARTICIPANT - a participant in this Plan under Article 2

1.41  PEARSON PARTICIPANT - a Participant who was a Participant in this Plan on
      November 29, 1998.

1.42  PEP PERCENTAGE - the percentage of a Participant's Average Annual
      Compensation credited for each year of his Benefit Accrual Period of
      Service as determined under Section 3.3(c).

1.43  PERIOD OF SERVICE - a period (including any periods of Credited Leave)
      beginning on a Participant's Employment Commencement Date and ending on
      the Participant's Severance from Service Date (or, if earlier, the first
      anniversary of the Participant's Medical or Family Leave).

                                                                              20
<PAGE>

      An Employee's Period of Service shall include any Period of Severance
      which ends with either of the following:

      (a)   except as otherwise provided in clause (b), an Employment
            Commencement Date within 12 months of the Employee's prior
            Termination of Employment, Retirement or incurrence of a Permanent
            Disability,

      (b)   notwithstanding paragraph (a), an Employment Commencement Date
            within 12 months of the first day of a prior absence from service
            for any reason other than quit, discharge, Retirement or death of 12
            months or less during which the Employee had a Termination of
            Employment, Retirement or incurred a Permanent Disability.

      (c)   The following additional service shall be included in a
            Participant's Period of Service:

            (1)   In the case of a Participant who is an Employee on or after
                  January 1, 1997, prior service with The Economist shall be
                  included in a Participant's Period of Service solely for
                  purposes of determining the date on which his Retirement
                  Benefit becomes nonforfeitable under Article 5 and the date on
                  which such Participant become an Eligible Employee; provided,
                  that at the time such service was rendered, Pearson PLC had at
                  least a 50% ownership interests in The Economist.

            (2)   In the case of an Employee who was employed by Putnam Berkley
                  prior to January 1, 1998, his Period of Service for purposes
                  of determining the Participant's Vesting Period of Service and
                  his eligibility service shall also include service rendered to
                  Putnam

                                                                              21
<PAGE>

                  Berkley prior to January 1, 1998.

            (3)   In the case of a Former Simon & Schuster Participant, his
                  Period of Service for purposes of determining his Vesting
                  Period of Service, his eligibility service and his Benefit
                  Accrual Period of Service under Section 3.5 shall also include
                  service rendered to Simon & Schuster prior to November 30,
                  1998.

            (4)   In the case of an individual who was employed by the Mueller
                  Data Division of Thomphson Financial Services Management Group
                  ("Mueller Division") who became an Employee of the Former
                  Interactive Data Corporation on August 1, 1999, his Period of
                  Service for purposes of determining his Vesting Period of
                  Service and his eligibility service shall also include his
                  service rendered to the Mueller Division prior to August 1,
                  1999.

            (5)   In the case of a Participant who was employed by Avery
                  Publishing Company on September 30, 1999 and transferred to
                  Penguin Putnam on October 1, 1999, his Period of Service for
                  purposes of determining his Vesting Period of Service and his
                  eligibility service shall also include his service rendered to
                  Avery Publishing Company prior to October 1, 1999.

            (6)   In the case of a DBC Participant, his Period of Service for
                  purposes of determining his Vesting Period of Service and his
                  Benefit Accrual Period of Service rendered to Data
                  Broadcasting Corporation

                                                                              22
<PAGE>

                  (renamed effective June 15, 2001 the Interactive Data
                  Corporation) on or after March 1, 2000, except to the extent
                  that such service is already included in the Participant's
                  Period of Service.

            (7)   In the case of an Employee of Data Broadcasting Corporation
                  (renamed effective June 15, 2001 the Interactive Data
                  Corporation) who is not a DBC Participant, his Period of
                  Service for purposes of determining his Vesting Period of
                  Service and his eligibility service shall include service
                  rendered to Data Broadcasting Corporation prior to January 1,
                  2001, except to the extent such service is already included in
                  the Participant's Period of Service.

            (8)   Any periods of military service not already included in his
                  Period of Service which are required to be credited under
                  Section 414(u) of the Internal Revenue Code.

1.44  PERIOD OF SEVERANCE - a period commencing on a Participant's Severance
      from Service Date and ending on the Participant's subsequent Employment
      Commencement Date, if any.

1.45  PERMANENT DISABILITY - a Participant's termination of employment with an
      Employer as the result of his disability which disability (a) entitles the
      Participant to receive disability benefits under the Company's long -term
      disability plan or, (b) in the case of a Participant who is employed by an
      Affiliated Company and is not covered by the Company's long-term
      disability plan would satisfy the requirements for disability benefits
      under that plan.

1.46  PERMITTED LEAVE - an Employee's approved leave of absence from employment
      with an Affiliated Company for any reason other than Retirement,
      Termination of Employment,

                                                                              23
<PAGE>

      Permanent Disability or death, including but not limited to military
      service, illness, disability, Medical or Family Leave, educational
      pursuits, service as a juror, temporary employment with a government
      agency, or any other leave of absence approved by that Affiliated Company.
      In approving a Permitted Leave, an Employee's Affiliated Company shall
      determine the date as of which the Permitted Leave begins and ends.

1.47  PLAN - the retirement plan set forth in this document as it may from time
      to time be amended or supplemented.

1.48  PLAN ADMINISTRATOR - the Company or such other entity as designated by the
      Board.

1.49  PLAN YEAR - the calendar year.

1.50  PRERETIREMENT DEATH BENEFIT - the death benefit payable under Article 7 to
      the spouse or a Beneficiary of a Participant who dies before his Annuity
      Starting Date.

1.51  QUALIFIED JOINT AND SURVIVOR ANNUITY - an annuity for the life of a
      Participant with a survivor annuity for the life of the Participant's
      spouse where the survivor annuity is 50% of the amount of the annuity
      payable during the joint lives of the Participant and the Participant's
      spouse and the joint and survivor annuity is at least the Actuarial
      Equivalent of the most valuable form of benefit under the Plan payable on
      his Annuity Starting Date.

1.52  QUALIFIED PRERETIREMENT SURVIVOR ANNUITY - an immediate survivor annuity
      for the life of the Participant's spouse. Each payment under the survivor
      annuity must be equal to the Actuarial Equivalent value of the payment
      that would have been made to the spouse under the survivor annuity
      described below:

      (a)   in the case of a Participant who dies after his Early Retirement
            Date, the survivor

                                                                              24
<PAGE>

            annuity the Participant's spouse would have received if the
            Participant had a Termination of Employment or Retirement on the day
            before his death and received distribution of benefits in the form
            of a Qualified Joint and Survivor Annuity commencing on the spouse's
            Annuity Starting Date, or

      (b)   in the case of a Participant who dies on or before his Early
            Retirement Date, the survivor annuity the Participant's spouse would
            have received if the Participant had a Termination of Employment on
            the day of his death, survived to the spouse's Annuity Starting
            Date, and received distribution of benefits in the form of an
            immediate Qualified Joint and Survivor Annuity.

1.53  REHIRED EMPLOYEE - an Employee who is rehired by an Affiliated Company
      after he has had a Termination of Employment or Retirement. The sections
      which include provisions relating to a Rehired Employee are Section 1.12
      (Benefit Accrual Period of Service), Section 1.22 (Eligible Employee),
      Section 1.25 (Employment Commencement Date), Section 1.69 (Vesting Period
      of Service), Section 2.4 (Participation Upon Reemployment), Section 3.10
      (Retirement Benefit of Rehired Employee) and Section 3.11 (Reemployment of
      an Eligible Employee who has had an Annuity Starting Date )

1.54  RESTATEMENT DATE - except as otherwise provided in Schedule A to this
      Plan, January 1, 1998

1.55  RETIREMENT - a Participant's termination of employment with an Affiliated
      Company on or after his Normal Retirement Date or in the case of an
      Employee who has incurred a Permanent Disability, his attainment of age
      65.

1.56  RETIREMENT BENEFIT - the monthly benefit that accrues to a Participant
      under Article 3.

                                                                              25
<PAGE>

1.57  RETIREMENT COMMITTEE - the committee appointed by the Board under Section
      9.1.

1.58  SECTION 3.2 ANNUITY - the Actuarial Equivalent of a Participant's Lump Sum
      Amount payable monthly in the form of a single life annuity without
      ancillary benefits.

1.59  SERVICE FOR PUTNAM BERKLEY - Service rendered prior to January 1, 1998, to
      Putnam Berkley. In the case of a Rehired Employee or an employee who
      terminated employment with Putnam Berkley and was then rehired with Putnam
      Berkley or an Affiliated Company, his service prior to his rehire shall
      not be included as service under this Section 1.59 if such service would
      have been disregarded under the rules applicable to a Participant.

1.60  SEVERANCE FROM SERVICE DATE - Subject to the following sentence, the
      earliest of (a) the day of an Employee's Retirement, Termination of
      Employment, or death, (b) the second anniversary of an Employee's absence
      for Medical or Family Leave, and (c) the first anniversary of the first
      day of a period in which an Employee remains absent from service for any
      reason other than quit, discharge, Medical or Family Leave, Retirement or
      death.

      In the case of an Employee who incurs a Permanent Disability, his
      Severance from Service Date shall be the date on which the latest of the
      following occurs: (a) his Benefit Accrual Period of Service ceases to be
      credited under Section 3.6 (unless he recovers from the Permanent
      Disability and resumes employment with an Affiliated Company); (b) he
      attains age 65, (c) he begins to receive distributions of his Retirement
      Benefits or (d) this Plan is terminated (or the accrual of benefits under
      the Plan otherwise ceases).

1.61  FORMER SIMON & SCHUSTER EMPLOYEE - an Employee who was employed by Simon &
      Schuster on November 29, 1998, and became employed by Addison Wesley
      Longman on November 30, 1998.

                                                                              26
<PAGE>

1.62  TERMINATION OF EMPLOYMENT - a Participant's termination of employment with
      an Affiliated Company, whether voluntary or involuntary, for any reason,
      including but not limited to quit or discharge, and other than for Medical
      or Family Leave, Permitted Leave, Credited Leave, transfer to another
      Affiliated Company, Retirement or death.

      In the case of an Employee who incurs a Permanent Disability, his
      Termination of Employment shall be the date on which the latest of the
      following occurs: (a) his Benefit Accrual Period of Service ceases to be
      credited under Section 3.6 (unless he recovers from the Permanent
      Disability and resumes employment with an Affiliated Company); (b) he
      attains age 65; (c) he begins to receive distributions of his Retirement
      Benefits; (d) he dies; or (e) this Plan is terminated (or the accrual of
      benefits under the Plan otherwise ceases).

1.63  TRUST - the trust established or maintained under the Trust Agreement.

1.64  TRUST AGREEMENT - the agreement which provides for the continuation of the
      Trust, as that agreement may from time to time be amended or supplemented.

1.65  TRUST FUND - the total of the assets held in the Trust.

1.66  TRUSTEE - anyone serving as trustee under the Trust Agreement.

1.67  VALUATION DATE - the first day of each Plan Year or any other date
      specified in the Plan or by the Retirement Committee as a date for
      valuation of the Trust Fund.

1.68  VESTED INTEREST - the nonforfeitable portion of a Participant's Retirement
      Benefit determined under Article 5.

1.69  VESTING PERIOD OF SERVICE -

      (a)   subject to paragraph (b), an Employee's aggregate Periods of Service
            (and any periods

                                                                              27
<PAGE>

            that are required be credited to the Employee for his period of
            military service under Section 414(u) of the Internal Revenue Code),
            except that the following periods included in the Employee's Periods
            of Service shall be disregarded:

            (1)   any periods preceding a Period of Severance of at least 60
                  consecutive months if the Employee has no Vested Interest and
                  the number of months of his Period of Severance is equal to
                  (or greater than) the number of months of the Employee's
                  Periods of Service preceding that Period of Severance;

            (2)   any periods while the Employee's Employer is not an Affiliated
                  Company, except (A) in the case of an Employee employed by New
                  American Library, or a limited partnership, or (B) in the case
                  of service specifically included in a Participant's Period of
                  Service under Section 1.43(c).

            (3)   any periods preceding January 1, 1985, if these periods would
                  have been disregarded under the rules then in effect with
                  respect to breaks in service of the Plan.

            For purposes of determining an Employee's Vesting Period of Service,
            Periods of Service shall be aggregated on the basis that 12 months
            of service are equal to one full year of service and completed
            months of service which are less than one year of service shall
            equal a fraction which shall be computed to the nearest .01% of a
            year and 30 days of service are equal to one full month of service.

      (b)   in the case of either an AWL Participant in no event shall his
            Vesting Period of Service as of November 30, 1999 be less than his
            years of Vesting Service as of November 30, 1999, credited under the
            AWL Plan (as described in Schedule E).

                                                                              28
<PAGE>

            In the event an individual who was a leased employee within the
            meaning of Section 414(n)(2) of the Internal Revenue Code becomes an
            Employee and an Affiliated Company was the recipient of such
            individual's services as a leased employee, his prior employment as
            a leased employee shall be credited as a Vesting Period of Service.

                                                                              29
<PAGE>

ARTICLE 2. PARTICIPATION

2.1   PARTICIPATION ON THE RESTATEMENT DATE. All Employees who were Participants
      as of the Restatement Date shall remain such and all other Employees who
      are Eligible Employees on the Restatement Date shall automatically become
      Participants as of the Restatement Date.

2.2   PARTICIPATION AFTER THE RESTATEMENT DATE. After the Restatement Date an
      Employee shall become a Participant on the first day of the calendar
      quarter coincident with or next following the day the Employee becomes an
      Eligible Employee.

2.3   CESSATION OF PARTICIPATION. For purposes of Articles 2 and 3, a
      Participant shall cease to be a Participant as of the day the Participant
      incurs a Period of Severance of 12-consecutive months. For all other
      purposes under this Plan, a Participant shall cease to be a Participant as
      of the day all distributions to the Participant and the Participant's
      Beneficiaries have been made.

2.4   PARTICIPATION UPON REEMPLOYMENT. The following rules shall apply with
      respect to the participation of a Rehired Employee:

      (a)   Subject to Section 2.4(b), if the Rehired Employee is an Eligible
            Employee as of the date he is reemployed by an Employer, the Rehired
            Employee shall again become a Participant as of that day. If the
            Rehired Employee is not an Eligible Employee as of the day he is
            reemployed, the Rehired Employee shall become a Participant in
            accordance with Section 2.2.

      (b)   If the Rehired Employee incurred a Break in Service before his
            reemployment, the

                                                                              30
<PAGE>

            Rehired Employee shall not become a Participant as provided in
            Section 2.4(a) until the earlier of the date that he (1) is employed
            as a Full-Time Employee and completes a Period of Service of three
            months as a Full-Time Employee after his reemployment or (2) is
            credited with at least 1,000 Hours of Service for the 12-consecutive
            month period commencing with his first Hour of Service after
            reemployment or has been credited with at least 1,000 Hours of
            Service for any subsequent 12-consecutive month period commencing on
            the anniversary of the day of that first Hour of Service.

      (c)   In determining whether a Rehired Employee is an Eligible Employee as
            of the date the Rehired Employee is reemployed the following rules
            shall apply:

            (1)   if the Rehired Employee is a Full-Time Employee, does not have
                  a Vested Interest and has a Period of Severance equal to (or
                  greater than) the greater of 60 months and the number of
                  months of his previous Period of Service (excluding Periods of
                  Service previously disregarded under this Section 2.4(c)), the
                  Rehired Employee's previous service as an Employee shall be
                  disregarded for purposes of determining when he again becomes
                  an Eligible Employee; or

            (2)   if the Rehired Employee is not a Full-Time Employee, does not
                  have a Vested Interest and has a number of consecutive Breaks
                  in Service equal to (or greater than) the greater of five and
                  the number of his previous Years of Service (excluding Years
                  of Service previously disregarded under this Section 2.4(c)),
                  the Rehired Employee's previous service as an Employee shall
                  be disregarded for purposes of determining when he again
                  becomes an Eligible Employee.

                                                                              31
<PAGE>

2.5   EFFECT OF CHANGE IN JOB STATUS UPON ELIGIBILITY. In the case of a
      Participant who (a) ceases to be an Eligible Employee as a result of a
      change in job status and then transfers to a job status in which he again
      becomes an Eligible Employee and (b) does so without incurring a Break in
      Service he shall become a Participant immediately upon again becoming an
      Eligible Employee. In the case of a Participant described in clause (a) of
      the prior sentence but who incurs a Break in Service before he again
      becomes an Eligible Employee, the determination of when he shall become a
      Participant shall be made by applying the rules under Section 2.4 as if
      the Employee was a Rehired Employee.

                                                                              32
<PAGE>

ARTICLE 3. RETIREMENT BENEFITS

3.1   GENERAL. Participants' Retirement Benefits shall be determined under this
      Article 3 (subject to the limitations set forth in Article 4). Each
      Participant shall be entitled to the nonforfeitable portion, as determined
      under Article 5, of his Retirement Benefit, and shall have no right to any
      portion of his Retirement Benefit which is not nonforfeitable under
      Article 5 (nor shall any such portion increase the Retirement Benefit of
      any other Participant). The form and timing of distribution of the
      nonforfeitable portion of a Participant's Retirement Benefit shall be made
      in accordance with Article 6.

3.2   RETIREMENT BENEFIT ATTRIBUTABLE TO LUMP SUM AMOUNT. Subject to Article 4
      and Sections 3.5 - 3.8 and 6.8 and Schedule F, upon a Participant's
      Retirement or Termination of Employment, the Participant's Lump Sum Amount
      shall be equal to the sum of (a) and (b) as adjusted under paragraph (c)
      as follows:

      (a)   the product of: (1) the Participant's Aggregate PEP Percentages (as
            determined under Section 3.3); and (2) his Average Annual
            Compensation; and

      (b)   in the case of a Participant described in Section 3.4 the product of
            (1) his Transition Credits under Section 3.4; and (2) his Average
            Annual Compensation.

      (c)   The sum of (a) and (b) shall be increased by interest at the rate of
            5% (compounded monthly) (or, if lower, the rate specified in
            paragraph 2(a) of Schedule B) for the period beginning with the
            Participant's Termination of Employment and ending on the
            Participant's Annuity Starting Date.

      For purposes of determining a Participant's Retirement Benefit under this
      Section 3.2 it

                                                                              33
<PAGE>

      shall be assumed that payment of the Retirement Benefit will be made in
      the form of a Section 3.2 Annuity commencing on the Participant's Normal
      Retirement Date (or, if later, the Participant's Annuity Starting Date).

3.3   AGGREGATE PEP PERCENTAGES.

      (a)   Subject to paragraph (b), a Participant's Aggregate PEP Percentages
            shall be equal to the sum of each of the applicable PEP Percentages
            set forth in the table in Section 3.3(c) multiplied by the number of
            years (or partial years) of his Benefit Accrual Period of Service to
            which each such PEP Percentage applies. The applicable PEP
            Percentage for a year (or partial year) of a Participant's Benefit
            Accrual Period of Service shall be determined by crediting the
            Participant with one-twelfth of the PEP Percentage corresponding to
            the Participant's attained age as of the first day of each month
            within such year (or partial year).

      (b)   In the case of an AWL Participant, his Aggregate PEP Percentages
            shall be equal to the sum of his Aggregate PEP Percentages for
            periods on or before November 30, 1998 and his Aggregate PEP
            Percentages for periods after November 30, 1998 determined as
            follows:

            (1)   the Aggregate PEP Percentages for periods after November 30,
                  1998 is equal to the sum of each of the applicable PEP
                  Percentages set forth in the table in Section 3.3(c)
                  multiplied by the number of years (or partial years) of his
                  Benefit Accrual Period of Service to which each such PEP
                  Percentage applies; and

            (2)   the Aggregate PEP Percentages for periods on or before
                  November 30, 1998 is

                                                                              34
<PAGE>

                  equal to the sum of each of the applicable PEP Percentages set
                  forth in the table in Section 3.3(c) multiplied by the number
                  of years (or partial years) of a Participant's Benefit Accrual
                  Period of Service on or after the Participant's Entry Date and
                  on or before November 30, 1998 to which each such PEP
                  Percentages apply. For purposes of this Section 3.3(b)(2) an
                  AWL Participant's Entry Date shall be the date that precedes
                  November 30, 1998 by the number of years of the Participant's
                  AWL Benefit Service, but in no event shall a AWL Participant's
                  Entry Date be earlier then November 30, 1968.

      (c)   A Participant's PEP Percentages under this Section 3.3 shall be
            determined under the following table:

<TABLE>
<CAPTION>
                                                      PEP PERCENTAGES
                                                (PERCENTAGE OF AVERAGE ANNUAL
PARTICIPANT'S ATTAINED AGE                            COMPENSATION)
--------------------------                            -------------
<S>                                             <C>
         Under 30                                         3.00%

          30-39                                           4.00%

          40-49                                           5.00%

          50-59                                           6.00%

       60 and above                                       8.00%
</TABLE>

3.4   TRANSITION CREDITS. In the case of a Participant who is either an AWL
      Participant, or a Pearson Participant, his Transition Credits, if any, for
      purposes of Section 3.2(b) shall be determined as set forth below. A
      Participant not described in the prior sentence shall not be entitled to
      any Transition Credits.

      (a)   In the case of a Pearson Participant, his Transition Credits shall
            be equal to the excess, if any, of (1) over (2) as follows:

                                                                              35
<PAGE>

            (1)   The Actuarial Equivalent lump sum value of a Pearson
                  Participant's accrued benefit as of December 31, 1997 (as
                  determined under Schedule D) divided by the Pearson
                  Participant's Average Annual Compensation as of December 31,
                  1997; and

            (2)   The Participant's Aggregate PEP Percentages determined under
                  Section 3.3, attributable to his Benefit Accrual Period of
                  Service prior to January 1, 1998.

      (b)   A Pearson Participant who satisfies the criteria specified in the
            following sentence may be entitled to Transition Credits in addition
            to those described in paragraph (a). In order to receive the
            additional Transition Credits under this paragraph (b), a
            Participant must have attained age 50 and have a Vesting Period of
            Service of at least five years as of January 1, 1998. The
            Transitional Credits under this paragraph shall be equal to the
            excess, if any, of (1) over (2) as follows:

            (1)   The Actuarial Equivalent lump-sum value of the Pearson
                  Participant's Grandfathered Pearson Benefit under Section
                  3.5(d) divided by the Pearson Participant's Average Annual
                  Compensation as of December 31, 2002 (or, if earlier, his
                  Termination of Employment), and

            (2)   The sum of: (A) the Participant's PEP Percentages determined
                  under Section 3.3, attributable to his Benefit Accrual Period
                  of Service prior to January 1, 2003 and (B) Transition
                  Credits, if any, to which the Participant is entitled under
                  Section 3.4(a).

      (c)   In the case of a Participant who is an AWL Participant, his
            Transition Credits, if any, shall be equal to the excess of (1) over
            (2) as follows:

                                                                              36
<PAGE>

            (1)   The Actuarial Equivalent lump sum value of an AWL
                  Participant's accrued benefit under the AWL Plan as of
                  November 30, 1998 (as determined under Schedule E) divided by
                  the Participant's AWL Average Annual Compensation (as
                  determined under Section 1.6 ) as of November 30, 1998, and

            (2)   The aggregate of an AWL Participant's PEP Percentages
                  determined under Section 3.2, attributable to his Benefit
                  Accrual Period of Service prior to December 1, 1998.

      (d)   For purposes of determining the Actuarial Equivalent lump sum value
            under paragraphs (a) and (c) of this Section the following factors
            shall apply: (1) the mortality factors specified in Paragraph 1(a)
            of Schedule B; and (2) an interest rate equal to the annual rate of
            interest on 30-year Treasury securities for the month of September,
            1997.

3.5   MINIMUM RETIREMENT BENEFIT. Subject to Article 4, and Sections 3.8 and
      6.8, in no event shall a Participant's Retirement Benefit be less than the
      benefit determined in the applicable of paragraphs (a) through (f) as
      follows:

      (a)   December 31, 1997 Retirement Benefit. In the case of a Pearson
            Participant, his accrued benefit as of December 31, 1997 (as set
            forth in Schedule D to this Plan).

      (b)   November 30, 1998 Retirement Benefit. In the case of a Participant
            who is an AWL Participant, his accrued benefit as of November 30,
            1998 under the AWL Plan (as set forth in Schedule E to this Plan).

      (c)   December 31, 1999 Retirement Benefit. In the case of a Pearson
            Participant his accrued benefit as of December 31, 1999 based on his
            Average Annual Compensation

                                                                              37
<PAGE>

            as of this date.

      (d)   Grandfathered Pearson Benefit. In the case of a Pearson Participant
            who had attained age 50 and had been credited with a Vesting Period
            of Service of at least five years as of December 31, 1997, a benefit
            equal to the Retirement Benefit the Participant would have received
            under the Plan based on his Benefit Accrual Period of Service and
            Compensation through December 31, 2002 (or, if earlier, his
            Termination of Employment) if the benefit formula in effect under
            the Plan on December 31, 1997 (as set forth in Schedule D to this
            Plan) had continued until that date.

      (e)   Grandfathered AWL Benefit. In the case of a Participant who is an
            AWL Participant and who had attained age 45 and had a Benefit
            Accrual Period of Service of at least ten years as of November 30,
            1998, a benefit equal to the Retirement Benefit the Participant
            would have received based on his Benefit Accrual Period of Service
            and Compensation through his Termination of Employment if the
            benefit formula in effect under the AWL Plan on November 29, 1998
            (as set forth in Schedule E to this Plan) had continued.

      (f)   Grandfathered Former Simon & Schuster Benefit In the case of a
            Former Simon & Schuster Participant who is at least age 45 and had a
            Vesting Period of Service of at least ten years as of November 30,
            1998, a benefit equal to the excess, if any, of (1) over (2) as
            follows:

            (1)   The benefit determined under paragraph (e), but based on (A)
                  Benefit Service equal to the sum of (i) the Participant's
                  Former Simon & Schuster Benefit Service; and (ii) his AWL
                  Benefit Service (as defined in Schedule E) on and

                                                                              38
<PAGE>

                  after November 30, 1998; and (B) Compensation equal to the sum
                  of (i) the Participant's compensation earned prior to November
                  30, 1998 and while covered under the Former Simon & Schuster
                  Plan that would have satisfied the definition of Compensation
                  in Schedule E and (ii) Compensation earned on or after
                  November 30, 1998, and

            (2)   the Former Simon & Schuster Participant's accrued benefit
                  under the Former Simon & Schuster Plan as of November 29,
                  1998.

      (g)   FINANCIAL TIMES PARTICIPANT'S BENEFIT - In the case of a Participant
            who was (1) an active participant in the former Financial Times U.S.
            Retirement Plan on December 31, 1993 and (2) who was an Eligible
            Employee on January 1, 2000, the Retirement Benefit such Participant
            would have received if the provisions of the former Financial Times
            U.S. Retirement Plan continued to apply. Such Retirement Benefit
            shall be determined under Appendix E, except that all the benefits
            shall continue to accrue on or after January 1, 1994, and shall be
            determined as of the date of the Participant's Termination of
            Employment.

3.6   RETIREMENT BENEFIT UPON PERMANENT DISABILITY

      (a)   Subject to Article 4 and Sections 3.7, 3.8 and 6.8 and paragraph
            (b), in the case of a Participant who incurs a Permanent Disability,
            his Retirement Benefit shall not be less than an amount equal to the
            Retirement Benefit determined under this Article 3 based upon his
            Average Annual Compensation as of the date of his Permanent
            Disability and the Benefit Accrual Period of Service with which the
            Participant would have been credited had he remained an Employee
            until his Normal Retirement Date (or, if

                                                                              39
<PAGE>

            earlier, the day the Plan is terminated or the accrual of benefits
            under the Plan otherwise cease),

      (b)   The Benefit Accrual Period of Service of a Participant who is
            otherwise entitled to receive a Retirement Benefit under paragraph
            (a) shall end no later than the earlier of (1) the day he ceases to
            be eligible for benefits under the Company's long-term disability
            plan as the result of his recovery from the Permanent Disability or
            (2) in the case of a Participant who elects to receive a
            distribution of benefits before his Normal Retirement Date under
            Section 6.5, his Annuity Starting Date.

      (c)   For purposes of determining the Vested Interest of a Participant
            described in paragraph (a) and who incurs a Permanent Disability,
            his Vesting Period of Service shall end on the earliest of (1) his
            Normal Retirement Date, (2) the day the Plan terminates (or the
            accrual of benefits under the Plan otherwise ceases), (3) the day he
            ceases to be eligible for benefits under the Company's long-term
            disability plan as a result of his recovery from the Permanent
            Disability and (4) in the case of a Participant who elects to
            receive a distribution of benefits before his Normal Retirement Date
            under Section 6.5, his Annuity Starting Date.

      (d)   Distribution of the Retirement Benefit of a Participant who incurs a
            Permanent Disability shall commence as of the Participant's Normal
            Retirement Date unless he elects to receive distribution of his
            benefits before that time under Section 6.5.

      For purposes of this Section 3.6, it shall be assumed that payment of the
      Retirement Benefit will be made as monthly payments in the form of a
      single life annuity without ancillary benefits, commencing on the
      Participant's Normal Retirement Date.

                                                                              40
<PAGE>

3.7   MAXIMUM RETIREMENT BENEFIT.

      (a)   In the case of a Participant who (1) has a Termination of Employment
            before his Normal Retirement Date and (2) does not receive a
            distribution upon Termination of Employment, in no event shall the
            amount of his Retirement Benefit determined under Section 3.2 (but,
            without regard to Section 3.8) payable in the form of a single life
            annuity commencing at any time be greater than the amount payable
            under a [single] life annuity commencing on his Normal Retirement
            Date which is the Actuarial Equivalent of his age 65 Lump Sum Amount
            determined under the following sentence. A Participant's age 65 Lump
            Sum Amount is the Lump Sum Amount which the Participant would be
            entitled to receive if he had remained an Employee until his Normal
            Retirement Date, based on the Aggregate PEP Percentages with which
            he would be credited upon his Normal Retirement Date and his Average
            Annual Compensation at his actual Termination of Employment.

      (b)   If a Participant (1) has a Termination of Employment before his
            Normal Retirement Date, (2) does not elect an immediate distribution
            of his Retirement Benefit and (3) elects a form of annuity under
            Section 6.1 other than a single life annuity, the amount payable
            under that annuity shall not be greater than the Actuarial
            Equivalent of the single life annuity described in Section 3.7(a).

3.8   OFFSETS FOR CERTAIN PRIOR PLAN BENEFITS.

      (a)   Employees of New American Library. In the case of a Participant who
            was a participant in either the New American Library Pension Plan or
            the New American Library Capital Accumulation Plan the amount of his
            Retirement Benefit under

                                                                              41
<PAGE>

            Sections 3.2, 3.5 and 3.6 shall be offset by the sum of (1) and (2)
            as follows:

            (1)   The Participant's accrued benefit under the terminated New
                  American Library Pension Plan, as set forth in Appendix A
                  (regardless of whether the Participant is entitled to any
                  future payments under that plan), and

            (2)   The Actuarial Equivalent of the Participant's accumulated
                  employer contributions, other than employer matching
                  contributions, made under the New American Library Capital
                  Accumulation Plan, as set forth in Appendix B.

            For purposes of determining a Participant's accrued benefit under
            the New American Library Pension Plan (set forth in Appendix A) and
            the Actuarial Equivalent of a Participant's accumulated employer
            contributions under the New American Library Capital Accumulation
            Plan (set forth in Appendix B) it shall be assumed that payment of
            the benefit will be made in the form of a single life annuity
            without ancillary benefits commencing on the Participant's Normal
            Retirement Date.

      (b)   Former District 65 Members. In the case of a Participant who was a
            member of the District 65 Security Plan Pension Fund ("District 65
            Plan") prior to April 1, 1991, the amount of his Retirement Benefit
            under Sections 3.2, 3.5 and 3.6 shall be offset in accordance with
            Section 3.9(e) by the vested benefit, if any, payable under such
            District 65 Plan expressed as a single life annuity without
            ancillary benefits commencing on the Participant's Normal Retirement
            Date, as set forth in Appendix G to this Plan.

                                                                              42
<PAGE>

3.9   TRANSFERRED EMPLOYEE; CHANGE IN STATUS AS ELIGIBLE EMPLOYEE. The following
      rules shall apply with respect to the determination of the Retirement
      Benefit of a Participant (a "Transferred Employee") who is either (a)
      transferred to or from an Affiliated Company which is not an Employer or
      (b) otherwise ceases to be or becomes an Eligible Employee as the result
      of a change in the terms of his employment:

      (1)   In the case of a Transferred Employee who is transferred from an
            Employer to an Affiliated Company which is not an Employer (or
            otherwise ceases to be an Eligible Employee), the amount of his
            Retirement Benefit shall be determined based on the number of years
            of his Benefit Accrual Period of Service at the time he is
            transferred (or otherwise ceases to be an Eligible Employee) and his
            Average Annual Compensation up to the date of his transfer, but for
            purpose of the adjustments under Section 3.2(d) he shall be treated
            as if he had a Termination of Employment on the date of his
            transfer.

      (2)   Subject to paragraphs (3) and (4), in the case of a Transferred
            Employee who is transferred from an Affiliated Company which is not
            an Employer to an Employer (or otherwise becomes an Eligible
            Employee), the amount of his Retirement Benefit shall be determined
            based on the number of years of his Benefit Accrual Period of
            Service after the date of the transfer (or he otherwise becomes an
            Eligible Employee) and his Compensation after the date of the
            transfer.

      (3)   In the case of a Transferred Employee who was a participant in the
            Penguin Canada Retirement Plan and/or the Penguin Canada
            Supplemental Retirement Plan and who is transferred to an Employer,
            the amount of his Retirement Benefit shall be the greater

                                                                              43
<PAGE>

            of (A) and (B) as follows:

            (A)   the Participant's Retirement Benefit based on the number of
                  years of his Benefit Accrual Period of Service after the date
                  of transfer and his Compensation after the date of the
                  transfer, and

            (B)   the difference between (i) the Participant's Retirement
                  Benefit determined by including his service rendered and
                  compensation received while an employee of Penguin Canada in
                  the Participant's Benefit Accrual Period of Service and
                  Compensation, respectively and (ii) the value of the
                  Participant's vested benefits, as of the date of his transfer,
                  under the Penguin Canada Retirement Plan and the Penguin
                  Canada Supplemental Retirement Plan. In determining the value
                  of the vested benefit under the Penguin Canada Pension Plan
                  and/or Penguin Canada Supplemental Retirement Plan, it shall
                  be assumed that payment of the retirement benefit will be made
                  in the form of a single life annuity without ancillary
                  benefits, commencing on the Participant's Normal Retirement
                  Date. The conversion of the benefit payable under the Penguin
                  Canada Pension Plan and/or Penguin Canada Supplemental
                  Retirement Plan to this form shall be based on the actuarial
                  assumptions in effect under the Penguin Canada Pension Plan on
                  the first day of the month in which the Participant's transfer
                  occurred. The amount of the benefit under the Penguin Canada
                  Pension Plan and/or Penguin Canada Supplemental Retirement
                  Plan shall be converted from Canadian currency to United
                  States currency based on the exchange rate in effect on the
                  day of the Participant's Termination of Employment or
                  Retirement.

                                                                              44
<PAGE>

      (4)   In the case of an Employee who was not an Eligible Employee because
            he was covered by a collective bargaining agreement which does not
            expressly provide for the inclusion of the Employee as a
            Participant, and who subsequently becomes an Eligible Employee
            because he is no longer a member of a group of Employees covered by
            a collective bargaining agreement, the amount of his Retirement
            Benefit shall be determined based on the number of years of his
            Benefit Accrual Period of Service and his Compensation both before
            and after the date he becomes an Eligible Employee. If such Employee
            is or becomes entitled to a pension benefit from a Defined Benefit
            Plan covering any period which is included in his Benefit Accrual
            Period of Service under this Plan then the Retirement Benefit under
            this Plan shall be reduced by the pension payable from such other
            Defined Benefit Plan. For purposes of determining the amount of the
            offset of a Participant's benefit under such other Defined Benefit
            Plan, the benefit payable under such plan shall be converted using
            the actuarial factors expressed in that plan (or if none the factors
            set forth in this Plan).

3.10  RETIREMENT BENEFIT OF REHIRED EMPLOYEE. The following rules shall apply
      with respect to the determination of the amount of the Retirement Benefit
      of a Participant who is a Rehired Employee:

      (a)   The Retirement Benefit payable upon the Participant's subsequent
            Termination of Employment, Retirement or Permanent Disability shall
            be an amount determined under the applicable Section of this Article
            3 as in effect at that time.

      (b)   The Rehired Employee's Retirement Benefit that commenced on his
            prior Annuity Starting Date (the "Prior Retirement Benefit") shall
            continue to be paid in accordance

                                                                              45
<PAGE>

            with Section 3.11.

      (c)   For purposes of determining a Rehired Employee's Retirement Benefit
            under Article 3 the following rules shall apply:

            (1)   Subject to paragraph (d), if the Rehired Employee is
                  reemployed as an Eligible Employee, then his Retirement
                  Benefit under the applicable Section of Article 3 upon his
                  subsequent Termination of Employment shall be determined by
                  taking into account his Benefit Accrual Period of Service and
                  Compensation accrued both prior to his initial Termination of
                  Employment, and after his reemployment.

            (2)   If the Rehired Employee has had an Annuity Starting Date, the
                  Rehired Employee's additional Retirement Benefit (if any) at
                  his subsequent Annuity Starting Date shall be equal to the
                  Actuarial Equivalent of (A) over (B) as follows:

                  (A)   the Actuarial Equivalent lump sum value of the Rehired
                        Employee's Retirement Benefit determined under paragraph
                        (c)(1) as of his subsequent Termination of Employment;
                        over

                  (B)   the Actuarial Equivalent of lump sum value of his
                        Retirement Benefit as of his prior Annuity Starting
                        Date.

            For purposes of this paragraph (c)(ii), Actuarial Equivalent value
            shall be determined in accordance with the factors under Schedule A
            in effect on the date of the Participant's Termination of
            Employment.

      (d)   Subject to the following sentence, in the case of a Participant who
            has no Vested Interest on his Severance from Service Date: (1) he
            shall be deemed to receive a

                                                                              46
<PAGE>

            distribution of his entire Vested Interest upon his Severance from
            Service Date and (2) his Benefit Accrual Period of Service credited
            before his original Severance from Service Date shall be
            disregarded. However, if such Participant resumes covered Employment
            under the Plan no later than the day that he would have incurred a
            Period of Severance of five consecutive years, then he will be
            deemed to have repaid to the Plan his deemed distribution and
            accordingly his Benefit Accrual Period of Service credited before
            his original Termination of Employment or Retirement shall not be
            disregarded.

3.11  REEMPLOYMENT OF AN ELIGIBLE EMPLOYEE WHO HAS HAD AN ANNUITY STARTING DATE.
      If a Participant who had a Termination of Employment and who is receiving
      a Retirement Benefit from the Plan is reemployed by the Company or an
      Affiliated Company, payment of his Retirement Benefit will continue and
      shall not be suspended. Upon the Participant's subsequent Termination of
      Employment, his Retirement Benefit will be determined under the provisions
      of Section 3.10.

3.12  SUSPENSION OF BENEFIT PAYMENTS FOR EMPLOYMENT AFTER NORMAL RETIREMENT
      DATE. Payment of the Retirement Benefit of a Participant who remains in
      employment after his Normal Retirement Date shall be suspended during each
      calendar month of the Participant's continued employment during which the
      Participant receives from an Affiliated Company payment for any Hours of
      Service on each of eight days. The Plan Administrator shall notify any
      Participant who is affected by this Section 3.12 in accordance with the
      notification requirements of Department of Labor Regulations Section
      2530.203-3(b)(4).

                                                                              47
<PAGE>

ARTICLE 4 - LIMITATIONS ON BENEFITS

4.1   DEFINITIONS. The following definitions apply for purposes of Section 4.2:

      (a)   Annual Benefit - a benefit which is payable annually in the form of
            a single life annuity with no ancillary benefits and determined
            without regard to any contributions made by an Employee.

      (b)   Defined Benefit Plan Fraction - a fraction for any Plan Year. The
            numerator of the fraction is the Participant's Projected Annual
            Benefit. The denominator of the fraction is the lesser of:

            (i)   the product of 1.25 and $90,000 (or such higher amount as may
                  be permitted under Section 415(d) of the Internal Revenue Code
                  to reflect increases in the cost of living); and

            (ii)  the product of 1.4 and 100% of the Participant's average
                  Compensation during the three consecutive Plan Years in which
                  the Participant received the greatest amount of Compensation.

      (c)   Defined Contribution Plan Fraction - a fraction for any Plan Year.
            The numerator of the fraction is the aggregate amount of annual
            additions, as defined in Section 415(c)(2) of the Internal Revenue
            Code, to a Participant's accounts as of the close of that Plan Year
            in all Defined Contribution Plans (whether or not terminated). The
            denominator of the fraction is the aggregate amount described in the
            following sentence for all Plan Years the Participant was an
            Employee (regardless of whether a Defined Contribution Plan was in
            existence during those years). The amount for each

                                                                              48
<PAGE>

            such Plan Year is equal to the lesser of:

            (i)   the product of 1.25 and the dollar amount under Section
                  415(c)(1)(A) of the Internal Revenue Code for that Plan Year
                  and

            (ii)  the product of 1.4 and the amount determined under Section
                  415(c)(1)(B) of the Internal Revenue Code for that Plan Year.
                  In the case of a Participant with respect to whom the sum of
                  his Defined Benefit Plan Fraction and Defined Contribution
                  Plan Fraction exceeds 1.0 as of either (or both) December 31,
                  1982 or December 31, 1986 (computed as if the provisions of
                  Section 415 of the Internal Revenue Code, as amended by the
                  Tax Equity and Fiscal Responsibility Act of 1982 or the Tax
                  Reform Act of 1986, respectively, were in effect on the
                  applicable of those dates and disregarding any changes to the
                  plans made after May 5, 1986, but using the Section 415
                  limitation applicable to the first Plan Year beginning on or
                  after January 1, 1987) the numerator of the Participant's
                  Defined Contribution Plan Fraction shall be reduced so that
                  the sum of those fractions as of the applicable date does not
                  exceed 1.0.

      (d)   Projected Annual Benefit - the projected Retirement Benefit payable
            in the form of an Annual Benefit to which a Participant would be
            entitled under all Defined Benefit Plans assuming (a) that all
            relevant factors used to determine benefits under each of those
            Plans remained constant from the last day of the most recent Plan
            Year in which the Participant was credited with a Benefit Accrual
            Period of Service until the Participant's Normal Retirement Date and
            (b) that distribution of those benefits commences on the
            Participant's attainment of his Normal Retirement Date (or current

                                                                              49
<PAGE>

            age if later).

4.2   MAXIMUM RETIREMENT BENEFIT. Notwithstanding any other provisions of this
      Plan:

      (a)   Subject to Sections 4.2(b), (c) and (d), the Retirement Benefit of a
            Participant shall be reduced to the extent that it (plus, if
            applicable, the aggregate retirement benefit to which the
            Participant is entitled under all other Defined Benefit Plans in
            which he was a participant) exceeds the lesser of:

            (i)   $90,000 (or such higher amount as may be permitted under
                  Section 415(d) of the Internal Revenue Code to reflect
                  increases in the cost of living; and

            (ii)  100% of the Participant's average Compensation during the
                  three consecutive Plan Years in which the Participant received
                  the greatest amount of Compensation. No reduction shall be
                  required under this Section 4.2(a) in the case of a
                  Participant who never participated in a Defined Contribution
                  Plan if the Participant's Retirement Benefit (plus, if
                  applicable, the Participant's retirement benefit under all
                  other Defined Benefit Plans) does not exceed $10,000.

      (b)   The following adjustments shall be made in applying the limitations
            of Sections 4.2(a) and 4.3.

            (i)   If a Participant's Retirement Benefit (or a retirement benefit
                  to which the Participant is entitled under any other Defined
                  Benefit Plan) is payable in a form other than an Annual
                  Benefit, the Retirement Benefit shall be adjusted so that it
                  is the Actuarial Equivalent of an Annual Benefit, except that
                  the following shall not be taken into account: (A) any
                  ancillary benefit that is not

                                                                              50
<PAGE>

                  related to retirement income benefits and (B) the survivor
                  annuity provided under the portion of any annuity that
                  constitutes a Qualified Joint and Survivor Annuity.

            (ii)  The dollar limitation set forth in Section 4.2(a)(1) shall be
                  adjusted as set forth below:

                  (A)   If distribution of a Participant's Retirement Benefit
                        begins before the Participant's Social Security
                        Retirement Age (as defined in Section 415(b)(8) of the
                        Internal Revenue Code) but on or after the Participant's
                        attainment of age 62 then the limitation shall be
                        reduced by 5/9ths of one percent for each of the first
                        36 months and 5/12ths of one percent for each of the
                        additional months (up to 24 months), if any, by which
                        the benefits commence before the month in which the
                        Participant attains his Social Security Retirement Age.

                  (B)   If the distribution of a Participant's Retirement
                        Benefit begins before his attainment of age 62 then the
                        limitation shall be reduced by (1) reducing the
                        limitation to the applicable limit for benefits payable
                        at age 62 in accordance with paragraph (i) and (2) then
                        determining the Actuarial Equivalent of that amount at
                        the Participant's age at the time that the benefit
                        commences.

                  (C)   If distribution of a Participant's Retirement Benefit
                        begins after the Participant's Social Security
                        Retirement Age, the limitation shall be increased (in
                        accordance with regulations promulgated by the

                                                                              51
<PAGE>

                        Secretary of the Treasury) so that it equals the amount
                        of an Annual Benefit beginning at the time distribution
                        of the Participant's Retirement Benefit begins, which is
                        the Actuarial Equivalent of an Annual Benefit equal to
                        the dollar limitation set forth in Section 4.2(a)(1)
                        beginning at the Participant's Social Security
                        Retirement Age.

            (iii) In the case of a Participant with less than ten years of
                  participation in the Plan or less than ten Vesting Years of
                  Service:

                  (A)   the dollar limitation set forth in Section 4.2(a)(1)
                        shall be multiplied by a fraction the numerator of which
                        is the aggregate number of the Participant's years of
                        participation in the Plan at the time the determination
                        is made and the denominator of which is ten, and

                  (B)   the percentage limitation set forth in Section 4.2(a)(2)
                        and the $10,000 minimum benefit referred to in the last
                        sentence of Section 4.2(a) shall be multiplied by a
                        fraction the numerator of which is the aggregate number
                        of the years of the Participant's Vesting Years of
                        Service at the time the determination is made and the
                        denominator of which is ten.

            (iv)  For purposes of adjusting a Participant's Retirement Benefit
                  under Section 4.2(b)(i), the interest rate assumptions shall
                  be the rate set forth in Schedule B to this Plan, but in the
                  case of a distribution other than a lump sump distribution (or
                  forms other than nondecreasing annuities) in no event shall
                  the adjusted amount be less than the amount determined by
                  adjusting the

                                                                              52
<PAGE>

                  limitation based on a 5% interest rate and the mortality
                  specified in paragraph (1)(a) of Schedule B. For purposes of
                  adjusting the dollar limitation in the Plan under Section
                  4.2(b)(ii), the adjustment shall be based on the factors set
                  forth in the Plan but shall be subject to the limitations on
                  such factors as set forth in Section 415(b)(2)(E) of the
                  Internal Revenue Code.

      (c)   The Retirement Benefit of a Participant who was a Participant in the
            Plan or a participant in a Prior Plan before January 1, 1987 shall
            not be reduced under any other provisions of this Section 4.2 to the
            extent that it does not exceed the Participant's Retirement Benefit
            accrued as of that date and determined in accordance with the
            requirements of Section 415 of the Internal Revenue Code in effect
            on that date and without regard to amendments to the Plan after May
            5, 1986. The Retirement Benefit of a Participant who was a
            Participant in the Plan or a participant in a Prior Plan before
            January 1, 1983 shall be similarly protected.

      (d)   Effective for Participants with Annuity Starting Dates that begin in
            Plan Years prior to January 1, 2000, if a Participant is a
            participant in any Defined Contribution Plan, the Participant's
            Retirement Benefit shall be reduced to the extent that it causes the
            sum of the Participant's Defined Benefit Plan Fraction and the
            Participant's Defined Contribution Plan Fraction to exceed 1.0 for
            any Plan Year.

4.3 RESTRICTIONS ON HIGHLY COMPENSATED EMPLOYEES.

      (a)   The Retirement Benefit of a Participant who is among the 25 Highly
            Compensated Employees or former Highly Compensated Employees (as
            defined in Section 414(q) of the Internal Revenue Code) who have the
            greatest compensation from all Affiliated

                                                                              53
<PAGE>

            Companies in any current or prior Plan Year shall be subject to the
            restrictions set forth in Section 4.3(b) unless at least one of the
            conditions in the following sentence is met. The conditions are: (1)
            the aggregate value of the Retirement Benefit payable to Participant
            does not exceed 1% of the Plan's current liabilities (as that term
            is defined in Section 412(l)(7) of the Internal Revenue Code), (2)
            the Plan assets remaining after the distribution of all benefits
            payable to the Participant under the Plan equals or exceeds 110% of
            the Plan's current liabilities, (3) the Actuarial Equivalent present
            value of the benefits payable to or on behalf of the Participant
            does not exceed $5,000 or (4) the Plan is terminated and the benefit
            received by the Participant is nondiscriminatory under Section
            401(a)(4) of the Internal Revenue Code.

      (b)   Subject to Section 4.3(e), the annual payments to a Participant
            described in Section 4.3(a) shall not exceed the annual payment to
            which such Participant is entitled if his Retirement Benefit (other
            than any Social Security Supplement as defined in Treas. Reg.
            Section 1.411(a)-7(c)(4)(ii)) is distributed in the form of a single
            life annuity, plus the payment to which such Participant is entitled
            to receive under a Social Security Supplement.

      (c)   For purposes of Section 4.3(a), the term Retirement Benefit shall
            include all loans in excess of the amount under Section 72(p)(2)(A)
            of the Internal Revenue Code, any periodic income, any withdrawal
            values payable to an Employee or former Employee and any death
            benefits on the Employee's or former Employee's life which are not
            provided for by insurance.

      (d)   In the event of the Plan's termination, the benefit of any active or
            former Highly

                                                                              54
<PAGE>

            Compensated Employee is limited to a benefit that is
            nondiscriminatory under Section 401(a)(4) of the Internal Revenue
            Code.

      (e)   A Participant to whom the restrictions of Section 4.3(a) apply may
            receive payouts in excess of the amount described in Section 4.3(a)
            provided that an agreement in accordance with Revenue Rulings and
            other guidance of the Internal Revenue Service has been established
            to secure repayment to the Plan of any such excess payment.

                                                                              55
<PAGE>

ARTICLE 5.  VESTING

A Participant's right to receive his Retirement Benefit shall become
nonforfeitable upon the earliest of: (1) the Participant's being credited with a
Vesting Period of Service of five years, (2) the Participant's attainment of age
65 while an Employee, (3) in the case of an AWL Employee, his Normal Retirement
Date, or (4) a Participant's death while an Employee.

                                                                              56
<PAGE>

ARTICLE 6. DISTRIBUTION

6.1   ELECTION OF FORM OF DISTRIBUTION. Subject to Sections 6.2 and 6.8, a
      Participant shall be entitled to elect to receive a distribution of his
      Vested Interest either in one of the forms of annuity specified in
      paragraph (a) or in a single cash payment described in paragraph (b). The
      election under this Section 6.1 shall only be available if the Actuarial
      Equivalent present value as of the Participant's Annuity Starting Date
      (or, at the time of any prior distribution) of the Participant's Vested
      Interest is in excess of $5,000.

      (a)   Annuity Options - A Participant may elect to receive the Actuarial
            Equivalent of his Vested Interest in the form of an annuity as
            follows:

            (1)   Life annuity - an annuity for the life of the Participant,

            (2)   Qualified Joint and Survivor Annuity,

            (3)   Life annuity with a 10-year period certain feature - in the
                  case of a Participant with an Hour of Service on or after
                  September 1, 1999, or an AWL Participant, an annuity for the
                  life of the Participant, but if the Participant dies within 10
                  years of his Annuity Starting Date, the annuity is payable to
                  the Participant's Beneficiary for the remainder of that
                  10-year period, or

            (4)   Joint and survivor annuity - in the case of a Participant with
                  an Hour of Service on or after September 1, 1999, or an AWL
                  Participant, an annuity for the life of the Participant, with
                  a survivor annuity payable to a Beneficiary designated by the
                  Participant of either 50% or 100% of the amount payable

                                                                              57
<PAGE>

                  during the joint lives of the Participant and his Beneficiary.

      (b)   Single Cash Distribution Option. A Participant may elect to receive
            a single cash distribution of the full amount payable under the Plan
            as of his Annuity Starting Date under Section 6.4. The single cash
            distribution shall be equal to the greater of (1) the Participant's
            Lump Sum Amount (as adjusted under Section 3.8), and (2) the
            Actuarial Equivalent of the Participant's Vested Retirement Benefit
            determined under Section 3.5 (as adjusted under Section 3.8).

      A Participant's election under this Section 6.1 (which includes the
      designation of a contingent Beneficiary) must be made in accordance with
      the Provisions of Section 6.8. Except in the case of a Participant who has
      an Annuity Starting Date described in Section 6.4(d), this election may
      not be changed after the Annuity Starting Date. In the case of a
      Participant who has an Annuity Starting Date described in Section 6.4(d),
      he shall be entitled to elect another form of distribution upon his
      Retirement. In the absence of an effective election under this Section
      6.1, subject to Section 6.8, a Participant shall be deemed to have elected
      a distribution in the form of a single life annuity with no ancillary
      benefits.

6.2   VESTED INTEREST NOT IN EXCESS OF $5,000. Subject to an election under
      Section 6.3 of a direct transfer, if as of the Participant's Annuity
      Starting Date the Actuarial Equivalent present value of his Vested
      Interest payable as of the Participant's Normal Retirement Date does not
      exceed $5,000, the method of distribution as to that Participant shall be
      a single cash distribution of that Vested Interest.

6.3   DIRECT TRANSFER. Subject to Section 6.8 and the rules set forth below, a
      Participant who

                                                                              58
<PAGE>

      receives distribution of his Vested Interest in a form which qualifies as
      an eligible rollover distribution (as defined in Section 401(a)(31) of the
      Internal Revenue Code) in accordance with Section 6.1(b) or 6.2 or under
      Article 7 may elect, at the time and in the manner prescribed by the Plan
      Administrator, to have all or any portion of that distribution paid
      directly to any eligible retirement plan (as defined in Section
      402(c)(8)(B) of the Internal Revenue Code).

      The Plan Administrator shall notify the Participant (or spouse) of the
      direct transfer option in accordance with Section 402(f) of the Internal
      Revenue Code. This notification shall be given no earlier than 90 days
      before distribution of benefits is to commence and no later than 30 days
      before distribution of benefits is to commence. However, the Participant
      may affirmatively elect that distribution commence at least seven days
      after receipt of the notice, but before the expiration of the 30-day
      period provided he has been informed of the right to have at least 30 days
      to review the notice. This option shall apply only to a Participant, his
      surviving spouse, or his former spouse who is entitled to a distribution
      under the Plan as an alternate payee under a qualified domestic relations
      order as defined in Section 414(p) of the Internal Revenue Code. The
      following rules shall apply with respect to direct transfers under this
      Section 6.3.

      (a)   A Participant who is reasonably expected to have an eligible
            rollover distribution during the calendar year that totals less than
            $200 may not elect a direct transfer under this Section 6.3.

      (b)   If a Participant elects of a direct transfer of a portion of an
            eligible rollover distribution, that portion must be equal to at
            least $500.

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<PAGE>

      (c)   A Participant may not divide his eligible rollover distribution into
            separate distributions to be transferred to two or more eligible
            retirement plans.

      (d)   A Participant's election to make or not make a direct rollover with
            respect to one payment in a series of periodic payments which
            qualify as an eligible rollover distribution shall apply to all
            subsequent payments in the series unless the Participant elects
            otherwise.

      (e)   If a Participant does not make an election with respect to an
            eligible rollover distribution as of his Annuity Starting Date he
            will be treated as not having elected a direct transfer under this
            Section 6.3.

6.4   TIMING OF DISTRIBUTION; ANNUITY STARTING DATE. Distribution of a
      Participant's Vested Interest shall commence as of the Participant's
      Annuity Starting Date. A Participant's Annuity Starting Date shall be the
      earliest of:

      (a)   the first day of the month coincident with or next following the day
            of the Participant's Retirement,

      (b)   as soon as practicable, after the Participant's Termination of
            Employment if as of that date the Actuarial Equivalent present value
            of his Vested Interest does not exceed $5,000,

      (c)   the first day of the month coincident with or next following the
            Participant's Normal Retirement Date if the Participant has a
            Termination of Employment or prior to that time except that the
            Annuity Starting Date of a Participant who elects under Section 6.5
            to commence to receive distribution prior to his Normal Retirement
            Date shall be made as soon as practicable on or after the date
            elected under Section 6.6, and

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<PAGE>

      (d)   subject to a deferral election under Section 6.7(a), for all
            participants (other than a Participant who attained age 70-1/2
            before January 1, 1988 and is not a Five Percent Owner during the
            calendar year in which he attains age 66-1/2 or any subsequent Plan
            Year) the first day of April immediately following the calendar year
            in which the Participant attains age 70-1/2, but not earlier than
            April 1, 1990. In no event, unless the Participant elects otherwise,
            shall distribution of a Participant's Vested Interest commence later
            than 60 days after the latest of the last day of the Plan Year in
            which occurs (1) the Participant's Retirement, (2) the earlier of
            the day the Participant attains age 65 or his Normal Retirement Date
            or (3) the tenth anniversary of the Participant's participation in
            the Plan.

6.5   ELECTION TO RECEIVE DISTRIBUTION BEFORE NORMAL RETIREMENT DATE.

      (a)   A Participant who (1) has a Termination of Employment or incurs a
            Permanent Disability before his Normal Retirement Date, or (2) has a
            Vested Interest, the Actuarial Equivalent present value of which
            exceeds $5,000 as of the Participant's Annuity Starting Date (or at
            the time of any prior distribution), may elect to have distribution
            of the Actuarial Equivalent of his Vested Interest commence prior to
            his Normal Retirement Date and as of a date specified in Section
            6.5(b).

      (b)   A Participant described in Section 6.5(a) may elect to begin
            receiving a distribution of his Vested Interest as of the first day
            of the month elected which is within six months after his
            Termination of Employment (or, if later, the date the notice
            described in Section 6.9 is provided). If a Participant described in
            Section 6.5(a) does not elect distribution of his benefit within six
            months after his Termination of Employment (or,

                                                                              61
<PAGE>

            if later, the date the notice described in Section 6.9 is provided),
            then such Participant may elect to begin receiving a distribution of
            his benefits as of the first day of any month coincident with or
            next following his Early Retirement Date, but before his Normal
            Retirement Date.

            A Participant's election under this Section 6.5 must be made during
            the period specified in Section 6.9 for the waiver of a Qualified
            Joint and Survivor Annuity.

6.6   REDUCTIONS FOR EARLY DISTRIBUTION. The Retirement Benefit of a Participant
      who elects to receive distribution of his Vested Interest determined under
      Section 3.5 and who elects to receive distribution of that benefit in the
      form of an annuity under Section 6.1(a) before his Normal Retirement Date
      shall be reduced by multiplying the amount of his Retirement Benefit under
      Section 3.5 by the early retirement reduction described in the applicable
      of Paragraph IV of Schedule D, or Paragraph V of Schedule E.

6.7   RULES FOR PARTICIPANTS EMPLOYED AFTER AGE 70-1/2. In the case of a
      Participant who remains employed on or after his attainment of age 70-1/2
      the special rules of this Section 6.7 shall apply.

      (a)   A Participant covered by this Section 6.7 who attains age 70-1/2 on
            or after January 1, 1996 and before January 1, 1999 and who is not a
            Five Percent Owner may elect to defer distribution of his Vested
            Interest until the first day of the month after his Termination of
            Employment.

      (b)   In the case of an Employee not described in paragraph (a) (and who
            was not age 70-1/2 prior to January 1, 1988), such Employee may not
            elect to suspend distributions of

                                                                              62
<PAGE>

            his benefits. In the case of such a Participant, his Annuity
            Starting Date is the first day of April immediately following the
            calendar year in which he attains age 70-1/2.

      (c)   If a Participant elects to defer receipt of his benefit under
            paragraph (a), then his Section 3.2 Annuity and his benefit
            determined under Section 3.5 shall be actuarially adjusted to
            reflect the delay in the benefit commencement. This actuarial
            adjustment shall be made in accordance with the procedures set forth
            in Internal Revenue Service Notice 97-75 and/or any subsequent
            guidance.

6.8   QUALIFIED JOINT AND SURVIVOR ANNUITY FOR MARRIED PARTICIPANTS.

      (a)   Subject to Section 6.8(b), a Participant who is married on his
            Annuity Starting Date shall receive distribution of his Vested
            Interest in the form of a Qualified Joint and Survivor Annuity,
            unless the Participant has previously waived his right to receive
            distribution of benefits in this form. The waiver must be executed
            and consented to by the Participant's spouse in accordance with
            Section 6.10 during the 90-day period ending on the Participant's
            Annuity Starting Date but not earlier than 30 days after the
            Participant receives notice of his right to waive his Qualified
            Joint and Survivor Annuity or to receive a distribution under
            Section 6.5, unless the Participant affirmatively elects a
            distribution prior to the 30-day period. If a Participant elects a
            distribution prior to the expiration of the 30-day period, the
            election will not be effective until at least seven days after the
            Participant has received the notice and the Participant must
            acknowledge that he has been informed of the right to have at least
            30 days to consider this notice. Both the Participant's waiver and
            the spouse's consent must state the Participant's optional form of
            benefit to be distributed, the time of

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<PAGE>

            distribution and designate any non-spouse Beneficiary including any
            contingent Beneficiaries, which can not be changed without the
            spouse's consent. Alternatively, the spouse's consent may permit the
            Participant to elect any optional form of benefit available under
            the Plan and to designate any contingent Beneficiary without any
            further spousal consent. Such a general consent must acknowledge
            that the spouse has voluntarily relinquished rights to limit consent
            to a specific form of benefit or Beneficiaries or both. Such a
            general consent must acknowledge that the spouse has voluntarily
            relinquished rights to limit consent to a specific form of benefit
            or Beneficiaries or both. A Participant's waiver of a Qualified
            Joint and Survivor Annuity under this Section 6.8 may be revoked
            with or without his spouse's consent at any time before the
            Participant's Annuity Starting Date and, once revoked, may be made
            again before that date. A spouse's consent to the waiver once given
            may be revoked before the Annuity Starting Date.

      (b)   In the case of a Participant (1) who is married to his spouse for
            less than one year on the Participant's Annuity Starting Date, (2)
            receives distribution of his Vested Interest in the form of a
            Qualified Joint and Survivor Annuity and (3) does not remain married
            to his spouse for at least one year, such spouse shall lose all
            survivor rights and the amount of the Participant's distribution
            shall be adjusted to reflect that loss.

6.9   NOTIFICATION OF RIGHT TO WAIVE QUALIFIED JOINT AND SURVIVOR ANNUITY OR TO
      RECEIVE A DISTRIBUTION UNDER SECTION 6.5. Within the period beginning no
      earlier than 90 days before the Participant's Annuity Starting Date and no
      later than 30 days before his Annuity Starting Date (except in the case of
      a Participant that elects an Annuity Starting Date prior to the expiration
      of 30 days notice period under Section 6.8), the Retirement Committee

                                                                              64
<PAGE>

      shall provide each Participant (whether or not married) with a notice of
      the Participant's right to elect to waive his right to receive
      distribution of his Vested Interest in the form of a Qualified Joint and
      Survivor Annuity and the Participant's right to receive a distribution of
      his benefit before his Normal Retirement Date under Section 6.5. The
      notice shall contain an explanation, in non-technical language, of (a) the
      terms and conditions of the election and its effect upon the Participant's
      Retirement Benefit (in terms of dollars per annuity payment), (b) the
      requirement that the Participant's spouse must consent to the election in
      accordance with Section 6.10, (c) the Participant's right to revoke the
      election in the manner prescribed in regulations promulgated by the
      Secretary of the Treasury, (d) a general description of the eligibility
      conditions and other features of the optional forms of benefit under the
      Plan and sufficient information to explain the relative values of these
      optional forms of benefits, and (e) information regarding a Participant's
      right to consider his election to waive the Qualified Joint and Survivor
      Annuity and/or elect an early distribution under Section 6.5 for at least
      30 days after receiving the notice. For purposes of this Section 6.9, a
      Qualified Joint and Survivor Annuity for an unmarried Participant shall be
      a single life annuity with no ancillary benefits.

6.10  SPOUSAL CONSENT. A Participant's waiver of a Qualified Joint and Survivor
      Annuity described in Section 6.9 shall be valid only if the Participant's
      spouse executes a written consent to that election acknowledging the
      effect of the election and the consent is witnessed by a notary public.
      The spouse's consent is not required if (a) the Participant establishes
      that the spouse's consent cannot be obtained because the Participant does
      not have a spouse, the Participant's spouse cannot be located or for such
      other circumstances as may be provided in regulations promulgated by the
      Secretary of the Treasury, (b) the

                                                                              65
<PAGE>

      Participant is legally separated from the spouse or (c) the Participant
      has been abandoned by his spouse (within the meaning of local law) and the
      Participant has a court order to that effect. A Participant's waiver of a
      Qualified Joint and Survivor Annuity shall be effective only with respect
      to the spouse who consents to it as provided in this Section 6.10.

6.11  MINIMUM DISTRIBUTION REQUIREMENTS.

      (a)   Notwithstanding any provision of this Plan to the contrary, all
            distributions under the Plan shall be made in accordance with
            Section 401(a)(9) of the Internal Revenue Code and the regulations
            promulgated by the Secretary of the Treasury thereunder.

      (b)   In the case of a Participant who (1) remains an Employee after
            attainment of age 70-1/2 and (2) is receiving while an Employee
            distribution of benefits in the form of an annuity, the payments
            under the annuity shall be increased as of the first day of each
            calendar year to reflect any additional Retirement Benefit accrued
            with respect to the Plan Year ending immediately before the first
            day of that calendar year.

      (c)   If a Participant dies after distribution of his benefit has
            commenced, the remaining portion, if any, of the Participant's
            benefit shall be distributed to the Participant's Beneficiary at
            least as rapidly as it would have been distributed under the method
            of distribution in effect on the day of the Participant's death.

      (d)   If a Participant's Vested Interest is distributed in the form of an
            annuity other than an annuity for the life of the Participant or an
            annuity for the joint lives of the Participant and the Participant's
            spouse, the distribution must satisfy the minimum distribution
            incidental benefit requirements under Section 1.401(a)(9)-2 of the
            Proposed Income Tax Regulations. In no event may distribution of a
            Participant's Vested Interest be

                                                                              66
<PAGE>

            made over a period extending beyond the life expectancy of the
            Participant and his designated beneficiary.

6.12  ANNUITIES. Any distribution of benefits in the form of an annuity may be
      made directly from the Trust or by the purchase of a nontransferable
      immediate or deferred payment annuity contract from an insurance company
      selected by the Retirement Committee. Any annuity contract so purchased
      shall be delivered to the Participant or Beneficiary and distribution of
      benefits shall be considered to have been completed when the annuity
      contract is delivered.

6.13  RELEASE. Upon any distribution or payment, the Trustee, the Retirement
      Committee, any Affiliated Company or the Plan Administrator may require
      execution of a receipt and release, in form and substance satisfactory to
      it, of all claims under this Plan.

6.14  INCAPACITY. If, in the judgment of the Retirement Committee, any person is
      legally, physically or mentally incapable of personally receiving and
      executing a receipt for any distribution or payment due him under this
      Plan, the distribution or payment may be made to the person's guardian or
      other legal representative (or if none is known to the Company or the
      Retirement Committee, to any other person or institution who has custody
      of the person) and that distribution or payment shall constitute a full
      discharge of any obligation with respect to the amount paid or
      distributed.

6.15  LOST PARTICIPANT. Neither the Retirement Committee nor the Trustee shall
      be obligated to search for or ascertain the whereabouts of any Participant
      or Beneficiary (other than to write to the Participant at his last mailing
      address shown in the Plan Administrator's records). If a Participant or
      Beneficiary cannot be located, the Participant's Retirement Benefit or

                                                                              67
<PAGE>

      Preretirement Death Benefit shall be forfeited, but shall be reinstated
      (without interest) upon the Participant's or Beneficiary's claim for the
      benefit.

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<PAGE>

ARTICLE 7.  PRERETIREMENT DEATH BENEFITS

7.1   GENERAL. Upon the death of a Participant who has not had an Annuity
      Starting Date, his Beneficiary shall be entitled to a Preretirement Death
      Benefit as follows:

      (a)   In the case of a Participant described in this Section 7.1 who dies
            while an Employee or while Permanently Disabled, his Beneficiary
            shall be entitled to receive the Active Employee Death Benefit
            described in Section 7.2. The Beneficiary of a Participant who dies
            within six months of his Termination of Employment (or, if later,
            the date notice described in Section 6.9 is provided) and who has
            not already elected a form of distribution shall also be entitled to
            an Active Employee Death Benefit.

      (b)   In the case of a Participant described in this Section 7.1 who (i)
            has a Termination of Employment before his death (ii) has a Vested
            Interest and (iii) is married at the time of death, his spouse shall
            be entitled to receive the Qualified Preretirement Survivor Annuity
            described in Section 7.3.

7.2   ACTIVE EMPLOYEE DEATH BENEFIT. Upon the death of a Participant who (a) has
      not yet had an Annuity Starting Date, and (b) dies while an Employee, his
      Beneficiary shall be entitled to receive the Active Employee Death Benefit
      described under the following provisions:

      (1)   Amount of Active Employee Death Benefit. The Active Employee Death
            Benefit shall be equal to the Participant's Section 3.2 Annuity (as
            adjusted by Section 3.8). In the case of a Beneficiary who is the
            Participant's spouse, in no event shall the value of the Active
            Employee Death Benefit be less than the value of the Qualified
            Preretirement Survivor Annuity.

                                                                              69
<PAGE>

      (2)   Form of Active Employee Death Benefit. Different provisions apply
            for a Beneficiary who is the Participant's spouse and a Beneficiary
            who is not the Participant's spouse as follows:

            (A)   Spousal Beneficiary. Subject to the following sentences, the
                  Participant's Preretirement Death Benefit shall be paid to a
                  Beneficiary who is the Participant's spouse in the form of an
                  annuity for the spouse's life. If the Actuarial Equivalent
                  present value of the Participant's Active Employee Death
                  Benefit as of the Annuity Starting Date exceeds $5,000, the
                  Participant's spouse may elect to receive the Active Employee
                  Death Benefit in the form of a single cash payment of the
                  greater of (i) a Participant's Lump Sum Amount (as adjusted
                  under Section 3.8) and (ii) the Actuarial Equivalent present
                  value of the Participant's Vested Interest attributable to his
                  Qualified Preretirement Survivor Annuity (as adjusted by
                  Section 3.8). If the Actuarial Equivalent present value of the
                  Participant's Preretirement Death Benefit as of the Annuity
                  Starting Date does not exceed $5,000, the method of
                  distribution to the Participant's spouse shall be as a single
                  cash distribution of that value. In the event that the spouse
                  does not elect a form of distribution, the Preretirement Death
                  Benefit shall be paid as an annuity for the life of the
                  spouse.

            (B)   Non-Spouse Beneficiary. If the Participant's Beneficiary is
                  not his spouse, the Preretirement Death Benefit shall be paid
                  in a single cash distribution.

      (c)   Timing of Distribution; Annuity Starting Date. Subject to Section
            7.5, distribution of a Participant's Preretirement Death Benefit
            shall commence as of the Annuity

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<PAGE>

      Starting Date of the Participant's Beneficiary as follows:

      (1)   Spouse Beneficiary. The Annuity Starting Date of a Participant's
            Beneficiary who is the Participant's spouse shall be the earliest
            of:

            (A)   In the case of a Participant who dies on or after his Normal
                  Retirement Date, the first day of the month coincident with or
                  next following the Participant's death,

            (B)   in the case of a Participant for whom the Actuarial Equivalent
                  present value of the Participant's Active Employee Death
                  Benefit does not exceed $5,000, as soon as practicable
                  following the Participant's death, and

            (C)   in the case of a Participant not described in (A) or (B), the
                  Actuarial Equivalent present value of the Active Employee
                  Death Benefit exceeds $5,000, the date elected by the
                  Participant's spouse. The spouse may elect to receive
                  distribution as of (i) the first day of any month coincident
                  with or next following the date the Participant would have
                  attained his Early Retirement Date but, not later than the
                  date the Participant would have attained his Normal Retirement
                  Date or (ii) if earlier, the first day of any month within the
                  first six months following the Participant's death.

            If the spouse does not elect a distribution date, the Annuity
            Starting Date will be the first day of the month coincident with or
            next following the date the Participant would have attained his
            Normal Retirement Date.

                                                                              71
<PAGE>

            Notwithstanding the previous sentence and subject to Section 7.5,
            distribution of a Beneficiary's Preretirement Death Benefit shall
            not commence before he files a claim for benefits with the Plan
            Administrator.

      (ii)  Non-Spouse Beneficiary. The Annuity Starting Date of the
            Participant's non-spouse Beneficiary shall be as soon as practicable
            following the Participant's death.

7.3   QUALIFIED PRERETIREMENT DEATH BENEFIT FOR A PARTICIPANT WHO DIES AFTER
      TERMINATION OF EMPLOYMENT. Upon the death of a Participant who had a prior
      Termination of Employment and who is eligible for the Qualified
      Preretirement Survivor Annuity under Section 7.1(b), the following
      provisions shall apply:

      (a)   Amount of Benefit. The benefit under this section shall be the
            Qualified Preretirement Survivor Annuity payable to the
            Participant's spouse.

      (b)   Form of Distribution. Subject to the following sentence, the
            Qualified Preretirement Survivor Annuity shall be paid to the
            Participant's spouse in the form of an annuity for the spouse's
            life. If the Actuarial Equivalent present value of a Participant's
            Qualified Preretirement Survivor Annuity exceeds $5,000, the
            Participant's spouse may elect to receive the Qualified
            Preretirement Survivor Annuity in the form of a single cash payment.
            If the Actuarial Equivalent present value of a Participant's
            Qualified Preretirement Survivor Annuity as of the Annuity Starting
            Date does not exceed $5,000, the method of distribution to the
            Participant's spouse shall be a single cash distribution of that
            value.

      (c)   Timing of Distribution; Annuity Starting Date. Subject to Section
            7.5, distribution of the Qualified Preretirement Survivor Annuity
            shall commence as of the Annuity

                                                                              72
<PAGE>

            Starting Date of the Participant's spouse. The Annuity Starting Date
            of the Participant's spouse shall be the earlier of:

            (1)   if the Actuarial Equivalent present value of the Qualified
                  Preretirement Survivor Annuity does not exceed $5,000, the
                  first day of the month coincident with or next following the
                  Participant's death; or

            (2)   if the Actuarial Equivalent present value of the Qualified
                  Preretirement Survivor Annuity exceeds $5,000, the date
                  elected by the Participant's spouse. The spouse may elect to
                  receive distribution as of: (A) the first day of any month
                  following the date the Participant would have attained his
                  Early Retirement Date, but not later than the date the
                  Participant would have attained his Normal Retirement Date or
                  (B) if earlier, the first day of any month within the first
                  six months following the Participant's death.

            If the spouse does not elect a distribution date, the Annuity
            Starting Date will be the first day of the month coincident or next
            following the date the Participant would have attained his Normal
            Retirement Date. Notwithstanding the previous sentence and subject
            to Section 7.5, distribution of a Beneficiary's death benefit shall
            not commence before he files a claim for benefits with the Plan
            Administrator.

7.4   ELECTION OF BENEFICIARY FOR ACTIVE EMPLOYEE DEATH BENEFIT.

      (a)   Designation of Beneficiary. Subject to the following sentence, a
            Participant may designate a Beneficiary as described in Article 13
            for his Active Employee Death Benefit. If a Participant is married
            at the time of his death, the Participant's designation of a
            non-spouse Beneficiary must comply with the requirements of

                                                                              73
<PAGE>

            paragraphs (b) and (c).

      (b)   Procedure for Designating Non-Spouse Beneficiary. A Participant's
            designation of a non-spouse Beneficiary to receive his Preretirement
            Death Benefit under Section 7.1 shall not be valid unless consented
            to by the Participant's spouse in accordance with Section 6.10. A
            Participant's designation of a non-spouse Beneficiary may not be
            changed without the subsequent consent of the Participant's spouse
            unless the spouse's consent permits the Participant to designate any
            other Beneficiary and acknowledges that the spouse has voluntarily
            relinquished rights to limit consent to a specific Beneficiary. A
            spouse's consent to the designation of a non-spouse Beneficiary for
            the Preretirement Death Benefit once given may not be revoked.
            Except as otherwise provided in the following sentence, the period
            during which a Participant may designate a non-spouse Beneficiary
            shall begin on the first day of the Plan Year in which the
            Participant attains age 35 (or, if later, within a reasonable period
            after he becomes a Participant) and shall end on the day of the
            Participant's death. A Participant may designate a non-spouse
            Beneficiary for the Preretirement Death Benefit before the
            Participant attains age 35, except that such a waiver or designation
            shall become invalid on the first day of the Plan Year in which the
            Participant attains age 35. In order for such a designation to be
            effective after the first day of the Plan Year in which the
            Participant attains age 35, it must be made again.

      (c)   Notification of Right to Designate Non-Spouse Beneficiary. The Plan
            Administrator shall give each Participant written notice of the
            Participant's right to designate a Beneficiary other than the
            Participant's spouse to receive the Participant's Preretirement
            Death Benefit. In the case of an individual who becomes a
            Participant

                                                                              74
<PAGE>

            prior to attaining age 35, notice of the Participant's right to
            designate a non-spouse beneficiary before his attainment of age 35,
            shall be given within the period beginning one year before the
            individual becomes a Participant and ending one year after the
            individual becomes a Participant. In addition, notice of a
            Participant's right to designate a non-spouse beneficiary after his
            attainment of age 35 shall be given within whichever of the
            following periods ends last: (1) the period beginning on the first
            day of the Plan Year in which the Participant attains age 32 and
            ending on the last day of the Plan Year preceding the Plan Year in
            which the Participant attains age 35 and (2) within the period
            beginning one year before the individual becomes a Participant and
            ending one year after the individual becomes a Participant. The
            notice, which shall be given in the manner provided by the
            regulations promulgated by the Secretary of the Treasury, shall
            contain an explanation of the terms and conditions of the
            designation, the requirement that the Participant's spouse must
            consent to the election in accordance with Section 6.10 and the
            Participant's right to revoke the election in the manner provided in
            regulations promulgated by the Secretary of the Treasury.

7.5   REQUIRED DISTRIBUTION. If a Participant's Preretirement Death Benefit is
      paid in the form of a single cash payment, the Participant's entire
      Preretirement Death Benefit shall be distributed to his Beneficiary as of
      the December 31 of the calendar year in which the fifth anniversary of the
      date of the Participant's death occurs, or, if later, in the case of a
      Beneficiary who is the Participant's spouse, the December 31 of the year
      the Participant would have attained age 70-1/2. If a Participant's
      Preretirement Death Benefit is distributed in the form of an annuity (or
      installments), distribution shall commence by the December 31 of the
      calendar year after the calendar year of the Participant's death, or, if

                                                                              75
<PAGE>

      later, in the case of a Beneficiary who is the Participant's spouse, the
      December 31 of the year the Participant would have attained age 70-1/2.
      Such Preretirement Death Benefit must be distributed over a period not
      extending beyond the life expectancy of the Beneficiary.

                                                                              76
<PAGE>

ARTICLE 8. FUNDING

8.1   FUNDING POLICY. The Plan's funding policy is to make contributions (a) at
      least sufficient to satisfy the minimum funding requirements of ERISA and
      (b) not in excess of the amount currently deductible in computing the
      Affiliated Companies federal income tax.

8.2   EMPLOYER CONTRIBUTIONS. The Employer shall contribute to the Trust Fund
      with respect to Participants for which this Plan has been adopted under
      Section 16.1 periodic payments under the funding policy established under
      Section 8.1.

8.3   TIMING OF EMPLOYER CONTRIBUTIONS. Contributions by any Employer for each
      Plan Year shall be paid to the Trustee no later than as may be permitted
      under Section 412(c)(10) of the Internal Revenue Code.

8.4   IRREVOCABILITY OF EMPLOYER CONTRIBUTIONS. Subject to Sections 8.5 and
      15.3, any contribution made by an Employer shall be irrevocable and shall
      be held and disposed of by the Trustee solely in accordance with the
      provisions of the Plan and the Trust Agreement.

8.5   EXCEPTIONS TO IRREVOCABILITY. Each contribution made by an Employer shall
      be deemed to be conditioned upon the deductibility of the contribution
      under Section 404 of the Internal Revenue Code. If a contribution is
      determined to be nondeductible by the Internal Revenue Service, it will,
      to the extent disallowed or otherwise determined to be nondeductible, be
      repaid within one year after the date of such disallowance or
      determination. A contribution also will be repaid to an Employer, within
      one year after the date made, to the extent it exceeded the full funding
      limitation or otherwise was made in error because of a mistake of fact. A
      contribution returned as a result of being nondeductible or being made as
      a result of

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<PAGE>

      a mistake of fact shall be adjusted to reflect its proportionate share of
      the Trust Fund's loss but not of the Trust Fund's gain.

                                                                              78
<PAGE>

ARTICLE 9. ADMINISTRATION OF PLAN

9.1   THE BOARD. The Board shall appoint the members of the Retirement Committee
      and shall be responsible for the establishment of the Trust and the
      amendment and termination of this Plan and the Trust Agreement.

9.2   THE RETIREMENT COMMITTEE. This Plan shall be administered by the
      Retirement Committee, which shall have the responsibilities and duties and
      powers delegated to it in this Plan and any responsibilities and duties
      under this Plan which are not specifically delegated to anyone else.

9.3   THE TRUSTEE AND INVESTMENT MANAGER. The Trustee shall have exclusive
      authority and discretion to manage and control the Trust Fund except to
      the extent that authority to manage the assets held by the Trust is
      delegated by the Retirement Committee to an Investment Manager. The
      Trustee may designate agents or others to carry out certain of the
      administrative responsibilities in connection with management of the
      Trust.

      The Investment Manager shall be appointed by the Retirement Committee (or
      the Trustee, if the Trustee is so authorized by the Retirement Committee).
      The Investment Manager shall act in accordance with the Plan, the Trust
      Agreement and any applicable agreement it entered into with the Company.
      The Retirement Committee (or the Trustee, if the Trustee is so authorized
      by the Committee) may remove an Investment Manager.

9.4   THE PLAN ADMINISTRATOR. The Plan Administrator shall be the Company. The
      Plan Administrator shall be responsible for (a) the maintenance of all
      records of Participants and Beneficiaries necessary for the administration
      of this Plan and (b) the taking of any action necessary to meet the
      reporting and disclosure requirements imposed by ERISA. However,

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<PAGE>

      the Company may designate agents (including the Retirement Committee) to
      carry out certain, or all of its responsibilities.

9.5   DECISION AND ACTION OF THE RETIREMENT COMMITTEE. The Retirement Committee
      from time to time may establish rules for the administration of this Plan.
      The Retirement Committee shall have the sole discretion to make decisions
      and take any action with respect to questions arising in connection with
      the Plan, including but not limited to, the construction and
      interpretation of the Plan and the Trust Agreement and the determination
      of benefits. Any such decision or action shall be final and binding upon
      all Participants and Beneficiaries.

9.6   LIABILITY OF AND INDEMNIFICATION OF RETIREMENT COMMITTEE. The members of
      the Retirement Committee and the Employers shall have no liability or
      responsibility with respect to any action or omission made by them in good
      faith in reliance upon (a) the action of the Trustee, (b) the advice or
      opinion of any accountant, actuary, legal counsel, medical adviser or
      other professional consultant or (c) any resolutions of the Board
      certified by the secretary or assistant secretary of the Company.

      The Employers shall indemnify the Retirement Committee members against any
      claims, losses, damages, expenses and liabilities, to the extent not
      covered by insurance, which arise from any action or omission of such
      Committee member that is not gross negligence or willful misconduct (as
      determined by a court of competent jurisdiction).

9.7   EXPENSES OF THE PLAN; FIDELITY BOND. All expenses relating to this Plan
      (including but not limited to premiums to the Pension Benefit Guaranty
      Corporation under Section 4006 of

                                                                              80

<PAGE>

      ERISA) shall be an expense of the Plan and, except to the extent paid by
      an Affiliated Company, shall be paid out of the Trust Fund. Any Employee
      who serves as a Trustee or member of the Retirement Committee shall
      receive no compensation for such service. The Company may require any
      Trustee, Plan Administrator or member of the Retirement Committee to
      furnish a fidelity bond satisfactory to the Company; the premium for any
      fidelity bond shall be an expense of the Plan except to the extent paid by
      an Affiliated Company.

9.8   NAMED FIDUCIARIES. The Trustee, the Retirement Committee, the Employer and
      the Investment Manager, if any, shall be named fiduciaries under the Plan
      with respect to the responsibilities allocated to each such party under
      the Plan. Named fiduciaries shall only have the authorities or
      responsibilities delegated under this Plan, under the Trust Agreement, any
      applicable agreement with the Investment Manager or by operation of law
      and such responsibilities shall not be shared by two fiduciaries unless
      specifically stated in any of the above-mentioned documents. Whenever a
      named fiduciary is required by the Plan, the Trust Agreement or any
      applicable investment management agreement, to follow the directions of
      another named fiduciary, the two named fiduciaries shall not be deemed to
      have been assigned a shared responsibility, but the responsibility of the
      named fiduciary giving the directions shall be deemed his sole
      responsibility, and the responsibility of the named fiduciary receiving
      those directions shall be to follow them insofar as such instructions are
      on their face proper under applicable law.

9.9   SERVICE IN MORE THAN ONE CAPACITY. Any person or group of persons may
      serve the Plan in more than one capacity.

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<PAGE>

ARTICLE 10. MANAGEMENT OF TRUST FUND

10.1  THE TRUST FUND. The Trust Fund shall be held in trust by the Trustee
      appointed from time to time (before or after termination of the Plan) by
      the Board pursuant to the Trust Agreement. The Trustee shall have the
      powers specified in the Trust Agreement.

10.2  EXCLUSIVE BENEFIT. Except as provided in Sections 8.5 and 15.3, the Trust
      Fund shall be used in accordance with the provisions of this Plan and for
      the exclusive purpose of providing benefits for Participants and their
      Beneficiaries and defraying reasonable expenses of the Plan and of the
      Trust.

10.3  TRUSTEE'S REPORTS. As soon as practicable after each Valuation Date, the
      Trustee shall submit to the Retirement Committee an appropriate report
      stating the net value of the Trust Fund as of that Valuation Date and
      containing such other information relating to the Trust Fund as the
      Retirement Committee from time to time may request.

10.4  TRUST AGREEMENT. The Trust Agreement shall be a part of this Plan and any
      rights or benefits under this Plan shall be subject to all the terms and
      provisions of the Trust Agreement.

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<PAGE>

ARTICLE 11. BENEFIT CLAIMS PROCEDURE

11.1  CLAIM FOR BENEFITS. Any claim for benefits under this Plan shall be made
      in writing to the Retirement Committee. If a claim for benefits is wholly
      or partially denied, the Retirement Committee shall so notify the
      Participant or Beneficiary within 90 days after receipt of the claim
      (unless the Participant is given written notification within the initial
      90 days that an extension of not more than 90 days is needed). The notice
      of denial shall be written in a manner calculated to be understood by the
      Participant or Beneficiary and shall contain (a) the specific reason or
      reasons for denial of the claim, (b) a specific reference to the pertinent
      Plan provisions upon which the denial is based, (c) a description of any
      additional material or information necessary to perfect the claim together
      with an explanation of why such material or information is necessary and
      (d) an explanation of the claims review procedure.

11.2  REVIEW OF CLAIM. Within 60 days after the receipt by the Participant or
      Beneficiary of notice of denial of a claim (or at such later time as may
      be reasonable in view of the nature of the benefit subject to claim and
      other circumstances), the Participant or Beneficiary may (a) file a
      request with the Retirement Committee that it conduct a full and fair
      review of the denial of the claim, (b) review pertinent documents and (c)
      submit questions and comments to the Retirement Committee in writing.

11.3  DECISION AFTER REVIEW. Within 60 days after the receipt of a request for
      review under Section 11.2, the Retirement Committee shall deliver to the
      Participant or Beneficiary a written decision with respect to the claim,
      except that if there are special circumstances (such as the need to hold a
      hearing) which require more time for processing, the 60-day

                                                                              83

<PAGE>

      period shall be extended to 120 days upon notice to the Participant or
      Beneficiary to that effect. The decision shall be written in a manner
      calculated to be understood by the Participant or Beneficiary and shall
      (a) include the specific reason or reasons for the decision and (b)
      contain a specific reference to the pertinent Plan provisions upon which
      the decision is based.

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<PAGE>

ARTICLE 12. NON-ALIENATION OF BENEFITS

12.1  NON-ALIENATION. Subject to Section 12.2, any benefits under or interests
      in this Plan shall not be assignable or subject to alienation,
      hypothecation, garnishment, attachment, execution or levy of any kind
      whether voluntary or involuntary. Any action in violation of this
      provision shall be void.

12.2  EXCEPTIONS TO NON-ALIENATION

      (a)   QUALIFIED DOMESTIC RELATIONS ORDERS. Section 12.1 shall not apply to
            the creation, assignment or recognition of a right to the Retirement
            Benefit of a Participant pursuant to a qualified domestic relations
            order (as defined in Section 414(p) of the Internal Revenue Code).
            The Retirement Committee shall establish reasonable procedures for
            determining whether a domestic relations order is a qualified
            domestic relations order and for administering distributions under a
            qualified domestic relations order.

      (b)   PAYMENTS TO PLAN PURSUANT TO COURT ORDER. Section 12.1 shall not
            apply to an offset of a Participant's benefits under or interest in
            this Plan for an amount that the Participant is ordered or required
            to pay to the Plan provided the conditions specified in Section
            401(a)(13)(C) of the Internal Revenue Code (including any applicable
            spousal consent) are satisfied.

                                                                              85

<PAGE>

ARTICLE 13. DESIGNATION OF BENEFICIARY

13.1  DESIGNATION OF BENEFICIARY. Subject to Section 6.7 and Article 7, a
      Participant may designate a Beneficiary on the form and in the manner
      prescribed by the Retirement Committee. The Retirement Committee, in its
      discretion, may specify conditions or other provisions with respect to the
      designation of a Beneficiary. Subject to Section 6.7 and Article 7, any
      designation of a Beneficiary may be revoked by filing a later designation
      or revocation. In the absence of an effective designation of a Beneficiary
      by a Participant or upon the death of all Beneficiaries, a Participant's
      Retirement Benefit shall be paid to the person or persons included in the
      first of the following categories who survives the Participant: (a) the
      Participant's spouse, (b) the Participant's issue by right of
      representation, or (c) the Participant's estate.

13.2  EFFECTIVE DATE OF DESIGNATION. Any designation or revocation of a
      designation of a Beneficiary shall become effective when actually received
      by the Retirement Committee but shall not affect any distribution
      previously made pursuant to a prior designation.

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<PAGE>

ARTICLE 14. AMENDMENT

14.1  AMENDMENT. The Board, in accordance with its normal procedures, may amend,
      modify or terminate this Plan at any time, but no amendment may
      substantially increase the duties or liabilities of the Trustee without
      its prior written consent. In addition, no Plan amendment (including a
      change in the actuarial basis for determining optional or early retirement
      benefits) shall have the effect of decreasing the accrued Retirement
      Benefit (except as permitted under Section 412(c)(8) of the Internal
      Revenue Code) of anyone who is a Participant on the date the amendment is
      adopted or becomes effective, whichever is later. For purposes of this
      paragraph, a Plan amendment which has the effect of (a) eliminating or
      reducing an early retirement benefit or a retirement-type subsidy, or (b)
      eliminating an optional form of benefit, with respect to benefits
      attributable to service before the amendment shall be treated as reducing
      accrued benefits.

14.2  AMENDMENT TO VESTING PROVISIONS. If the vesting provisions set forth in
      Article 5 are amended, (a) any Participant who, as of the end of the
      election period described below had been credited with a Period of Service
      of at least three years may irrevocably elect to have his nonforfeitable
      interest computed without regard to the amendment and (b) a Participant's
      nonforfeitable interest shall not be less than his nonforfeitable
      percentage computed under the Plan without regard to such amendment.
      Notice of the amendment and the availability of the election shall be
      given to each such Participant, and the election may be exercised by the
      Participant by notice to the Retirement Committee within 60 days after the
      later of (a) the Participant's receipt of the notice, (b) the day the
      amendment is adopted or (c) the

                                                                              87

<PAGE>

      effective date of the amendment.

14.3  AMENDMENT TO MAINTAIN QUALIFIED STATUS. Notwithstanding anything to the
      contrary in Section 14.1, the Board, in its discretion, may make any
      modifications or amendments to the Plan, retroactively or prospectively,
      which it deems appropriate to establish or maintain the Plan and the Trust
      Agreement as a qualified employees' plan and tax-exempt trust under
      Sections 401 and 501 of the Internal Revenue Code.

                                                                              88

<PAGE>

ARTICLE 15. TERMINATION; MERGER, CONSOLIDATION OR TRANSFER OF ASSETS

15.1  FULL VESTING UPON PLAN TERMINATION. Upon the termination (including a
      partial termination) of this Plan, the Retirement Benefits as of the date
      of termination of the Participants to whom the termination relates shall
      be nonforfeitable (to the extent funded) without any formal action.

15.2  PAYMENT OF BENEFITS UPON PLAN TERMINATION. If this Plan is terminated,
      subject to Section 6.8, benefits to Participants and their Beneficiaries
      shall be paid in accordance with Section 4044 of ERISA and, if applicable,
      Section 414(1) of the Internal Revenue Code. Upon Termination of the Plan,
      benefits payable to Participants who can not be located, shall be treated
      in accordance with the provisions of Section 4050 of ERISA.

15.3  REVERSION OF EXCESS ASSETS. If this Plan is terminated and value of the
      Trust Fund exceeds the value of benefits allocable to Participants and
      their Beneficiaries, the amount of the excess shall be repaid to the
      Employers in accordance with the directions of the Retirement Committee.

15.4  RETIREMENT COMMITTEE AND TRUSTEE. If the Plan is terminated, the
      Retirement Committee shall continue to function and may fill any vacancies
      which may occur in its own membership (if the Board fails to do so) until
      the Trustee has rendered its final account and that account has been
      approved (in the manner provided in the Trust Agreement).

15.5  MERGER, CONSOLIDATION OR TRANSFER OF ASSETS. Neither this Plan nor the
      Trust may be merged or consolidated with, nor may its assets or
      liabilities be transferred to, any other plan or trust, unless each
      Participant would receive a benefit immediately after the merger,

                                                                              89

<PAGE>

      consolidation or transfer, if the Plan then terminated, which is equal to
      or greater than the benefit the Participant would have been entitled to
      receive immediately before the merger, consolidation or transfer if this
      Plan had then been terminated.

                                                                              90

<PAGE>

ARTICLE 16. ADOPTION AND WITHDRAWAL FROM PLAN BY AFFILIATED COMPANY

16.1  ADOPTION BY AFFILIATED COMPANY. Any Affiliated Company, whether or not
      presently existing, may, with the approval of the Board, adopt this Plan
      by proper corporate action.

16.2  WITHDRAWAL. Any Employer may at any time withdraw from the Plan upon
      giving the Board, the Retirement Committee and the Trustee at least 30
      days notice of its intention to withdraw. The Board in its discretion may
      direct that any Employer withdraw from the Plan.

16.3  SEGREGATION OF ASSETS UPON WITHDRAWAL. Upon the withdrawal of an Employer
      under Section 16.2, the Trustee shall in accordance with the directions of
      the Retirement Committee and Section 4044 of ERISA and, if applicable,
      Section 414(l) of the Internal Revenue Code, segregate a share of the
      assets in the Trust Fund attributable to the Retirement Benefits of
      Participants who are Employees of that Employer.

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<PAGE>

ARTICLE 17. TOP HEAVY PROVISIONS

17.1  DEFINITIONS. The following definitions apply for purposes of this Article
      17:

      (a)   AVERAGE COMPENSATION - a Participant's average annual compensation
            (as defined in Treas. Reg. Section 1.415-2(d)(8) during the five
            consecutive Plan Years in which the Participant received the
            greatest compensation, taking into account only Plan Years (1)
            during which he was a Participant, (2) with respect to which the
            Participant was credited with a Vesting Period of Service of one
            year and (3) ending no later than the last day of the last Plan Year
            during which the Plan was a Top Heavy Plan. A Participant's annual
            compensation used in determining his Average Compensation may not
            exceed $200,000 (or such higher amount as may be determined by the
            Secretary of the Treasury in accordance with Section 401(a)(17) of
            the Internal Revenue Code).

      (b)   DETERMINATION DATE - with respect to any plan year of the Plan, a
            Defined Benefit Plan or a Defined Contribution Plan, the last day of
            the preceding plan year (or in the case of the first plan year of a
            plan the last day of that plan year).

      (c)   KEY EMPLOYEE - an Employee or former Employee (and the Beneficiaries
            of such Employee) who at any time during a Plan Year or any of the
            preceding four Plan Years is (1) an officer of an Affiliated Company
            with compensation (as defined in Section 414(q)(7) of the Internal
            Revenue Code) from an Affiliated Company greater than 50% of the
            amount in effect under Section 415(b)(1)(A) of the Internal Revenue
            Code for such Plan Year, (2) one of the ten Employees with
            compensation from an

                                                                              92

<PAGE>

            Affiliated Company greater than the amount in effect under Section
            415(c)(1)(A) of the Internal Revenue Code on the last day of the
            Plan Year and owning the largest percentage (in excess of one half
            of one percent) interest in value of an Employer, (3) a Five Percent
            Owner and (4) an owner of more than one percent of an Employer with
            compensation from an Affiliated Company in excess of $150,000. The
            determination of whether an Employee is a Key Employee shall be made
            in accordance with Section 416(i) of the Internal Revenue Code. The
            Beneficiary of a Key Employee shall be treated as a Key Employee.

            Compensation means compensation as defined in Section 415(c)(3) of
            the Code, but including amounts contributed by the employer pursuant
            to a salary reduction agreement which are excludible from the
            employee's gross income under Sections 125, 402(a)(8), 402(h) or
            403(b) of the Internal Revenue Code. The determination of who is a
            Key Employee will be made in accordance with Section 416(i)(1) of
            the Internal Revenue Code and the regulations thereunder.

      (d)   PERMISSIVE AGGREGATION GROUP OF PLANS - a group of employee benefit
            plans maintained by an Affiliated Company including a Required
            Aggregation Group of Plans and any other Defined Benefit Plans or
            Defined Contribution Plans which when considered as a group meets
            the requirements of Sections 401(a)(4) and 410 of the Internal
            Revenue Code.

      (e)   REQUIRED AGGREGATION GROUP OF PLANS - a group of employee benefit
            plans maintained by an Affiliated Company including each Defined
            Benefit Plan and Defined Contribution Plan (1) in which any Key
            Employee is or was a Participant at

                                                                              93

<PAGE>

            any time during the determination period (regardless of whether a
            Defined Contribution Plan or Defined Benefit Plan was in existence
            during those years) or (2) which enables a plan described in clause
            (a) to meet the requirements of Section 401(a)(4) or Section 410 of
            the Internal Revenue Code.

      (f)   TOP HEAVY FRACTION - (1) with respect to the Plan, a fraction in a
            Plan Year the numerator of which is the aggregate of the present
            values of the accrued benefits as of a Determination Date of all
            Participants who are Key Employees and the denominator of which is
            the aggregate of the present values of the accrued benefits as of a
            Determination Date of all Participants or (2) with respect to a
            Required Aggregation Group of Plans or a Permissive Aggregation
            Group of Plans a fraction (A) the numerator of which is the sum of
            (i) the aggregate of the present values of the accrued benefits as
            of the applicable Determination Date of all participants who are Key
            Employees under all Defined Benefit Plans included in that group and
            (ii) the aggregate credit balances as of the applicable
            Determination Date in the accounts of all participants who are Key
            Employees under all Defined Contribution Plans included in the group
            and (B) the denominator of which is the sum of (i) the aggregate of
            the present values of the accrued benefits as of the applicable
            Determination Date of all participants under all Defined Benefit
            Plans included in the Group and (ii) the aggregate credit balances
            as of the applicable Determination Date in the accounts of all
            participants under all Defined Contribution Plans included in the
            group.

            In computing a Top Heavy Fraction for a Plan Year, the following
            rules shall apply: (I) the present value of accrued benefits as of a
            Determination Date under each Defined Benefit Plan and the aggregate
            account balances as of a Determination Date

                                                                              94

<PAGE>

            under each Defined Contribution Plan shall be increased by the
            aggregate distributions made from that plan to participants during
            the five year period ending on the Determination Date, (II) the
            accrued benefit under any Defined Benefit Plan and the account
            balance under any Defined Contribution Plan of a participant who has
            not performed services for an Affiliated Company at any time during
            the five-year period ending on the Determination Date shall be
            disregarded, (III) the present value of accrued benefits under a
            Defined Benefit Plan as of a Determination Date and the credit
            balance under a Defined Contribution Plan shall be determined as of
            that plan's valuation date which occurs during the 12-month period
            ending on the Determination Date, (IV) in the case of a Required
            Aggregation Group or a Permissive Aggregation Group, the
            Determination Date of each Plan included in the group shall be the
            Determination Date that occurs in the same calendar year as the
            Determination Date of the Plan, (V) in the case of a Required
            Aggregation Group or a Permissive Aggregation Group, in determining
            the present value of accrued benefits the actuarial assumptions set
            forth in Schedule B shall be used for all Defined Benefit Plans, and
            (VI) in the case of a Required Aggregation Group or Permissive
            Aggregation Group the present value of the accrued benefits under
            all Defined Benefit Plans of participants other than Key Employees
            shall be determined based upon the method used uniformly for accrual
            purposes for all Defined Benefit Plans but if there is no uniform
            method, based upon the benefit accrual rate which does not exceed
            the slowest accrual rate permitted under the fractional accrual rule
            of Section 411(b)(1)(C) of the Internal Revenue Code.

      (g)   TOP HEAVY PLAN - the Plan for any Plan Year if the Top Heavy
            Fraction for that Plan

                                                                              95

<PAGE>

            Year exceeds 60% (1) for the Plan, if the Plan is not part of a
            Required Aggregation Group of Plans, (2) for the Required
            Aggregation Group of Plans, if the Plan is part of a Required
            Aggregation Group of Plans, or (3) for the Permissive Aggregation
            Group of Plans, if the Plan is part of a Permissive Aggregation
            Group of Plans and a Required Aggregation Group of Plans.

17.2  WHEN TOP HEAVY PROVISIONS APPLY. Notwithstanding any other provision of
      this Plan, the provisions of this Article 17 shall apply with respect to
      any Plan Year for which the Plan is a Top Heavy Plan.

17.3  MINIMUM BENEFIT. Subject to Article 4, upon the Retirement or Termination
      of Employment of a Participant, his Retirement Benefit shall be equal to
      the excess, if any, of the greater of (a) the Retirement Benefit that
      otherwise would be determined for the Participant under Article 3 if no
      effect were given to this Article 17 and (b) the product of 2% of the
      Participant's Average Compensation and the number of years in his Vesting
      Period of Service (not in excess of ten) credited with respect to Plan
      Years in which the Plan is a Top Heavy Plan, he is a Participant and he is
      not a Key Employee. For purposes of determining a Participant's Retirement
      Benefit under this Section 17.3 it shall be assumed that payment of the
      Retirement Benefit shall be in the form of a single life annuity without
      ancillary benefits, commencing on the Participant's Normal Retirement
      Date.

17.4  VESTING. For any Plan Year the Plan is a Top Heavy Plan, the
      nonforfeitable portion of the Retirement Benefit of a Participant who is
      credited with at least one Hour of Service during that Plan Year shall be
      the greater of (a) 100% after the Participant is credited with Vesting
      Period of Service of three years and (b) in the case of an AWL Participant
      who is credited

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<PAGE>

      with at least on Hour of Service during that Plan Year, 20% after the
      Participant is credited with a Vesting Period of Service of two years.

17.5  CHANGE FROM TOP HEAVY VESTING. If the Plan is a Top Heavy Plan for a Plan
      Year and ceases to be a Top Heavy Plan for the subsequent Plan Year, the
      change in the vesting provision under this Section 17.5 to the vesting
      provision under Article 5 shall for purposes of Section 14.2 be treated as
      an amendment of the vesting provisions of the Plan.

17.6  COMBINED LIMITATION. For any Plan Year prior to January 1, 2000, in which
      the Plan is a Top Heavy Plan, 1.0 shall be substituted for 1.25 in clause
      (1) of the definition of Defined Benefit Plan Fraction (Section 4.1(b))
      and clause (1) of the definition of Defined Contribution Plan Fraction
      (Section 4.1(c)).

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<PAGE>

ARTICLE 18. MISCELLANEOUS

18.1  NO EMPLOYMENT RIGHTS. Nothing in this Plan shall be construed as a
      contract of employment between an Affiliated Company and any Employee, nor
      as a guarantee of any Employee to be continued in the employment of the
      Company, nor as a limitation on the right of an Affiliated Company to
      discharge any of its Employees with or without cause or with or without
      notice at any time at the option of the Company.

18.2  DISCRETION. Any discretionary acts under this Plan by an Employer or by
      the Retirement Committee shall be uniform and applicable to all persons
      similarly situated. No discretionary act shall be taken which constitutes
      prohibited discrimination under the provisions of Section 401(a) of the
      Internal Revenue Code.

18.3  PRIOR SERVICE. The Board may, in its discretion and under rules applicable
      to all Employees similarly situated, credit Employees with service prior
      to becoming Employees or Participants for determining (a) whether an
      Employee is an Eligible Employee, (b) Vesting Period of Service or (c)
      Benefit Accrual Period of Service.

18.4  MERGED PLAN. The Company may for purposes of this Plan (a) designate any
      employee pension benefit plan (as defined in Section 3(2) of ERISA) as a
      Merged Plan and (b) give credit for participation in a Merged Plan to the
      extent the Board determines desirable. The Board shall notify the
      Retirement Committee of the designation of any Merged Plan, and of credit
      to be given for participation in the Merged Plan.

      Notwithstanding any provision of this Plan to the contrary, contributions,
      benefits and service credit with respect to qualified military service
      will be provided in accordance with

                                                                              98

<PAGE>

      section 414(u) of the Code, effective for reemployments initiated after
      December 12, 1994.

18.5  NO INTEREST IN TRUST FUND. Irrespective of the amount of a Participant's
      Vested Interest, neither the Participant nor the Participant's Beneficiary
      or any other person shall have any interest or right to any of the assets
      of the Trust Fund except as and to the extent expressly provided in this
      Plan.

18.6  GOVERNING LAW. The provisions of this Plan shall be governed by and
      construed and administered in accordance with ERISA, the Internal Revenue
      Code, and, where not inconsistent, the laws of the State of New York.

18.7  PARTICIPANT INFORMATION. Each Participant shall notify the Retirement
      Committee of (a) his mailing address and each change of mailing address,
      (b) the Participant's, the Participant's Beneficiary's and, if applicable,
      the Participant's spouse's date of birth, (c) the Participant's marital
      status and any change of his marital status, and (d) any other information
      required by the Retirement Committee. The information provided by the
      Participant under this Section 18.7 shall be binding upon the Participant
      and the Participant's Beneficiary for all purposes of the Plan.

18.8  STATEMENT OF RETIREMENT BENEFITS. Upon a Participant's written request to
      the Plan Administrator, no more frequently than once in a twelve-month
      period, the Retirement Committee shall furnish him or her with a statement
      of his Retirement Benefits.

18.9  SEVERABILITY. If any provision of this Plan is held illegal or invalid for
      any reason, the other provisions of this Plan shall not be affected.

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<PAGE>

18.10 NOTICES. Any notice, request, election, designation, revocation or other
      communication under this Plan shall be in writing and shall be considered
      given when delivered personally or mailed by certified or registered mail,
      return receipt requested, except that any statement furnished pursuant to
      Section 18.8 or any other communication to all Participants shall be
      considered given when delivered personally or mailed first class.

18.11 HEADINGS. The headings in this Plan are for convenience of reference and
      shall not be given substantive effect.

Dated:                                            PEARSON INC.

                                                  By:

Attest:

                                                                             100

<PAGE>

SCHEDULE A - EFFECTIVE DATES FOR RESTATEMENT AS OF JANUARY 1, 1998

The provisions of this amended and restated Plan are effective as of January 1,
1998 except as otherwise provided in the Plan or below:

      (a) The following provisions are amended and restated with respect to
reemployments after December 12, 1994:

            (1) Sections 1.69 - Vesting Period of Service (reference to Section
414(u) of the Internal Revenue Code)

      (b) The following provision is amended and restated effective as of
January 1, 1996:

            (1) Section 15.2 - Payment of Benefits Upon Plan Termination
(reference to Section 4050 of ERISA).

      (c) The following provisions are amended and restated effective as of
January 1, 1997:

            (1) Section 6.8 - Qualified Joint and Survivor Annuity for Married
Members (language regarding Annuity Starting Dates prior to 30 day notice).

            (2) Section 6.9 - Notification of Right to Waive Qualified Joint and
Survivor Annuity (language regarding Annuity Starting Dates prior to 30 day
notice).

            (3) Section 1.16 - Compensation (repeal of family aggregation)

      (d) The following provision is amended and restated effective as of
judgements, orders and decrees issued and settlement agreements entered into on
or after August 5, 1997:

            (3) Section 12.2(b) - Payments to Plan pursuant to Count Order.

      (e) The following provisions are amended and restated effective as of
January 1, 2000:

                        (1) Section 4.2(d) - Maximum Retirement Benefit (with
                  respect to combined limit for the factors that apply to
                  determine the actuarial

                                                                             101

<PAGE>

                  equivalent).

                        (2) Section 17.6 - Combined Limit.

      (f) The following provisions are amended and restated effective as of
Annuity Starting Dates on or after January 1, 2001:

            (1)   Schedule B paragraph (1)(c) - Actuarial Factors (paragraph A -
                  factors for determining present value).

                                                                             102

<PAGE>

SCHEDULE B - ACTUARIAL ASSUMPTIONS

            (1) MORTALITY

                  (a) GENERAL Unisex table derived from the 1983 Group Annuity
Mortality Table by taking the arithmetic average of the male and female
mortality rates, or any other table prescribed by the Secretary of Treasury as
the applicable mortality table under Section 417(e)(3) of the Internal Revenue
Code.

                  (b) COMPUTATION OF MINIMUM BENEFITS UNDER SECTION 3.5. For
purposes of determining the Actuarial Equivalent of a Participant's Vested
Interest determined under Section 3.5(a) or (b) which is paid in the form of an
annuity under Section 6.1(a), the factors as specified in the Schedule D and
Schedule E, respectively shall apply.

                  (c) COMPUTATION OF CERTAIN ANNUITIES FOR ANNUITY STARTING
DATES ON OR AFTER JANUARY 1, 2001. In the case of a Participant with an Annuity
Staring Date on or after January 1, 2001, for purposes of converting a joint and
100% survivor annuity, a joint and 50% survivor annuity or a life annuity with a
10-year period certain, the factors specified in paragraph (3).

            (2) INTEREST -

                  (a) GENERAL The annual rate of interest on 30-year Treasury
securities for the month of September of the Plan Year immediately preceding the
Plan Year in which the Participant's Annuity Starting Date occurs. However, in
no event shall the rate for purposes of Section 1.58 be more than 10%.

                  (b) COMPUTATION OF MINIMUM BENEFITS UNDER SECTION 3.5. For
purposes of determining the Actuarial Equivalent of a Participant's Vested
Interest determined under Section

                                                                             103

<PAGE>

3.5(a) or (b) which is paid in the form of an annuity under Section 6.1(a), the
factors as specified in the Schedule D and Schedule E, respectively shall apply.

                  (c) In the case of a Participant with an Annuity Staring Date
on or after January 1, 2001, for purposes of converting a Joint and 100%
Survivor Annuity, a Joint and 50% Survivor annuity or a life annuity with a
10-year period certain the factors specified in paragraph (3).

                  (d) CERTAIN PARTICIPANTS WITH ANNUITY STARTING DATES PRIOR TO
DECEMBER 1, 1999. (1) In the case of an AWL Participant who has an Annuity
Starting Date on or after December 1, 1998 and before December 1, 1999, in no
event shall the rate in paragraph (a) be greater than the annual rate of
interest on 30-year Treasury securities for December 1, 1998. (2) In the case of
a Pearson Participant who has attained his Normal Retirement Date or Early
Retirement Date on or before December 31, 1995 and who has an Annuity Starting
Date before January 1, 1996, the interest rate which would be used, as of the
first day of the Plan Year in which the Participant's Annuity Starting Date
occurs, by the Pension Benefit Guaranty Corporation for determining the present
value of a lump-sum distribution on plan termination for a trusteed single
employer plan. (3) In the case of a Pearson Participant who has an Annuity
Starting Date on or after October 1, 1995 and before October 1, 1996, the lower
of (A) annual interest rate on 30-year Treasury securities on the first day of
the Plan Year in which the Participant's Annuity Starting Date occurs or (B) the
annual rate of interest on 30-year Treasury securities for the month of
September of the Plan Year immediately preceding the Plan Year in which the
Participant's Annuity Starting Date occurs.

                                                                             104

<PAGE>

            (3) ANNUITY FACTORS -

In the case of a Participant with an Annuity Starting Date on or after January
1, 2001, for purposes of converting a benefit payable as a life annuity to a
Joint and 100% survivor annuity, a Joint and 50% Survivor annuity or a life
annuity with a 10-year period certain the following factors:

(a)   If the Participant's Beneficiary is his spouse, the following factors
      shall be used to convert a life annuity to other annuity forms:

<TABLE>
<CAPTION>
                                       SIMPLIFIED CONVERSION FACTORS
                              ----------------------------------------------
     EMPLOYEE AGE AT           JOINT AND       JOINT AND     10-YEAR CERTAIN
ANNUITY COMMENCEMENT DATE     100% OPTION     50% OPTION        AND LIFE
-------------------------     -----------     ----------     ---------------
<S>                           <C>             <C>            <C>
Under 30                          98%             99%              99%
30-39                             96%             98%              99%
40-49                             94%             97%              99%
50-59                             90%             95%              98%
60 and over                       86%             93%              96%
</TABLE>

(b)   if the Participant has a non-spouse Beneficiary, the following adjustment
      to the spousal factors for the joint and 100% annuity option specified in
      (a):

<TABLE>
<CAPTION>
                            PERCENT TO SUBTRACT FROM STANDARD SPOUSAL FACTOR IF
                                     NON-SPOUSE BENEFICIARY IS AT LEAST:
                            ----------------------------------------------------
    PARTICIPANT AGE         10 YEARS YOUNGER  20 YEARS YOUNGER  30 YEARS YOUNGER
-------------------------   ----------------  ----------------  ----------------
<S>                         <C>               <C>               <C>
Under 40                           1%                 1%                1%
Age 40 - Age 49                    3%                 4%                4%
Age 50 - Age 59                    5%                 7%                8%
Age 60 and older                  10%                14%               16%
</TABLE>

(c)   If the Participant has a non-spouse Beneficiary, the following adjustment
      to the spousal factors, for a joint and 50% annuity option specified in
      (a):

<TABLE>
<CAPTION>
                            PERCENT TO SUBTRACT FROM STANDARD SPOUSAL FACTOR IF
                                     NON-SPOUSE BENEFICIARY IS AT LEAST:
                            ----------------------------------------------------
    PARTICIPANT AGE         10 YEARS YOUNGER  20 YEARS YOUNGER  30 YEARS YOUNGER
-------------------------   ----------------  ----------------  ----------------
<S>                         <C>               <C>               <C>
Under 40                           1%                 1%                1%
Age 40 - Age 49                    2%                 2%                2%
Age 50 - Age 59                    3%                 4%                5%
Age 60 and older                   6%                 9%               11%
</TABLE>

                                                                             105

<PAGE>

SCHEDULE C - PARTICIPATING EMPLOYERS

FT Publications Inc.

Former Interactive Data Corporation on or after September 1, 1995 and prior to
February 29, 2000.

Pearson Education Inc.

Pearson Inc.

Penguin Putnam Inc.

Pearson Technology Center, L.L.C.

Data Broadcasting Corporation (as renamed Interactive Data Corporation effective
as of June 15, 2001)

            (a)   effective as of February 29, 2000, but only with respect to
                  IDC Participants

            (b)   effective as of January 1, 2001 for all employees

Learning Network - effective as of July 1, 2000, but only with respect to
Learning Network Participants.

                                                                             106

<PAGE>

SCHEDULE D - PEARSON PARTICIPANTS

      This Schedule D provides special provisions for Pearson Participants for
purposes of determining the minimum and grandfathered benefits specified in
Sections 3.5(a) and 3.5(c), respectively. For purposes of determining the
minimum Retirement Benefit in this Schedule D, the definitions specified in the
Plan shall apply except to the extent modified by Paragraph VII of this
Schedule.

I. DECEMBER 31, 1997 BENEFIT. For purposes of Section 3.5(a), the December 31,
1997 Retirement Benefit of a Pearson Participant shall be the greater of the
amount determined under paragraph (a) or (b) as follows:

      (a)   Minimum Prior Plan Retirement Benefit as defined in paragraph V, or

      (b)   A Participant's Retirement Benefit accrued as of December 31, 1997
as determined under paragraph II.

II. RETIREMENT BENEFIT ACCRUED AS OF DECEMBER 31, 1997. Subject to Article 4 and
Sections 3.8 and 6.8, upon a Pearson Participant's Retirement or Termination of
Employment, the Participant's Retirement Benefit accrued as of December 31, 1997
shall be equal to one-twelfth of the sum of (a) and (b) as follows:

            (a) The product of (1) the Participant's Base Percentage, (2) the
portion of his Average Annual Compensation (as of December 31, 1997) which is
not in excess of his Covered Compensation as of December 31, 1997 and (3) the
number of years of the Participant's Benefit Accrual Period of Service as of
December 31, 1997 which is not in excess of 35; and

                                                                             107

<PAGE>

            (b) The product of (1) 1.5% of the portion of the Participant's
Average Annual Compensation as of December 31, 1997 in excess of his Covered
Compensation (as of December 31, 1997) and (2) the number of years of the
Participant's Benefit Accrual Period of Service as of December 31, 1997 which is
not in excess of 35.

            (c) For purposes of the computation under this paragraph II, in no
event shall the Participant's overall permitted disparity for a Plan Year exceed
the limit on overall permitted disparity under Section 1.401(l)-5 of the
Treasury Regulations. In the event that a Participant's overall permitted
disparity limit for a Plan Year is exceeded because a Participant's annual
overall permitted disparity exceeds the annual overall permitted disparity limit
in Section 1.401(l)-5 of the Treasury Regulations for that Plan Year, then the
difference between the Participant's excess benefit percentage and the
Participant's base benefit percentage shall be reduced so that this limit is not
exceeded. This reduction shall be made in a uniform manner for all similarly
situated Participants. In the event that a Participant's overall permitted
disparity limit for a Plan Year is exceeded because the Participant's cumulative
overall permitted disparity exceeds the cumulative overall permitted disparity
limit in Section 1.401(l)-5 of the Treasury Regulations for that Plan Year, then
with respect to that Plan Year his benefits shall be determined as described in
the following sentence. The benefit for that Plan Year shall be based on the
Participant's Average Annual Compensation and credited at a rate equal to the
lesser of (1) the excess benefit percentage applicable to a Participant with the
same number of years in his Benefit Accrual Period of Service or (2) the highest
percentage permitted under the 133-1/3 percent accrual rule under Section
411(b)(1)(B) of the Internal Revenue Code.

      For purposes of determining a Participant's Retirement Benefit under this
Paragraph II, it shall be assumed that payment of the Retirement Benefit will be
made in the form of a single life

                                                                             108

<PAGE>

annuity without ancillary benefits, commencing on the first day of the month
coincident with or following the Participant's Retirement.

III. GRANDFATHERED PEARSON BENEFIT. In the case of a Pearson Participant
entitled to the Grandfathered Pearson Benefit under Section 3.5(d), such benefit
shall be determined in accordance with Paragraph II of this Schedule D, except
that the benefit shall be determined as of the earlier of the Participant's
Termination of Employment or December 31, 2002, but in no event shall a
Participant's Benefit Accrual Period of Service exceed 35 years.

IV. EARLY RETIREMENT BENEFIT. In the case of a Pearson Participant who: (a)
receives a benefit determined under paragraph II or III of this Schedule D; (b)
has a Termination of Employment on or after his Early Retirement Date; (c) has
an Annuity Starting Date before his Normal Retirement Date; and (d) elects to
receive his distribution in the form of an annuity under Section 6.1(a), the
Participant's Retirement Benefit shall be reduced by the Early Retirement
Reduction Factor as set forth in Appendix H.

V. MINIMUM PRIOR PLAN RETIREMENT BENEFIT. A Pearson Participant's Minimum Prior
Plan Retirement Benefit shall be the greatest of the following:

            (a) Minimum Benefit under Former Retirement Plan of Viking Penguin
Inc. The Prior Plan Minimum Benefit for a Participant who participated in the
Retirement Plan of Viking Penguin Inc. on December 31, 1988 shall be the accrued
retirement benefit as of December 31, 1988 (determined without the annual limit
on compensation under Section 401(a)(17) of the Internal Revenue Code) under the
Retirement Plan of Viking Penguin Inc. (as set forth in Appendix

                                                                             109

<PAGE>

C to this Plan).

            (b) Minimum Benefit for Former E.P. Dutton Pension Plan
Participants. The Prior Plan Minimum Retirement Benefit for a Participant in the
E.P. Dutton, a Division of New American Library, Pension Plan on December 31,
1988 shall be his accrued retirement benefit as of December 31, 1988 under the
E.P. Dutton, a Division of New American Library, Pension Plan as set forth in
Appendix D to this Plan.

            (c) Minimum 1988 Prior Benefit. The minimum 1988 Prior Benefit shall
be equal to the actuarial equivalent of the Participant's accrued benefit as of
December 31, 1988 under the Pearson Inc. U.S. Retirement Plan (under Appendix
F). For purposes of determining the actuarial equivalent amount of the benefit
in this paragraph, the factors specified in the definition of Pearson Actuarial
Equivalent shall apply except that the factors for determining the lump sum
present value shall be as follows:

            Mortality - The 1971 Group Annuity Mortality Table for males.

            Interest - 6% per annum compounded annually.

            Interpolation - Determinations made shall be based on the
Participant's age in completed years and months at the date of the determination
and factors shall be interpolated to such age and rounded to nearest 1% of a
year.

            (d) Minimum 1993 Prior Benefit. The Minimum 1993 Prior Benefit for a
Participant who was a participant in the Pearson Inc. U.S. Retirement Plan on
December 31, 1993, shall be the greater of (1) or (2) as follows:

                  (1) 1988 Prior Formula Amount & Post 1988 Accruals. The sum of
(A) his accrued benefit under the Pearson Inc. U.S. Retirement Plan as of
December 31, 1988 under Appendix F (determined without the annual limit on
compensation under Section 401(a)(17) of the

                                                                             110

<PAGE>

Internal Revenue Code) ("1988 Prior Formula Amount") and as adjusted for
Compensation increases as determined under paragraph (d)(3) and (B) his benefit
under the Plan based on the formula in paragraph II of this Schedule D and based
on his Benefit Accrual Period of Service credited for the period beginning on or
after January 1, 1989 and ending as of December 31, 1997 (or, if earlier, the
earliest of his Termination of Employment, Retirement, incurrence of a Permanent
Disability or, in the case of a Highly Compensated Employee, December 31, 1993),
and

                  (2) 1993 Prior Formula Amount. His accrued benefit under the
Pearson Inc. U.S. Retirement Plan as of December 31, 1993 (or, if earlier, the
date in the following sentence) as determined under Appendix F. In the case of a
Participant who is a "super highly compensated employee" for the 1989, 1990,
1991 or 1992 Plan Year (as defined in IRS Notice 89-92 for purposes of
Alternative IID), his minimum Retirement Benefit under the prior sentence shall
be based on his accrued Retirement Benefit as determined under Appendix F as of
the later of the last day of the 1988 Plan Year and the last day of the Plan
Year immediately preceding the Plan Year in which he first becomes a "super
highly compensated employee."

            (3) Compensation Adjustment for 1988 Prior Formula Amount The 1988
Prior Formula Amount adjusted by compensation shall be equal to the product of
(A) and (B) as follows:

            (A) the Participant's 1988 Prior Formula Amount but limited so that
the base benefit percentage is at least 50% of the excess benefit percentage,
and

            (B) A fraction not less than one. The numerator of the fraction is
the Participant's Average Annual Compensation determined as of December 31, 1997
(or, if earlier, the earliest of the date of his Retirement, Termination of
Employment, death or incurrence of a Permanent Disability, or in the case of a
Highly Compensated Employee, December 31, 1993). The denominator of the fraction
is the Participant's Average Annual Compensation as of January 1,

                                                                             111

<PAGE>

1989. The definition of Average Annual Compensation shall be based on the
definition of Pension Compensation Base in Appendix F.

            (e) Minimum Retirement Benefit for Former Participants of the
Financial Times U.S. Retirement Plan. Subject to the following sentence, the
Prior Plan Minimum Retirement Benefit for a Participant who was a Participant in
the Financial Times U.S. Retirement Plan on December 31, 1993, shall be equal to
his accrued benefit as of December 31, 1993 under the Financial Times U.S.
Retirement Plan as determined in Appendix E determined without regard to the
applicable limits on compensation under Section 401(a)(17) of the Internal
Revenue Code in effect after December 31, 1988 but before January 1, 1991. In
the case of a Participant who is a "super highly compensated employee" for the
1989, 1990, 1991 or 1992 Plan Year (as defined in IRS Notice 89-92 for purposes
of Alternative IID) his minimum Retirement Benefit under this Paragraph (e)
shall be based on his accrued Retirement Benefit as determined under Appendix E
as of the later of the last day of the 1988 Plan Year and the last day of the
Plan Year immediately preceding the Plan Year in which he becomes a super highly
compensated employee.

      In the case of a Participant described in this paragraph (e) whose
Compensation for any Plan Year commencing prior to January 1, 1989 is in excess
of $200,000, his minimum Retirement Benefit under this paragraph (e) shall in no
event be less than his Retirement Benefit as of December 31, 1988 as determined
under Appendix E of the Plan based on Compensation as defined in Appendix E but
without the limitation under Section 401(a)(17) of the Internal Revenue Code
that would otherwise apply.

            (f) Section 401(a)(17) Employees Minimum Post OBRA Retirement
Benefit. In no event shall a Section 401(a)(17) Employee's Retirement Benefit
determined on or after January 1, 1994 be less than the sum of (1) and (2) as
follows:

                                                                             112

<PAGE>

                  (1) the Section 401(a)(17) Employee's accrued Retirement
Benefit as of December 31, 1993 as determined under Paragraph II of this
Schedule C based on the Compensation and Average Annual Compensation as of
December 31, 1993 but by taking into account the annual limit on compensation
under Section 401(a)(17) of the Internal Revenue Code in effect as of the first
day of the Plan Year beginning on or after January 1, 1989 but before January 1,
1994 ($200,000 as indexed) that would otherwise apply , and

                  (2) the Participant's Retirement Benefit accrued with respect
to the number of years of his Benefit Accrual Period of Service credited on or
after January 1, 1994 and prior to January 1, 1998, based on Compensation and
Average Annual Compensation as of January 1, 1998 (or, if earlier his
Termination of Employment, Retirement, incurrence of a Permanent Disability or
death)

VI. ACTUARIAL EQUIVALENT. Subject to paragraphs IV and V, for purposes of
determining the Actuarial Equivalent Value of (a) a Retirement Benefit under
paragraph I, the Pearson Actuarial Equivalent factors shall apply and (b) a
Retirement Benefit under paragraph III, the Actuarial Equivalent factors
specified in Schedule B shall apply.

VII. DEFINITIONS. The following definitions shall apply for purposes of this
Schedule D

      (a)   PEARSON ACTUARIAL EQUIVALENT -

            (1)   General

                  Interest - except for determining Actuarial Equivalent present
            value of a lump sum distribution paid on or after October 1, 1995,
            the immediate interest rate which would be used, as of the first day
            of the Plan Year in which the Participant's

                                                                             113

<PAGE>

            Annuity Date occurs, by the Pension Benefit Guaranty Corporation for
            purposes of determining the present value of a lump-sum distribution
            on plan termination for a trusteed single employer plan.

                  Mortality - Unisex table derived form the 1983 Group Annuity
            Mortality Table by taking the arithmetic average of the male and
            female mortality rates.

            (2) Present Value if Annuity Starting Date on or after October 1,
1995. For purposes of defining the Actuarial Equivalent present value of the
Vested Interest of a Participant with an Annuity Starting Date on or after
October 1, 1995, the factors set forth in Schedule B.

            (3) Early Retirement Reduction Factors. The factors set forth in
Appendix H.

      (b) BASE PERCENTAGE - a percentage equal to: (1) 0.75% for Participants
born before January 1, 1938; (2) 0.80% for Participants born after December 31,
1937 and before January 1, 1955, and (3) 0.85% for Participants born after
December 31, 1954.

      (c) COVERED COMPENSATION - with respect to an Employee, the average of the
taxable wage bases in effect under Section 230 of the Social Security Act for
each year during the 35-year period ending with the year the Employee attains
(or will attain) the later of age 65 or social security retirement age (as
defined in Section 415(b)(8) of the Internal Revenue Code). In determining a
Participant's Covered Compensation for a Plan Year, the taxable wage bases for
that Plan Year and any subsequent Plan Year shall be assumed to be the same as
the taxable wage base in effect for that Plan Year. A Participant's Covered
Compensation shall be adjusted each Plan Year.

      (d) SECTION 401(a)(17) EMPLOYEE - a Participant whose Retirement Benefit
for any Plan Year before January 1, 1994 was determined by taking into account
Compensation that exceeded $150,000.

                                                                             114

<PAGE>

      (e) SOCIAL SECURITY WAGE BASE - the social security taxable wage base as
provided in Section 3121(a)(1) of the Internal Revenue Code in effect on the
first day of the Plan Year.

                                                                             115
<PAGE>

SCHEDULE E - AWL PARTICIPANT

      This Schedule E provides special provisions for AWL Participants for
purposes of determining the minimum benefits specified in Sections 3.5 (b), the
grandfathered benefit specified in Sections 3.5 (d) and 3.5 (e), an AWL
Participant's Compensation prior to January 1, 1986, and an AWL Participant's
Minimum Vesting Period of Service as of November 30, 1998. For purposes of
determining the Retirement Benefits in this Schedule E, the definitions
specified in the Plan shall apply except to the extent modified by Paragraph VII
of this Schedule E.

I.    NOVEMBER 30, 1998 RETIREMENT BENEFIT.

      For purposes of Section 3.5(b), the November 30, 1998 Retirement Benefit
of an AWL Participant shall be the greater of the amount determined under
paragraph II or III.

II.   RETIREMENT BENEFIT AS OF NOVEMBER 30, 1998 UNDER THE AWL PLAN

      Subject to Article 4 and Sections 3.8 and 6.8, an AWL Participant's
Retirement Benefit as of November 30, 1998 under the AWL Plan shall be equal to
one-twelfth of the sum of (a) and (b) as follows:

            (a)   the product of (1) 1% of the Participant's Average Annual
Compensation as of November 30, 1998 not in excess of Covered Compensation as of
November 30, 1998, and (2) the Participant's number of years of AWL Benefit
Service as of November 30, 1998 which is not in excess of thirty years; and

                                                                             116
<PAGE>

            (b)   the product of (1) 1.5% of the Participant's Average Annual
Compensation as of November 30, 1998 in excess of Covered Compensation as of
November 30, 1998, and (2) the Participant's number of years of AWL Benefit
Service as of November 30, 1998 which is not in excess of thirty years.

III.  OTHER MINIMUM BENEFIT

            In the case of an AWL Participant, in no event shall his Retirement
Benefit be less than the amount under (a) or (b) as follows:

            (a) Subject to the following sentence, the benefit accrued under the
terms of the AWL Plan in effect on November 30, 1989, determined as of November
30, 1990 or, if earlier, the Participant's Termination of Employment. In the
case of either (1) a Participant who is a super highly compensated employee for
the Plan Year ending November 30, 1990, and (2) any other Participant whose
accrued benefit as of November 30, 1989 is greater than his benefit as of
November 30, 1990, the Retirement Benefit in the prior sentence will be
determined as of November 30, 1989; and

            (b) the sum of (1) the Participant's benefit determined as of
November 30, 1994 (under the formula specified in paragraph II), and (2) the
Participant's benefit determined under the formula specified in paragraph II
based on AWL Benefit Service after November 30, 1994 and Compensation as limited
by the provisions of Section 401(a)(17) of the Internal Revenue Code in effect
on or after January 1, 1994.

IV.   GRANDFATHERED AWL BENEFIT

      In the case of an AWL Participant entitled to the Grandfathered AWL
Benefit under

                                                                             117
<PAGE>

Section 3.5(c), such benefit shall be determined in accordance with Paragraph II
of this Schedule E, except that the benefit shall be determined as of the
Participant's Termination of Employment. In addition, in the case of a Former
Simon & Schuster Participant entitled to the Grandfathered Former Simon &
Schuster Benefit under Section 3.5(e), such benefit shall be determined in
accordance with Paragraph II of this Schedule E, except that the benefit shall
be determined as of the Participant's Termination of Employment and based on the
sum of (a) the Participant's Simon & Schuster Benefit Service; and (b) his
Benefit Accrual Period of Service on and after November 30, 1998.

V.    EARLY RETIREMENT BENEFIT. In the case of a Participant who: (a) receives a
benefit determined under Paragraph I or IV of this Schedule E; (b) has a
Termination of Employment on or after his Early Retirement Date; (c) has an
Annuity Starting Date before his Normal Retirement Date; and (d) elects to
receive his distribution in the form of an annuity under Section 6.1(a), the
Participant's Retirement Benefit determined under Paragraph I or IV shall be
reduced by the early retirement reduction factors set forth in the following
sentence. Such benefit shall be reduced by 2/12 of 1% for each of the first 35
months by which the Annuity Starting Date precedes the Participant's Normal
Retirement Date and by 5/12 of 1% for each month thereafter; provided however,
that a Participant who retires on or after age 62 and after completing a Vesting
Period of Service of 30 or more years shall receive an unreduced benefit.

VI.   ACTUARIAL EQUIVALENT FACTORS. Subject to paragraph V, for purposes of
determining the Actuarial Equivalent Value of a Retirement Benefit determined
under (a) Paragraph II or III and payable in the form of an annuity under
Section 6.1(a), the factors specified under the definition of

                                                                             118
<PAGE>

AWL Actuarial Equivalent shall apply, and (b) Paragraph IV and payable in the
form of an annuity under Section 6.1(a), the factors specified under Schedule B
shall apply.

VII.  DEFINITIONS

A.    AWL ACTUARIAL EQUIVALENT - a benefit of equivalent value determined using
      a 7% interest rate and the UP-1984 Mortality Table (males), set back two
      years for Participants, spouses, contingent annuitants and Beneficiaries.

B.    AWL BENEFIT SERVICE. The sum of (1) and (2) as follows:

      (1)   a Participant's Benefit Accrual Period of Service on or after
      December 1, 1999; and

      (2)(a) Subject to Paragraph (b), service for a 12-month period beginning
             as of December 1st of any calendar year and ending prior to
             December 1, 1999. A Participant will not be credited with any
             Service for any such 12-month period in which he does not have
             1,000 Hours of Service; provided, however, that in the event that a
             Participant who either:

            (i)   enters or, following a Break in Service, re-enters employment
                  with the Company on a date other than the first day of any
                  Plan Year, and thereafter fails to complete at least 1,000
                  Hours of Service during such Plan Year; or

            (ii)  terminates his employment or retires on a date other than the
                  last day of any Plan Year and prior to completing at least
                  1,000 Hours of

                                                                             119
<PAGE>

                  Service during such Plan Year, such Participant shall, solely
                  for purposes of computing the amount of his benefit, if any,
                  under the Plan, be deemed to have accrued a partial year of
                  Service on account of such Plan Year, which part shall be
                  determined by multiplying the number one (1) by a fraction of
                  which the numerator is the number of Hours of Service actually
                  completed by such Participant during the Plan Year (rounded to
                  the next highest 100 Hours of Service) and of which the
                  denominator is 1,000.

      (b)   The following Periods of Service shall be disregarded:

            (i)   Periods of employment with the Longman Division of the
                  Company, Dale Seymour Publications, Cuisenaire, Peachpit and
                  Harper Collins prior to such entities becoming Affiliated
                  Companies (Longman Division - October 1, 1988, Dale Seymour
                  Publications - July 1, 1989, Cuisenaire - May 14, 1990,
                  Peachpit - October 1, 1994 and Harper Collins, April 1, 1996.)

            (ii)  Service preceding Breaks in Service if the Participant has no
                  Vested Interest and has a number of consecutive Breaks in
                  Service equal to (or greater than) the greater of five and the
                  number of the Participant's AWL Benefit Service (excluding AWL
                  Benefit Service previously disregarded under this paragraph
                  preceding the Breaks in Service). For purposes of this
                  Section, a Break in Service will be determined in accordance
                  with the Plan, but the applicable measurement period shall

                                                                             120
<PAGE>

                  be based on 12-month periods beginning on December 1st.

            The Retirement Committee shall determine and credit to a Participant
            the additional AWL Benefit Service necessary to provide the
            Participant with the benefit accrual credit to which the Participant
            is entitled under Section 414(u) of the Internal Revenue Code for
            his period of military service.

C.    COMPENSATION - For periods prior to January 1, 1986, the basic rate of
      compensation in effect as of December 1 of each year, adjusted to an
      annual basis, exclusive of all overtime, bonus and other irregular
      payments. For purposes of the definition of Average Annual Compensation
      below, such basic rate of compensation shall be considered the Annual
      Earnings for the calendar year in which the December 1 date occurs and the
      Employee shall be considered as having completed a full calendar year of
      employment. For purposes of periods on or after January 1, 1986, the
      definition of Compensation specified in Section 1.16 of the Plan shall
      apply.

D.    COVERED COMPENSATION - With respect to a Participant, the average of the
      Social Security Taxable Wage Bases for the 35-year period ending with the
      calendar year during which the Participant attains Social Security
      Retirement Age. In the case of a Participant who terminates employment
      with the Company prior to his Social Security Retirement Age, the Social
      Security Taxable Wage Base in effect for the calendar year during which
      the Participant terminates shall be assumed to remain in effect for each
      year thereafter. In the case of a Participant who terminates employment
      with the

                                                                             121
<PAGE>

      Company after his Social Security Retirement Age, his Covered Compensation
      shall be determined as if he terminated on his Social Security Retirement
      Age.

E.    AWL VESTING SERVICE AS OF NOVEMBER 30, 1998 - AWL Benefit Service as of
      November 30, 1998, except that the exclusions under Paragraph B(2)(b)
      relating to service prior to becoming employed by an Affiliated Company
      shall be disregarded.

F.    SOCIAL SECURITY TAXABLE WAGE BASE - The amount of income or wages,
      established each year by the Social Security Administration, subject to
      Social Security taxes.

G.    SOCIAL SECURITY RETIREMENT AGE - With respect to an Employee born prior to
      1938, the date on which he attains age sixty-five; with respect to an
      Employee born after 1937 and prior to 1955, the date on which he attains
      age sixty-six; and with respect to an Employee born after 1954, the date
      on which he attains age sixty-seven. Notwithstanding the foregoing, such
      dates shall be adjusted as necessary to comply with the definition of
      Social Security Retirement Age contained in Section 415(b)(8) of the
      Internal Revenue Code.

                                                                             122
<PAGE>

SCHEDULE F - BENEFITS FOR CERTAIN NON-RESIDENT ALIENS

      Except as provided in Paragraph I of this Schedule F, non-resident aliens
who receive no earned income (within the meaning of Section 911(d)(2) of the
Internal Revenue Code) which constitutes income from sources within the United
States (within the meaning of Section 861(a)(3) of the Internal Revenue Code)
("Non-Resident Alien") shall not be eligible to participate in the Plan. This
Schedule F shall apply in determining the amount of Retirement Benefits of any
Participant who is a Non-Resident Alien.

I.    ELIGIBLE NON-RESIDENT ALIENS

      A.    As of January 1, 1994, the following Non-Resident Alien Employees
are included as Participants of the Plan and shall be entitled to the Retirement
Benefit specified in Paragraph III:

      B.    As of April 1, 1998, the following Non-Resident Alien Employees are
included as Participants of the Plan and shall be entitled to the Retirement
Benefits specified in Paragraph III.

      C.    The following Non-Resident Alien Employees are also included as
Participants of the Plan and shall be entitled to a monthly Retirement Benefit
in the amount set forth below and payable in the form set forth below. Subject
to Section 6.8, these Participants shall not be entitled to elect a different
form of distribution.

<TABLE>
<CAPTION>
                             Monthly Retirement
Name                         Benefit Amount                     Form of Payment
----                         --------------                     ---------------
<S>                          <C>                                <C>
</TABLE>

II.   IN GENERAL - TERMS OF THE PLAN APPLY

                                                                             123
<PAGE>

      Except as superseded or otherwise modified by this Schedule F, the terms
of the Plan, other than Article 3, shall apply to Participants described in this
Schedule F.

III.  RETIREMENT BENEFITS

      Unless otherwise specified in Schedule F the monthly Retirement Benefit of
a Non-Resident Alien described in Paragraph IA payable as a life annuity at
Normal Retirement Date shall be equal to one-twelfth of the excess of (a) over
(b) as follows:

      (a)   1.667% of the Participant's Average Annual Earnings multiplied by
his AWL Benefit Service (not to exceed a maximum of 50% of such Average Annual
Earnings); over

      (b) the Participant's Other Company Funded Benefits.

IV.   DEFINITIONS

      A.    AVERAGE ANNUAL EARNINGS - The Annual Earnings of the Participant
averaged over the five consecutive calendar year period (or, if less, the
Participant's period of employment with the Company) that produces the highest
average. This determination shall be subject to the rules under Section
401(a)(17) of the Internal Revenue Code as described in Section 1.5 of the Plan
(definition of Average Annual Compensation)

      B.    ANNUAL EARNINGS - The Participant's base compensation, plus bonus
amounts up to 50% of the Participant's base compensation, which is paid to the
Participant by the Company during the Plan Year which would be includible in
income for Federal Income Tax purposes if such income were U.S. source income.
In no event shall such amount exceed the limitations on compensation under
Section 401(a)(17) of the Internal Revenue Code (as adjusted by the Secretary of
Treasury for increases in the cost of living before January 1, 2002).

                                                                             124
<PAGE>

C.    OTHER COMPANY FUNDED BENEFITS -

      (a)   the portion of the benefit determined by the Plan Administrator
payable to the Participant under the Social Security System of the Participant's
country of residence commencing on the Participant's Normal Retirement Date
which is attributable to the contributions made to such System by the Company on
behalf of the Participant during his Years of Benefit Service;

      (b)   any benefit payable to the Participant by the Company on account of
the Participant's Termination of Employment with the Company which is mandated
by the laws of the Participant's country of residence; and

      (c)   any benefit payable to the Participant under a retirement benefit
plan which is voluntarily established by the Company in the Participant's
country of residence to the extent such benefit is attributable to contributions
made by the Company to such plan.

      In the event that any benefit described above is paid in a form other than
the normal form of payment under the Plan at the Participant's Normal Retirement
Date, such benefit shall be actuarially adjusted to the normal form of benefit
payable at Normal Retirement Date in order to determine the reduction applicable
under this paragraph C.

D.    YEARS OF BENEFIT SERVICE - The total of the Participant's period of
service from his initial date of employment with the Company to his date of
Termination of Employment determined in accordance with the rules for
determining Benefit Accrual Period of Service under Section 1.12 of the Plan.

                                                                             125
<PAGE>

APPENDIX A

      Accrued Benefit as of December 31, 1984 under the New American Library
Pension Plan.

<TABLE>
<CAPTION>
                                                ACCRUED
                                                MONTHLY
NAME                          SSN               BENEFIT
----                          ---               -------
<S>                           <C>               <C>
</TABLE>

                                                                             126
<PAGE>

APPENDIX A (CONTINUED)

<TABLE>
<CAPTION>
                                                ACCRUED
                                                MONTHLY
NAME                          SSN               BENEFIT
----                          ---               -------
<S>                           <C>               <C>
</TABLE>

                                                                             127
<PAGE>

APPENDIX B

      Actuarial Equivalent of accumulated employer contributions (other than
employer matching contributions) as of December 31, 1988 under the New American
Library Capital Accumulation Plan.

<TABLE>
<CAPTION>
                                                ACCRUED
                                                MONTHLY
NAME                          SSN               BENEFIT
----                          ---               -------
<S>                           <C>               <C>
</TABLE>

                                                                             128
<PAGE>

APPENDIX B (CONTINUED)

<TABLE>
<CAPTION>
                                                ACCRUED
                                                MONTHLY
NAME                          SSN               BENEFIT
----                          ---               -------
<S>                           <C>               <C>
</TABLE>

                                                                             129
<PAGE>

APPENDIX C

      Accrued Benefit as of December 31, 1988 under The Retirement Plan of
Viking Penguin Inc.

<TABLE>
<CAPTION>
                                                ACCRUED
                                                MONTHLY
NAME                          SSN               BENEFIT
----                          ---               -------
<S>                           <C>               <C>
</TABLE>

                                                                             130
<PAGE>

APPENDIX C (CONTINUED)

<TABLE>
<CAPTION>
                                                ACCRUED
                                                MONTHLY
NAME                          SSN               BENEFIT
----                          ---               -------
<S>                           <C>               <C>
</TABLE>

                                                                             131
<PAGE>

APPENDIX D

      Accrued Benefit as of December 31, 1988 under E.P. Dutton, a Division of
New American Library, Pension Plan.

<TABLE>
<CAPTION>
                                                ACCRUED
                                                MONTHLY
NAME                          SSN               BENEFIT
----                          ---               -------
<S>                           <C>               <C>
</TABLE>

                                                                             132
<PAGE>

APPENDIX E

      Former Participants of the Financial Times U.S. Retirement Plan.

      1.    Definitions. The following definitions apply for purposes of this
            Appendix E:

            a)    Actuarial Equivalent - A benefit of equivalent value to an
                  otherwise payable benefit on the basis of:

                  (i)   Mortality in accordance with the Unisex Pension
                        Mortality Table (UP-84).

                  (ii)  Interest at the rate specified by the Pension Benefit
                        Guaranty Corporation to value immediate annuities for
                        plans terminating as of the October 1 preceding the Plan
                        Year in which the determination is being made.

            b)    Compensation - Regular base salary or wages paid for services
                  performed by an Employee excluding overtime pay, bonuses,
                  commissions, amounts paid for insurance or other welfare plans
                  or benefits, or other special remuneration. For Plan Years
                  beginning after December 31, 1988 but before January 1, 1994,
                  an Employee's Compensation shall not exceed the limitation on
                  Earnings under Section 401(a)(17) of the Internal Revenue Code
                  (or such higher amount as may be determined by the Secretary
                  of the Treasury in accordance with Section 401(a)(17) of the
                  Internal Revenue Code to reflect increases in the cost of
                  living before January 1, 2002). For Plan Years beginning on or
                  after January 1, 1994, an Employee's Compensation shall not
                  exceed $150,000 (or such higher amount as may be determined by
                  the Secretary of the Treasury in accordance with Section
                  401(a)(17) of the Internal Revenue Code to reflect increases
                  in the cost of living before January 1, 2002).

            c)    Final Average Compensation -

                  (i)   the average monthly Compensation (as defined in
                        paragraph (b) of this Section) received by a Former FT
                        Participant during the highest sixty (60) consecutive
                        calendar months (or such shorter period if the Former FT
                        Participant had not completed sixty (60) consecutive
                        calendar months) during the one hundred twenty (120)
                        calendar months (or such shorter period if the former FT
                        Participant had not completed one hundred twenty (120)
                        consecutive calendar months) immediately preceding the
                        earlier to occur of the Former FT Participant's
                        Severance from Service Date or; December 31, 1993.

                  (ii)  with respect to a determination of Average Annual
                        Compensation

                                                                             133
<PAGE>

                        for any Plan Year beginning on or after December 31,
                        1988 but before January 1, 1994, Compensation shall not
                        exceed the limitations on compensation under Section
                        401(a)(17) of the Internal Revenue Code, (adjusted to
                        reflect increases in the cost of living before January
                        1, 2002);

            d)    Former FT Participant - A Participant in the Former FT Plan
                  who is credited with an Hour of Service after December 31,
                  1988.

            e)    Former FT Plan - The Financial Times U.S. Retirement Plan as
                  amended through December 31, 1993.

            f)    Period of Service - Each period of time commencing on an
                  Employment Commencement Date as an employee of Financial Times
                  Publications, Inc. F.T. American Advertising Ltd., or the
                  Editorial offices of N.Y. or Washington and ending on a
                  Severance from Service Date.

            g)    Primary Social Security Benefit - The monthly old-age benefit
                  to which the Former FT Participant would be entitled under the
                  Federal Social Security Act under the following rules:

                  (i)   The Primary Social Security Benefit as herein defined
                        shall be the amount payable at age 65 under the Social
                        Security Act.

                  (ii)  The Primary Social Security Benefit shall be the amount
                        estimated to be payable excluding any family benefits.

                  (iii) The amount of Primary Social Security Benefit shall be
                        estimated on the basis of tables approved by the
                        Committee, taking into account the Employee's actual
                        compensation in the calendar year prior to termination
                        of service and assuming that compensation increased
                        prior thereto at the rate of increase in average wages
                        as determined by Social Security Administration.

                  (iv)  A written notice shall be provided to each terminating
                        Participant which shall indicate that the amount of
                        Primary Social Security Benefit is estimated and that,
                        in the event the Participant obtains a documented record
                        of his earnings history, then the amount of Primary
                        Social Security Benefit based on such record of actual
                        earnings shall be used if the amount of estimated
                        Primary Social Security Benefit is lower than the amount
                        determined using the above described table; provided,
                        however, that such record of Social Security earnings
                        shall be utilized only if such record is submitted to
                        the Committee by the Participant no later than 120 days
                        following the later of the date of the Participant's
                        termination of service and the time the Participant
                        receives written notice of the benefit to which he is
                        entitled.

                                                                             134
<PAGE>

            (v)   In the event that the Primary Social Security Benefit is being
                  determined as of a date prior to the Participant's Normal
                  Retirement Date, the amount of such Primary Social Security
                  Benefit shall be based upon the assumption that the
                  Participant will continue to receive until age 65 compensation
                  which would be treated as wages for purposes of such Social
                  Security Act at the same rate as he received such compensation
                  at the time of his Severance from Service Date.

            (vi)  Notwithstanding the foregoing, if a Participant receives Years
                  of Benefit Accrual Period of Service during a period in which
                  he was covered or entitled to be covered by a foreign social
                  security system (other that a period in which he elected
                  United States Social Security coverage in lieu thereof), his
                  Primary Social Security Benefit shall include the amount of
                  old-age benefits to which the Participant would be entitled
                  under the applicable foreign social security system as
                  determined, in a non-discriminatory manner, by the Committee
                  with the advice of the Actuary. The determination of the
                  amount of the foreign social security benefit by the Committee
                  shall be conclusive and binding on all parties; provided such
                  determination shall be made in a manner which satisfies all
                  applicable regulations and filings of the Internal Revenue
                  Service concerning the integration of pension plans with
                  social security benefit.

h)    Years of Benefit Accrual Period of Service. An Employee shall be credited
      with Years of Benefit Accrual Period of Service equal to the aggregate of
      his Periods of Service, as defined in Paragraph (f), subject to the
      following rules:

      (i)   For purposes of aggregation, years, months and days in Periods of
            Service shall be added together and the resulting Years of Benefit
            Accrual Period of Service shall be computed in years and a fraction
            thereof, counting only completed months.

      (ii)  Years of Benefit Accrual Period of Service shall include periods
            during which an Employee is Disabled. For purposes of this Section,
            Disabled is the state of mental or physical incapacity which
            qualifies a Participant for any long-term disability benefit
            sponsored by an Employer.

      (iii) Years of Benefit Accrual Period of Service shall exclude Periods of
            Service as provided in Paragraph (i).

      (iv)  For Employees who became Participants on January 1, 1993, Years of
            Benefit Accrual Period of Service shall include all Periods of
            Service rendered by such Employees with an Affiliated Company prior
            to January 1, 1983.

                                                                             135
<PAGE>

i)    Exclusions from Benefit Accrual Period of Service. The following Periods
      of Service shall be disregarded in computing the total Years of Benefit
      Accrual Period of Service to be credited to a Participant:

      (i)   In the event that a Participant who incurs a Break in Service on or
            after January 1, 1983, subsequently becomes an Employee again, any
            Period of Service of the Participant prior to the Break in Service
            shall not be includable as part of the Participant's total Years of
            Benefit Accrual Period of Service and Years of Vesting Service
            unless such Participant acquires a Period of Service of at least one
            year after such Break in Service.

      (ii)  In the case of any Participant who incurs a Break in Service on or
            after January 1, 1985, prior to his becoming entitled to a deferred
            vested benefit, his Period of Service prior to said Break in Service
            shall not be taken into account if his last Period of Severance
            equals or exceeds the greater of five years or such prior Period of
            Service or portion thereof which is not excluded under this Section
            by reason of any prior Break in Service.

2.    Retirement Benefit for Former FT Participants

      a)    Normal Retirement Benefit. In no event shall a Former FT Participant
            receive a Normal Retirement Benefit that is less than the benefit
            described in this Section 2 of Appendix E. The retirement benefit
            under this Section of the Plan shall be payable monthly as a single
            life annuity in an amount which is equal to (1) plus(2) minus (3)
            below:

            (i)   2% of the Participant's Final Average Compensation, multiplied
                  by his Years of Benefit Accrual Period of Service up to twenty
                  years, plus

            (ii)  1% of the Participant's Final Average Compensation multiplied
                  by his Years of Benefit Accrual Period of Service in excess of
                  twenty years, but not in excess of forty years, minus

            (iii) 1.25% of the Participants Primary Social Security Benefit
                  multiplied by his Years of Benefit Accrual Period of Service
                  up to forty such years.

      b)    Termination of Employment and Early Retirement Benefits. Any Former
            FT Participant who terminated employment after attaining 100% vested
            rights shall be eligible to receive a Retirement Benefit, payable
            monthly during his life, in an amount calculated pursuant to either
            (i) or (ii) below, whichever is applicable.

            (i)   The Participant is entitled to receive a deferred pension,
                  commencing as of the Participant's Normal Retirement Date,
                  equal

                                                                             136
<PAGE>

                  to his Accrued Benefit.

            (ii)  If the Participant terminates employment after attaining age
                  fifty five, he is entitled to retirement benefits equal to his
                  Accrued Benefit but reduced by 5/12 of 1% for each month by
                  which the date on which he commences receipt of his Benefit
                  precedes his Normal Retirement Date.

      For purposes of this Appendix E, a former FT Participant's Accrued Benefit
      at any date is the Normal Retirement Benefit that would be provided in
      paragraph (2)(a) of this Appendix if the Participant remained a
      Participant until his Normal Retirement Date with Final Average
      Compensation equal to his Final Average Compensation at the date of
      determination multiplied by a fraction the numerator of which is his Years
      of Benefit Accrual Period of Service at the date of determination and the
      denominator is the Years of Benefit Accrual Period of Service he would
      have at his Normal Retirement Date.

3.    Optional Forms of Payment. Subject to Section 6.8, a Former FT Participant
      may elect to receive the benefit determined under this Appendix E under
      any of the optional forms permitted under Section 6.1 or under a life
      annuity with a 5-year period certain feature. The amount to be paid under
      any optional form other than a single lump sum payment shall be the
      Actuarial Equivalent (as defined in this Appendix E) of a single life
      annuity determined under Paragraph 2.

4.    Preretirement Death Benefits. In the event of the death of a Former FT
      Participant who meets the requirements for a Preretirement Death Benefit
      under Article 7, the amount to be paid to the Participant's spouse shall
      not be less than the amount that would be paid if his Accrued Benefit
      under this Appendix E were substituted for the benefit earned under this
      Plan without regard to Appendix E.

                                                                             137
<PAGE>

APPENDIX F

      Former Participants of the Pearson Inc. Pension Plan

      1.    Definitions. The following definitions apply for purposes of this
            Appendix F:

            a)    Accrued Benefit shall mean the Participant's Basic Annual
                  Pension calculated pursuant to Paragraph 2 as though the
                  Participant had continued his employment uninterrupted until
                  Normal Retirement Date with the Participant's Pension
                  Compensation Base determined as of the date of the
                  Participant's termination of employment and with the pension
                  formula based on the Participant's Primary Social Security
                  Benefit. Such Basic Annual Pension shall be multiplied by a
                  fraction, not exceeding one, (a) the numerator of which is the
                  Participant's Years of Service at the date of termination of
                  employment and (b) the denominator of which is the Years of
                  Service the Participant would have had at his Normal
                  Retirement Date if he had continued in the service of the
                  Employer until such date with no Breaks in Service.

            b)    Actuarial Equivalent shall mean a benefit of value equivalent
                  to the value of the benefit which would otherwise have been
                  provided, determined at the time benefit payments commence, on
                  the basis of actuarial assumptions as follows:

                  (i)   Mortality Table: the UP-1984 Mortality Table, with no
                        adjustment to ages.

                  (ii)  Interest Rate: The rate specified by the Pension Benefit
                        Guaranty Corporation for immediate annuities as of the
                        first day of the Plan Year in which the determination is
                        made.

            c)    Basic Pension and Basic Annual Pension shall mean the annual
                  retirement income derived by application of the applicable
                  pension formula set forth in Paragraph 2, as opposed to an
                  optional pension elected pursuant to Article 6, which such
                  Basic Pension shall be payable for the life of the Retired
                  Participant, and if 120 monthly installments have not been
                  paid prior to his death, shall continue thereafter to his
                  Beneficiary until the number of monthly installments paid to
                  him and his Beneficiary total 120.

            d)    Eligible Earnings shall mean a Participant's Total
                  Compensation excluding discretionary bonuses. For Plan Years
                  beginning after December 31, 1988 but before January 1, 1994,
                  an Employee's Compensation shall not exceed the limitation on
                  Earnings under Section 401(a)(17) of the Internal Revenue Code
                  (or such higher amount as may be determined by the Secretary
                  of the Treasury in accordance with Section 401(a)(17) of the
                  Internal Revenue Code to reflect increases in the cost of
                  living before January 1, 2002). For

                                                                             138
<PAGE>

                  Plan Years beginning on or after January 1, 1994, an
                  Employee's Compensation shall not exceed $150,000 (or such
                  higher amount as may be determined by the Secretary of the
                  Treasury in accordance with Section 401(a)(17) of the Internal
                  Revenue Code to reflect increases in the cost of living before
                  January 1, 2002).

            e)    Former Pearson Participant A Participant in the former Pearson
                  Plan who is credited with an Hour of Service after December
                  31, 1988.

            f)    Former Pearson Plan The Pearson Inc. Pension Plan (prior to
                  its merger with the Penguin Books USA Inc. Pension Plan and
                  the renaming of the merged plan) as amended through December
                  31, 1993.

            g)    Pension Compensation Base shall mean a Participant's Average
                  Monthly Eligible Earnings during his 60 highest-compensated
                  consecutive months of employment with the Employer within the
                  120 months immediately preceding his Normal Retirement Date,
                  Early Retirement Date or earliest termination of service;
                  provided, however, that if his longest period of consecutive
                  employment within such 120-month period consists of fewer than
                  60 months, the Pension Compensation Base shall be his Average
                  Monthly Earnings during his longest period of consecutive
                  employment within such 120 month period. For purposes of this
                  definition, Average Monthly Eligible Earnings, when used with
                  respect to any period, shall mean the total Eligible Earnings
                  received from the Employer during such period divided by the
                  number of months of paid employment in such period.

                  With respect to a determination of Average Annual Compensation
                  for any Plan Year beginning on or after December 31, 1988 but
                  before January 1, 1994, Compensation shall not exceed the
                  limitations on compensation under Section 401(a)(17) of the
                  Internal Revenue Code,(adjusted to reflect increases in the
                  cost of living before January 1, 2002).

            h)    Primary Social Security Benefit shall mean the amount of
                  monthly benefits which a Participant would be entitled to
                  receive as his "primary insurance amount" assuming: (a) that
                  he has made or will make appropriate application for such
                  benefit, (b) that no event occurs to delay or forfeit any part
                  of such benefit or (c) that if he dies or retires (except for
                  disability) before his Normal Retirement Date, he will
                  continue to receive until his Normal Retirement Date,
                  remuneration (which would be treated as taxable wages for
                  purposes of the Federal Social Security Act) at the same rate
                  as at the time of retirement or death. As used in this
                  Section, the term "primary insurance amount" shall have the
                  meaning ascribed to it in the Federal Social Security Act as
                  amended and in effect on the affected employee's date of
                  retirement, death, severance or Normal Retirement Date, as the
                  case may be. For purposes of computing the Participant's
                  primary insurance amount, the Participant's pre-separation or
                  preretirement compensation history shall be estimated by
                  applying a salary scale, projected backwards, to the

                                                                             139
<PAGE>

                  Participant's Total Compensation at separation or retirement,
                  where the salary scale is the actual change in the average
                  wages from year to year as determined by the Social Security
                  Administration. Future compensation will be estimated using
                  the same compensation earned by the Participant as of the date
                  of separation or retirement. The Participant has the right to
                  supply, within a reasonable time, his actual compensation
                  history, in which case such compensation history will be used
                  for the years in which it is supplied. Each Participant must
                  be notified of his rights to supply such information and the
                  consequences of doing so and failing to do so.

            i)    Total Compensation shall mean a Participant's total wages,
                  salaries and other amounts received for personal services
                  actually rendered in the course of employment with the
                  Employer, but excluding Employer contributions to this Plan or
                  any welfare or deferred compensation plan other than
                  compensation deferred at the Participant's election and
                  contributed to a plan meeting the requirements of Section
                  401(k) of the Code (provided such contribution is not taxable
                  when made to the Participant under the provisions of Section
                  401(k) of the Code), any benefits arising under this plan and
                  any deferred benefits otherwise provided to a Participant
                  (other than amounts received pursuant to an unfunded
                  nonqualified deferred compensation plan, which amounts shall
                  be included in the Plan Year in which they are included in the
                  income of the Participant), and any stock options or other
                  distributions which receive special tax treatment. For the
                  purpose of determining the amount of Total Compensation, the
                  books and records of the Employer shall be conclusive.

            j)    Computation Period. The applicable "Computation Period" for
                  crediting service under the Plan shall be the
                  12-consecutive-month period beginning with an Employee's
                  "Employment Commencement Date" or "Re-employment Commencement
                  Date", whichever is applicable, and the succeeding 12-
                  consecutive month periods beginning on the anniversaries of
                  his Employment Commencement Date or Re-employment Commencement
                  Date. The term "Employment Commencement Date" shall mean the
                  date on which an Employee first performs an Hour of Service
                  for the Employer. The term "Re-employment Commencement Date"
                  shall mean the first date on which an Employee completes an
                  Hour of Services for the Employer following the last
                  Computation Period in which a Break in Service occurred.

            k)    Years of Service.

                  (i)   General Rule. An Employee shall be credited with a Year
                        of Service for each Computation Period during which he
                        is credited with 1000 or more Hours of Service.

                  (ii)  Exceptions. For purposes of this Paragraph, all Years of
                        Service with the Employer shall be taken into account
                        except the following:

                        a.    In the case of any Employee who has a Break in
                              Service, Years of Service before such break shall
                              not be required to be

                                                                             140
<PAGE>

                        taken into account until such Employee has completed one
                        Year of Service subsequent to his Reemployment
                        Commencement Date. An Employee's Reemployment
                        Commencement Date shall be the first date on which the
                        Employee completes an Hour of Service following the last
                        Computation Period in which a Break in Service occurred.

                  b.    In the case of any Participant who has no nonforfeitable
                        right to any benefit derived from Employer contributions
                        hereunder, Years of Service with the Employer before a
                        period of consecutive Breaks in Service shall not be
                        required to be taken into account if the number of
                        consecutive Breaks in Service in such period equals or
                        exceeds the greater of (i) five or (ii) the aggregate
                        number of such Years of Service before such break. Such
                        aggregate number of Years of Service before such break
                        shall be deemed not to include any Years of Service not
                        required to be taken into account by reason of any prior
                        Break in Service. For purposes of this Subsection, the
                        Computation Periods used in computing the Years of
                        Service before such break shall be the Computation
                        Periods beginning at the Participant's Employment
                        Commencement Date.

                  c.    Years of Service before May 1, 1976, if such years of
                        Service would have been disregarded under the break in
                        service rules of the Plan as in effect prior to May 1,
                        1976, which rules provided that service must be
                        continuous with the Employer and that service of an
                        Employee whose employment by the Employer ceased and who
                        is later re-employed shall be computed from the most
                        recent date of re-employment.

                                                                             141
<PAGE>

2.    Retirement Benefits for Former Pearson Participants

      a)    Pension Commencing at Normal Retirement Date. A former Pearson
            Participant who retires on or after his Normal Retirement Date shall
            be entitled to receive the Basic Annual Pension provided for under
            this Section or an optional pension in accordance with Paragraph 3.
            The Basic Annual Pension payable to a Participant who retires at or
            after his Normal Retirement Date shall be equal to (i) plus (ii)
            minus (iii) where (i) is 2% of the Participant's Pension
            Compensation Base multiplied by his Years of Service not in excess
            of 20 Years, (ii) is 1.25% of the Participant's Pension Compensation
            Base multiplied by his Years of Service in excess of 20 Years, and
            (iii) is 1.25% of the Participant's Primary Social Security Benefit
            multiplied by his Years of Service not in excess of 40 Years.

      b)    Pension Commencing at Early Retirement Date. The Basic Annual
            Pension payable to a Participant who retires on his Early Retirement
            Date shall be equal to his Accrued Benefit, reduced according to the
            following rules: (i) the portion specified in Paragraph 2(a)(i) and
            2(a)(ii) shall be reduced by 3% for each year by which the
            Participant's Annuity Starting Date precedes his Normal Retirement
            Date, and (ii) the portion specified in Paragraph 2(b)(iii) shall be
            reduced by 1/15 for each of the first five years and by 1/30 for
            each of the next five years by which the Annuity Starting Date
            precedes his Normal Retirement Date.

      c)    Eligibility for Early Retirement after Termination of Employment. A
            Participant who terminates his service prior to satisfying the age
            requirement for early retirement set forth in Paragraph 1.21 shall
            be entitled upon satisfying such age requirement, by written notice
            to the Committee, to receive a pension benefit commencing upon his
            Early Retirement Date (or on the first day of any month thereafter,
            but no later than his Normal Retirement Date) equal to his Accrued
            Benefit, reduced by 1/15 for each of the first five years and by
            1/30 for each of the next five years by which the Annuity Starting
            Date precedes his Normal Retirement Date.

3.    Option Available. Subject to the provisions of Article 6, a Participant
      entitled to a pension hereunder may elect a pension which is the Actuarial
      Equivalent of his Basic Annual Pension accrued as of December 31, 1993,
      limited, however, to one of the following options:

      a)    A 60-month-certain option, which shall be a monthly pension payable
            for the life of the Participant, and, if 60 monthly installments
            have not been paid prior to his death, such monthly installments
            shall continue thereafter to his Beneficiary until the number of
            monthly installments paid to him and his Beneficiary total 60.

      b)    A life-only option, which shall be a pension payable for the life of
            a Participant only without guarantee of a minimum number of
            payments.

                                                                             142
<PAGE>

      c)    A Qualified Joint and Survivor Annuity. This option shall be
            automatic unless the Participant elects in writing not to receive
            his benefits in the form of a Qualified Joint and Survivor Annuity.
            Such election must be made within the period specified in Section
            6.9.

4.    Preretirement Death Benefits. In the event of the death of a Former
      Pearson Participant who meets the requirements for a Preretirement Death
      Benefit under Article 7, the amount to be paid to the Participant's spouse
      shall not be less than the amount that would be paid if his Accrued
      Benefit under this Appendix F were substituted for the benefit earned
      under this Plan without regard to Appendix F.

                                                                             143
<PAGE>

APPENDIX G

      Accrued Benefit under The District 65 Security Plan Pension Fund.

<TABLE>
<CAPTION>
                                                ACCRUED
                                                MONTHLY
EMPLOYEE                      SSN               BENEFIT
--------                      ---               -------
<S>                           <C>               <C>
</TABLE>

                                                                             144
<PAGE>

APPENDIX H

      Early Retirement Reduction Factors.

<TABLE>
<CAPTION>
  Age at Date on
which Distribution
    Commences                               Factor
------------------                          ------
<S>                                         <C>
         65                                 1.0000
         64                                  .9200
         63                                  .8400
         62                                  .7600
         61                                  .7000
         60                                  .6500
         59                                  .6100
         58                                  .5700
         57                                  .5400
         56                                  .5100
         55                                  .4800
</TABLE>

      If the distribution of the Participant's benefit occurs at a date other
than his birthday then his Early Retirement Reduction Factor shall be determined
by linearly interpolating to the appropriate retirement reduction factor for the
Participant's current age at the time of distribution (based on full years and
months completed) from the retirement factors corresponding to the Participant's
age at his last and next birthday.

                                                                             145

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