Document:

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                                                                  Exhibit 4.11

                  THE PEARSON INC. SAVINGS AND INVESTMENT PLAN

                         1999 AMENDMENT AND RESTATEMENT

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                  THE PEARSON INC. SAVINGS AND INVESTMENT PLAN

WHEREAS, Pearson Inc. (hereinafter referred to as the "Employer") heretofore
adopted The Pearson Inc. Savings and Investment Plan (hereinafter referred to as
the "Plan") for the benefit of its eligible Employees, effective as of November
1, 1985; and

WHEREAS, the Employer reserved the right to amend the Plan; and

WHEREAS, Simon & Schuster, a subsidiary of Pearson Education Inc., is a
participating employer under the Viacom Investment Plan (the "Viacom Plan"); and

WHEREAS, Invest Learning, a subsidiary of Pearson Education Inc., sponsors the
Invest Learning 401(k) Savings Plan (the "Invest Learning Plan"); and

WHEREAS, IRI/Skylight Publishing, Inc., a subsidiary of Pearson Education Inc.,
sponsors the IRI/Skylight Publishing, Inc. 401(k) Plan and Trust (the
"IRS/Skylight Plan"); and

WHEREAS, Educational Management Group, Inc., a subsidiary of Pearson Education
Inc., sponsors the Educational Management Group, Inc. Profit Sharing Plan and
Trust (the "EMG Plan"); and

WHEREAS, the Employer desires to merge the Viacom Plan (as adopted by Simon &
Schuster), the Invest Learning Plan, the IRI/Skylight Plan and the EMG Plan into
the Plan; and

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WHEREAS, the Employer wishes to amend the Plan to reflect the aforementioned
mergers, and to add or modify certain administrative provisions; and

WHEREAS, it is intended that the Plan is to continue to be a qualified plan
under Section 401(a) of the Internal Revenue Code for the exclusive benefit of
the Participants and their Beneficiaries;

NOW, THEREFORE, the Viacom Plan (as adopted by Simon & Schuster) is merged into
the Plan, effective as of November 27, 1998, the Invest Learning Plan and the
IRI/Skylight Plan are merged into the Plan effective as of March 1, 1999, the
EMG Plan is merged into the Plan effective as of April 1, 1999 and the Plan is
simultaneously amended by restating the Plan in its entirety, effective, except
as otherwise provided or as required by applicable law, as of January 1, 1999,
as follows:

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                                TABLE OF CONTENTS

ARTICLE ONE--DEFINITIONS

1.1      Account
1.2      Administrator
1.3      Beneficiary
1.4      Break in Service
1.5      Code
1.6      Compensation
1.7      Disability
1.8      Effective Date
1.9      Employee
1.10     Employer
1.11     Employment Date
1.12     Highly-Compensated Employee
1.13     Hour of Service
1.14     Leased Employee
1.15     Nonhighly-Compensated Employee
1.16     Normal Retirement Date
1.17     Participant
1.18     Plan
1.19     Plan Year
1.20     Trust
1.21     Trustee
1.22     Valuation Date
1.23     Year of Service

ARTICLE TWO--SERVICE DEFINITIONS AND RULES

2.1      Year of Eligibility Service
2.2      Year of Vesting Service
2.3      Break in Service
2.4      Maternity/Paternity Leave of Absence
2.5      Rule of Parity on Return to Employment
2.6      Service in Excluded Job Classifications or with Related Companies

ARTICLE THREE--PLAN PARTICIPATION

3.1      Participation
3.2      Re-employment of Former Participant
3.3      Termination of Eligibility
3.4      Compliance with USERRA

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ARTICLE FOUR--ELECTIVE DEFERRALS, EMPLOYER CONTRIBUTIONS, ROLLOVERS AND
              TRANSFERS FROM OTHER PLANS

4.1      Elective Deferrals
4.2      Employer Contributions
4.3      Rollovers and Transfers of Funds from Other Plans
4.4      Timing of Contributions

ARTICLE FIVE--ACCOUNTING RULES

5.1      Investment of Accounts and Accounting Rules
5.2      Participants Omitted in Error

ARTICLE SIX--VESTING, RETIREMENT AND DISABILITY BENEFITS

6.1      Vesting
6.2      Forfeiture of Nonvested Balance
6.3      Distribution of Less Than Entire Vested Account Balance
6.4      Normal Retirement
6.5      Disability

ARTICLE SEVEN--MANNER AND TIME OF DISTRIBUTING BENEFITS

7.1      Manner of Payment
7.2      Time of Commencement of Benefit Payments
7.3      Furnishing Information
7.4      Minimum Distribution Rules for Installment Payments
7.5      Joint and Survivor Annuity
7.6      Amount of Death Benefit
7.7      Designation of Beneficiary
7.8      Distribution of Death Benefits
7.9      Qualified Pre-retirement Survivor Annuity
7.10     Eligible Rollover Distributions

ARTICLE EIGHT--LOANS AND IN-SERVICE WITHDRAWALS

8.1      Loans
8.2      Hardship Distributions
8.3      Withdrawals After Age 59 1/2
8.4      Withdrawals of Pre-1989 Employer Contributions, Viking Penguin Account,
         Dun & Bradstreet Account and/or Putnam Berkley Savings Account
8.5      Withdrawals of Employer Matching Contributions from Putnam Berkley
         Savings Plan and the Viacom Plan
8.6      Withdrawals of Certain After-Tax Contributions
8.7      Withdrawals of Rollover Contributions
8.8      Withdrawals of Prentice-Hall Account

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ARTICLE NINE--ADMINISTRATION OF THE PLAN

9.1      Plan Administration
9.2      Claims Procedure
9.3      Trust Agreement

ARTICLE TEN--SPECIAL COMPLIANCE PROVISIONS

10.1     Distribution of Excess Deferral Amounts
10.2     Limitations on 401(k) Contributions
10.3     Nondiscrimination Test for Employer Matching Contributions
10.4     Limitation on the Multiple Use Alternative

ARTICLE ELEVEN--LIMITATION ON ANNUAL ADDITIONS

11.1     Rules and Definitions

ARTICLE TWELVE--AMENDMENT AND TERMINATION

12.1     Amendment
12.2     Termination of the Plan
12.3     Distribution Upon Sale or Disposition of Stock or Assets

ARTICLE THIRTEEN--TOP-HEAVY PROVISIONS

13.1     Applicability
13.2     Definitions
13.3     Allocation of Employer Contributions and Forfeitures for a Top-Heavy
         Plan Year
13.4     Vesting

ARTICLE FOURTEEN--MISCELLANEOUS PROVISIONS

14.1     Plan Does Not Affect Employment
14.2     Successor to the Employer
14.3     Repayments to the Employer
14.4     Benefits not Assignable
14.5     Merger of Plans
14.6     Investment Experience not a Forfeiture
14.7     Construction
14.8     Governing Documents
14.9     Governing Law
14.10    Headings
14.11    Counterparts
14.12    Location of Participant or Beneficiary Unknown

SCHEDULE A
APPENDIX A

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                           ARTICLE ONE -- DEFINITIONS

For purposes of the Plan, unless the context or an alternative definition
specified within another Article provides otherwise, the following words and
phrases shall have the definitions provided:

1.1      "ACCOUNT" shall mean the individual bookkeeping accounts maintained for
         a Participant under the Plan which shall record (a) the Participant's
         allocations of Employer contributions and forfeitures, (b) amounts of
         Compensation deferred to the Plan pursuant to the Participant's
         election, (c) any amounts transferred to this Plan under Section 4.3
         from another qualified retirement plan, (d) any amounts transferred
         from a plan in connection with the merger of such plan into this Plan
         and (e) the allocation of Trust investment experience.

1.2      "ADMINISTRATOR" shall mean the Plan Administrator appointed from time
         to time in accordance with the provisions of Article Nine hereof.

1.3      "BENEFICIARY" shall mean any person, trust, organization, or estate
         entitled to receive payment under the terms of the Plan upon the death
         of a Participant.

1.4      "BREAK IN SERVICE" shall have the meaning set forth in Article Two.

1.5      "CODE" shall mean the Internal Revenue Code of 1986, as amended from
         time to time.

1.6      "COMPENSATION" shall mean the gross compensation paid to a Participant
         by the Employer for the Plan Year, but exclusive of income derived from
         stock options, stock awards and long-term incentive plans, gifts,
         special stay or retention bonuses, sign on bonuses, short or long term
         disability payments, reimbursement of moving expenses, other amounts
         which are not includible in the Employee's income for federal income
         tax purposes, any program of deferred compensation or additional
         benefits payable other than in cash, and any compensation received
         prior to his becoming a Participant in the Plan. Compensation shall
         include any amounts deferred under a salary reduction agreement in
         accordance with Section 4.1 or under a Code Section 125 plan maintained
         by the Employer.

         In addition to other applicable limitations set forth in the Plan, and
         notwithstanding any other provision of the Plan to the contrary, the
         annual Compensation of each Participant taken into account under the
         Plan shall not exceed the OBRA '93 annual compensation limit. The OBRA
         '93 annual compensation limit is $150,000, as adjusted by the Secretary
         of the Treasury or his delegate for increases in the cost of living in
         accordance with Section 401(a)(17)(B) of the Code. The cost-of-living
         adjustment in effect for a calendar year applies to any period, not
         exceeding twelve (12) months, over which Compensation is determined
         (determination period) beginning in such calendar year. If a
         determination period consists of fewer than twelve (12) months, the
         OBRA '93 annual compensation limit shall be multiplied by a fraction,
         the numerator of which is the number of months in the determination
         period, and the denominator of which is twelve (12).

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         Any reference in the Plan to the limitation under Section 401(a)(17) of
         the Code shall mean the OBRA '93 annual compensation limit set forth in
         this provision.

         If Compensation for any prior determination period is taken into
         account in determining a Participant's benefits accruing in the current
         Plan Year, the Compensation for that prior determination period is
         subject to the OBRA '93 annual compensation limit in effect for that
         prior determination period.

         For purposes of determining who is a Highly-Compensated Employee,
         Compensation shall mean compensation as defined in Code Section
         414(q)(4).

1.7      "DISABILITY." Disability shall mean a "permanent and total" disability
         incurred by a Participant while in the employ of the Employer. For this
         purpose, a permanent and total disability shall mean suffering from a
         physical or mental condition which qualifies the Participant for
         benefits under the Employer's long-term disability plan. If the
         Employer does not sponsor such a plan, the Participant shall be deemed
         "permanently and totally disabled" if he suffers from a physical or
         mental condition which, in the opinion of the Administrator and based
         upon appropriate medical advice and examination, can be expected to
         result in death or can be expected to last for a continuous period of
         no less than twelve (12) months. The condition must have existed for a
         period of at least three (3) months and, in accordance with uniform and
         consistent rules, must be determined by the Administrator to prevent
         the Participant from engaging in substantial gainful activity. Receipt
         of a Social Security disability award shall be deemed proof of
         disability.

1.8      "EFFECTIVE DATE." The Plan's initial Effective Date is November 1,
         1985. The Effective Date of this restated Plan, on and after which it
         supersedes the terms of the existing Plan document, is January 1, 1999,
         except where the provisions of the Plan shall otherwise specifically
         provide. The rights of any Participant who separated from the
         Employer's Service prior to this date shall be established under the
         terms of the Plan and Trust as in effect at the time of the
         Participant's separation from Service, unless the Participant
         subsequently returns to Service with the Employer. Rights of spouses
         and Beneficiaries of such Participants shall also be governed by those
         documents.

1. 9     "EMPLOYEE" shall mean a common law employee of the Employer.

1.10     "EMPLOYER"- shall mean Pearson Inc. and any subsidiary or affiliate
         which is a member of its "related group" (as defined in Section 2.6)
         which has adopted the Plan (a "Participating Affiliate"), and shall
         include any successors) thereto which adopt this Plan. Any such
         subsidiary or affiliate of Pearson Inc. may adopt the Plan with the
         approval of its board of directors (or noncorporate counterpart)
         subject to the approval of Pearson Inc. The provisions of this Plan
         shall apply equally to each Participating Affiliate and its Employees
         except as specifically set forth in the Plan; provided, however,
         notwithstanding any other provision of this Plan, the amount and timing
         of contributions under Article 4 to be made by any Employer which is a
         Participating Affiliate shall be made subject to the approval of
         Pearson Inc. For purposes hereof, each Participating Affiliate shall be
         deemed to have appointed Pearson Inc. as its agent to act on its behalf
         in all matters relating to the administration,

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         amendment, termination of the Plan and the investment of the assets of
         the Plan. For purposes of the Code and ERISA, the Plan as maintained by
         Pearson Inc. and the Participating Affiliates shall constitute a single
         plan rather than a separate plan of each Participating Affiliate. All
         assets in the Trust shall be available to pay benefits to all
         Participants and their Beneficiaries.

1.11     "EMPLOYMENT DATE" shall mean the first date as of which an Employee is
         credited with an Hour of Service, provided that, in the case of a Break
         in Service, the Employment Date shall be the first date thereafter as
         of which an Employee is credited with an Hour of Service.

1.12     "HIGHLY-COMPENSATED EMPLOYEE" shall mean, effective for years beginning
         after December 31, 1996, any Employee of the Employer who:

         (a)      was a five percent (5%) owner of the Employer (as defined in
                  Code Section 416(i)(1)) during the "determination year" or
                  "look-back year"; or

         (b)      earned more than $80,000 (as increased by cost-of-living
                  adjustments) of Compensation from the Employer during the
                  "look-back year" and, if the Employer elects, was in the top
                  twenty percent (20%) of Employees by Compensation for such
                  year.

         An Employee who separated from Service prior to the "determination
         year" shall be treated as a Highly-Compensated Employee for the
         "determination year" if such Employee was a Highly-Compensated Employee
         when such Employee separated from Service, or was a Highly-Compensated
         Employee at any time after attaining age fifty-five (55).

         For purposes of this Section, the "determination year" shall be the
         Plan Year for which a determination is being made as to whether an
         Employee is a Highly-Compensated Employee. The "look-back year" shall
         be the twelve (12) month period immediately preceding the
         "determination year". Notwithstanding the foregoing and effective
         solely for the 1997 Plan Year, the Employer, pursuant to Notice 97-45,
         elected to utilize the calendar year calculation election.

         In determining whether an Employee is a Highly-Compensated Employee for
         the Plan Year beginning in 1997, the amendments to Section 414(q)
         stated above shall be treated as having been in effect for the Plan
         Year beginning in 1996.

1.13     "HOUR OF SERVICE" shall have the meaning set forth below:

         (a)      An Hour of Service for which an Employee is paid, or entitled
                  to payment, for the performance of duties for the Employer,
                  during the applicable computation period.

         (b)      An Hour of Service is each hour for which an Employee is paid,
                  or entitled to payment, by the Employer on account of a period
                  of time during which no duties are performed (irrespective of
                  whether the employment relationship has terminated) due to
                  vacation, holiday, illness, incapacity (including disability),
                  layoff, jury duty, military duty, or leave of absence.
                  Notwithstanding the preceding sentence,

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                  (i)      No more than five hundred and one (501) Hours of
                           Service shall be credited under this paragraph (b) to
                           any Employee on account of any single continuous
                           period during which the employee performs no duties
                           (whether or not such period occurs in a single
                           computation period);

                  (ii)     An hour for which an Employee is directly or
                           indirectly paid, or entitled to payment, on account
                           of a period during which no duties are performed
                           shall not be credited to the Employee if such payment
                           is made or due under a plan maintained solely for the
                           purpose of complying with applicable workmen's
                           compensation, or unemployment compensation or
                           disability insurance laws; and

                  (iii)    Hours of Service shall not be credited for a payment
                           which solely reimburses an Employee for medical or
                           medically related expenses incurred by the Employee.

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

         (c)      An Hour of Service is each hour for which back pay,
                  irrespective of mitigation of damages, is either awarded or
                  agreed to by the Employer. The same Hours of Service shall not
                  be credited both under paragraph (a) or paragraph (b), as the
                  case may be, and under this paragraph (c). Thus, for example,
                  an Employee who receives a back pay award following a
                  determination that he was paid at an unlawful rate for Hours
                  of Service previously credited shall not be entitled to
                  additional credit for the same Hours of Service. Crediting of
                  Hours of Service for back pay awarded or agreed to with
                  respect to periods described in paragraph (b) shall be subject
                  to the limitations set forth in that paragraph.

1.14     "LEASED EMPLOYEE" shall mean, effective January 1, 1997, any person
         who, pursuant to an agreement between the Employer and any other person
         or organization, has performed services for the Employer (determined in
         accordance with Code Section 414(n)(6)) on a substantially full-time
         basis for a period of at least one (1) year and where such services are
         performed under the primary direction and control of the Employer. A
         person shall not be considered a Leased Employee if the total number of
         Leased Employees does not exceed twenty percent (20%) of the
         Nonhighly-Compensated Employees employed by the Employer, and if any
         such person is covered by a money purchase pension plan providing (a) a
         nonintegrated employer contribution rate of at least ten percent (10%)
         of compensation, as defined in Section 11.1(b)(2) of the Plan but
         including amounts, contributed pursuant to a salary reduction agreement
         which are excludable from the employee's gross income under Code
         Sections 125, 402(g) or 403(b), (b) immediate participation, and (c)
         full and immediate vesting.

1.15     "NONHIGHLY-COMPENSATED EMPLOYEE" shall mean an Employee of the Employer
         who is not a Highly-Compensated Employee.

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1.16     "NORMAL RETIREMENT DATE" shall mean a Participant's sixty-fifth (65th)
         birthday, except with respect to: (i) a Participant who on December 31,
         1997 was participating in the Putnam Group, Inc. Employee Savings Plan,
         the term "Normal Retirement Date" shall mean the Participant's sixtieth
         (60th) birthday; or (ii) a Participant who on February 28, 1999 was
         participating in the Invest Learning 401(k) Savings Plan, the term
         "Normal Retirement Date" shall mean the Participant's sixtieth (60th)
         birthday; or (iii) a Participant who on March 31, 1999 was
         participating in the Educational Management Group, Inc. Profit Sharing
         Plan and Trust, the term "Normal Retirement Date" shall mean the first
         day of the month coincident with or next following the Participant's
         fifty-fifth (55th) birthday.

1.17     "PARTICIPANT" shall mean any Employee who has satisfied the eligibility
         requirements of Article Three and who is participating in the Plan.

1.18     "PLAN" shall mean The Pearson Inc. Savings and Investment Plan, as set
         forth herein and as may be amended from time to time.

1.19     "PLAN YEAR" shall mean the twelve (12)-consecutive month period
         beginning January 1 and ending December 31.

1.20     "TRUST" shall mean the Trust Agreement entered into between the
         Employer and the Trustee forming part of this Plan, together with any
         amendments thereto. "Trust Fund" shall mean any and all property held
         by the Trustee pursuant to the Trust Agreement, together with income
         therefrom.

1.21     "TRUSTEE" shall mean the Trustee or Trustees appointed by the Employer,
         and any successors thereto.

1.22     "VALUATION DATE" shall mean the date or dates established by the
         Administrator for the valuation of the assets of the Plan. In no event
         shall the assets of the Plan be valued less frequently than once each
         Plan Year.

1.23     "YEAR OF SERVICE" or "SERVICE" and the special rules with respect to
         crediting Service are in Article Two of the Plan.

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                  ARTICLE TWO -- SERVICE DEFINITIONS AND RULES

Service is the period of employment credited under the Plan. Definitions and
special rules related to Service are as follows:

2.1      YEAR OF ELIGIBILITY SERVICE. A "full-time Employee" of the Employer
         (that is, an Employee who customarily completes at least twenty (20)
         Hours of Service per week) shall be credited with a Year of Eligibility
         Service for each twelve (12)-month period commencing on his Employment
         Date (or re-employment date) and the twelve (12)-month anniversaries of
         that date and ending on the date a Break in Service begins. Any such
         Employee shall also receive credit for any Break in Service of less
         than twelve (12)-consecutive months. Fractional periods of a year shall
         be expressed in terms of days, with three hundred and sixty-five (365)
         days being equal to one (1) year.

         If any portion of a Participant's Account consists of amounts
         transferred from a plan in connection with the merger of such plan into
         this Plan, such Participant shall be credited with any prior "years of
         eligibility service" completed under such plan.

         Notwithstanding the foregoing provisions of this Section 2.1, the
         following provisions shall apply in determining an Employee's Years) of
         Eligibility Service and "Months of Service" (within the meaning of
         Section 3.1) below:

         (1)      Any periods of service completed with The Economist during
                  which Pearson Inc. holds any ownership interest in The
                  Economist shall be credited for purposes of determining an
                  Employee's eligibility to participate in the Plan.

         (2)      Any Employee who was employed by All American Communications,
                  Inc. as of the date of its acquisition by Pearson Inc. shall
                  be credited with any service for eligibility purposes credited
                  to him under the All American Communications, Inc. 401(k)
                  Profit Sharing Plan.

         (3)      Any Employee who was employed by Financial Times Management,
                  Inc. as of July 1, 1998 shall be credited with any service for
                  eligibility purposes credited to him while an employee of
                  International Business Education, Inc.

         (4)      Any Employee of Pearson Education Inc. who was employed by
                  Viacom, Inc. or any of its subsidiaries, as of November 27,
                  1998, shall be credited with any service for eligibility
                  purposes credited to him under the Viacom Investment Plan.

         (5)      Any Employee of Pearson Education, Inc. who was employed by
                  Invest Learning as of the date of its acquisition by Pearson
                  Inc. shall be credited with any service for eligibility
                  purposes credited to him under the Invest Learning 401(k)
                  Savings Plan.

         (6)      Any Employee of Pearson Education, Inc. who was employed by
                  IRI/Skylight Publishing, Inc. as of its date of acquisition by
                  Pearson Inc. shall be credited with any service for
                  eligibility purposes credited to him under the IRS/Skylight
                  Publishing, Inc. 401(k) Plan and Trust.

         (7)      Any Employee of Pearson Education Inc. who was employed by
                  Educational Management Group, Inc. as of its date of
                  acquisition by Pearson Inc. shall be credited with any service
                  for

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                  eligibility purposes credited to him under the Educational
                  Management Group, Inc. Profit Sharing Plan and Trust.

         (8)      Any Employee who was employed by Muller Data Corporation as of
                  its date of acquisition by Pearson Inc. shall be credited with
                  any service with Muller Data Corporation prior to the date of
                  acquisition in determining the Employee's Year(s) of
                  Eligibility Service.

2.2      YEAR OF VESTING SERVICE. An Employee shall be credited with a Year of
         Vesting Service for each twelve (12)-month period commencing on his
         Employment Date (or re-employment date) and the twelve (12)-month
         anniversaries of that date and ending on the date a Break in Service
         begins. An Employee shall also receive credit for any Break in Service
         of less than twelve (12)-consecutive months. Fractional periods of a
         year shall be expressed in terms of days, with three hundred and
         sixty-five (365) days being equal to one (1) year.

         If any portion of a Participant's Account consists of amounts
         transferred from a plan in connection with the merger of such plan into
         this Plan, such Participant shall be credited with any prior "years of
         vesting service" completed under such plan.

         Notwithstanding the foregoing provisions of this Section 2.2:

         (1)      Any periods of service with The Economist during which Pearson
                  Inc. holds any ownership interest in The Economist shall be
                  taken into account for purposes of determining an Employee's
                  Years of Vesting Service.

         (2)      Any Participant who was a participant in the Resource Data
                  International, Inc. 401(k) Profit Sharing Plan on March 31,
                  1998, the following shall apply in determining such
                  Participant's Years of Vesting Service: (a) such Participant's
                  Employment Date for purposes of the first paragraph of this
                  Section shall be deemed to be January 1, 1998, (b) any such
                  Participant shall be credited with any "years of service"
                  credited to him under the Resource Data International, Inc.
                  401(k) Profit Sharing Plan, and (c) any such Participant who
                  terminated employment with the Employer in the 1998 Plan Year
                  and who completed at least one-thousand (1,000) Hours of
                  Service during that Plan Year shall be credited with a Year of
                  Vesting Service.

         (3)      Any Participant who was employed by All American
                  Communications, Inc. as of the date of its acquisition by
                  Pearson Inc., shall be credited with any "years of service"
                  for vesting purposes credited to him under the All American
                  Communications, Inc. 401(k) Profit Sharing Plan.

         (4)      Any Employees employed by Financial Times Management, Inc. on
                  July 1, 1998 shall be credited with any prior service with
                  International Business Education, Inc. in determining such
                  Employee's Year(s) of Vesting Service.

         (5)      Any Employee of Pearson Education Inc. who was employed by
                  Viacom, Inc., or any of its subsidiaries, as of November 27,
                  1998 shall be credited with any "years of service" for vesting
                  purposes credited to him under the Viacom Investment Plan.

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         (6)      Any Employee of Pearson Education Inc. who was employed by
                  Invest Learning as of its date of acquisition by Pearson Inc.
                  shall be credited with any "years of service" for vesting
                  purposes credited to him under the Invest Learning 401(k)
                  Savings Plan.

         (7)      Any Employee of Pearson Education Inc. who was employed by
                  IRI/Skylight Publishing, Inc. as of its date of acquisition by
                  Pearson Inc. shall be credited with any "years of service" for
                  vesting purposes credited to him under the IRI/Skylight
                  Publishing, Inc. 401(k) Plan and Trust.

         (8)      Any Employee of Pearson Education Inc. who was employed by
                  Educational Management Group, Inc. as of its date of
                  acquisition by Pearson Inc. shall be credited with any "years
                  of service" for vesting purposes credited to him under the
                  Educational Management Group, Inc. Profit Sharing Plan and
                  Trust.

         (9)      Any Employee who was employed by Muller Data Corporation as of
                  its date of acquisition by Pearson Inc. shall be credited with
                  any service with Muller Data Corporation prior to the date of
                  acquisition in determining the Employee's Year(s) of Vesting
                  Service.

2.3      BREAK IN SERVICE. A Break in Service is a period of severance of at
         least (12)-consecutive months. For this purpose, a period of severance
         shall be a continuous period in which an Employee is not employed by
         the Employer. Such period shall begin on the date the Employee retires,
         quits, is discharged or dies or, if earlier, the twelve (12)-month
         anniversary of the date on which the Employee is absent from Service
         for any other reason.

2.4      MATERNITY/PATERNITY LEAVE OF ABSENCE. For any individual who is absent
         from work for any period by reason of the individual's pregnancy, birth
         of the individual's child, placement of a child with the individual in
         connection with the individual's adoption of the child, or by reason of
         the individual's caring for the child for a period beginning
         immediately following such birth or adoption, the twelve
         (12)-consecutive month period beginning on the first anniversary of the
         first date of such absence shall not constitute neither a Break in
         Service nor a Year of Eligibility or Vesting Service.

2.5      RULE OF PARITY ON RETURN TO EMPLOYMENT. An Employee who returns to
         employment after a Break in Service shall retain credit for his
         pre-Break Years of Service, subject to the following rules:

         (a)      If a Participant incurs five (5) or more consecutive one
                  (1)-year Breaks in Service, any Years of Vesting Service
                  performed thereafter shall not be used to increase the
                  nonforfeitable interest in his Account accrued prior to such
                  five (5) or more consecutive one (1)-year Breaks in Service.

         (b)      If when a Participant incurred a Break in Service, he had not
                  completed sufficient Years of Vesting Service to be credited
                  with a vested benefit under the schedule set forth in Section
                  6.1, his pre-Break Years of Vesting Service shall be
                  disregarded if his consecutive one (1)-year Breaks in Service
                  equal or exceed five (5).

                                       8
<PAGE>

2.6      SERVICE IN EXCLUDED JOB CLASSIFICATIONS OR WITH RELATED COMPANIES.

         (a)      SERVICE WHILE A MEMBER OF AN INELIGIBLE CLASSIFICATION OF
                  EMPLOYEES. An Employee who is a member of an ineligible
                  classification of Employees shall not be eligible to
                  participate in the Plan while a member of such ineligible
                  classification. However, if any such Employee is transferred
                  to an eligible classification, such Employee shall be credited
                  with any prior periods of Service completed while a member of
                  such an ineligible classification for purposes of determining
                  his Years of Eligibility Service under Section 2.1, his Years
                  of Vesting Service under Section 2.2 and his "Months of
                  Service" under Section 3.1. For this purpose, an Employee
                  shall be considered a member of an ineligible classification
                  of Employees for any period during which he is employed in a
                  job classification which is excluded from participating in the
                  Plan under Section 3.1 below.

         (b)      SERVICE WITH RELATED GROUP MEMBERS. Subject to Section 2.1,
                  for each Plan Year in which the Employer is a member of a
                  "related group", as hereinafter defined, all Service of an
                  Employee or Leased Employee (hereinafter collectively referred
                  to as "Employee" solely for purposes of this Section 2.6(b))
                  with any one or more members of such related group shall be
                  treated as employment by the Employer for purposes of
                  determining the Employee's Years of Eligibility Service under
                  Section 2.1, his Years of Vesting Service under Section 2.2
                  and his "Months of Service" under Section 3.1. The transfer of
                  employment by any such Employee to another member of the
                  related group shall not be deemed to constitute a retirement
                  or other termination of employment by the Employee for
                  purposes of this Section, but the Employee shall be deemed to
                  have continued in employment with the Employer for purposes of
                  determining the Employee's Years of Eligibility and Vesting
                  Service and his "Months of Service". For purposes of this
                  subsection (b), "related group" shall mean the Employer and
                  all corporations, trades or businesses (whether or not
                  incorporated) which constitute a controlled group of
                  corporations with the Employer, a group of trades or
                  businesses under common control with the Employer, or an
                  affiliated service group which includes the Employer, within
                  the meaning of Section 414(b), Section 414(c), or Section
                  414(m), respectively, of the Code or any other entity required
                  to be aggregated under Code Section 414(o).

         (c)      CONSTRUCTION. This Section is included in the Plan to comply
                  with the Code provisions regarding the crediting of Service,
                  and not to extend any additional rights to Employees in
                  ineligible classifications other than as required by the Code
                  and regulations thereunder.

                                       9
<PAGE>

                       ARTICLE: THREE--PLAN PARTICIPATION

3.1      PARTICIPATION. All Employees participating in the Plan prior to the
         Plan's restatement shall continue to participate, subject to the terms
         hereof.

         Each other Employee shall be eligible to become a Participant under the
         Plan (for purposes of making elective deferrals, pursuant to Section
         4.1, and being eligible to receive an Employer matching contribution,
         pursuant to Section 4.2(a)), effective as of the January 1, April 1,
         July 1, or October 1 coincident with or next following the Employee's
         completion of three (3) Months of Service. For purposes of this Section
         3.1, an Employee shall be credited with three (3) Months of Service for
         each three (3) consecutive month period commencing on his Employment
         Date and the three (3)-month anniversaries of that date and ending on
         the date he separates from Service for any reason; provided, however,
         that if a Participant separates from Service and subsequently returns
         prior to incurring a Break in Service, such period of absence shall be
         credited as Service in determining such Employee's eligibility to
         participate in the Plan.

         Any such Employee shall become a Participant under the Plan (for
         purposes of sharing in additional Employer contributions pursuant to
         Section 4.2(c)) effective as of the January 1, April 1, July 1, or
         October 1 coincident with or next following the Employee's completion
         of one (1) Year of Eligibility Service.

         In no event, however, shall any Employee participate under the Plan
         while he: (i) is included as a member of a labor union or guild or
         included as a unit of Employees covered by a collective bargaining
         agreement between the Employer and the Employee representatives under
         which retirement benefits were the subject of good faith bargaining,
         unless the terms of such bargaining expressly provides for the
         inclusion in the Plan; (ii) was a director of the Berkley Group, Inc.
         on March 7, 1968; (iii) is employed as an independent contractor on the
         payroll records of the Employer (regardless of any subsequent
         reclassification by the Employer, any governmental agency or court);
         (iv) is employed as a Leased Employee; (v) is employed as a nonresident
         alien who receives no earned income (within the meaning of Section
         911(d)(2) of the Code) from the Employer which constitutes income from
         sources within the United States (within the meaning of Section
         861(a)(3) of the Code); or (vi) employed in a job classification where
         the customary period of employment is less than one thousand (1,000)
         hours during a twelve (12)-month computation period as defined in the
         next paragraph; and provided the Employee's period of employment is
         less than one thousand (1,000) hours during said computation period.

         Notwithstanding the foregoing provisions, any Employee described in
         paragraph (vi) above who completes one thousand (1,000) or more Hours
         of Service during the twelve (12)-month computation period beginning on
         his initial Employment Date or on the first day of any Plan Year
         commencing thereafter shall be deemed to have: satisfied the
         participation requirements of the Plan.

         Notwithstanding the foregoing provisions:

         (1)      All Employees participating in the Putnam Berkley Group, Inc.
                  Employee Savings Plan and/or the Putnam Berkley Group, Inc.
                  Profit Sharing Retirement Plan on December 31, 1997, whose
                  accounts thereunder were transferred to the Plan in connection
                  with the merger of such plans on January 1, 1998, shall become
                  a Participant in the Plan as of January 1, 1998.

                                       10
<PAGE>

         (2)      All Employees participating in the Resource Data
                  International, Inc. 401(k) Profit Sharing Plan on March 31,
                  1998, whose accounts thereunder were transferred to the Plan
                  in connection with the merger of such plan on April 1, 1998,
                  shall become a Participant in the Plan as of April 1, 1998.

         (3)      All Employees participating in the All American
                  Communications, Inc. 401(k) Savings Plan on May 31, 1998,
                  whose accounts thereunder were transferred to the Plan in
                  connection with the merger of such plans on June 1, 1998,
                  shall become a Participant in the Plan as of June 1, 1998.

         (4)      Any Employee of Pearson Education Inc. who was a participant
                  in the Viacom Investment Plan on November 27, 1998, shall
                  become a Participant in the Plan as of November 30, 1998.

         (5)      Any Employee of Pearson Education Inc. who was a participant
                  in the Invest Learning 401(k) Savings Plan on November 27,
                  1998, shall become a Participant in the Plan as of January 1,
                  1999.

         (6)      Any Employee of Pearson Education Inc. who was a participant
                  in the Educational Management Group, Inc. Profit Sharing Plan
                  and Trust on November 27, 1998, shall become a Participant in
                  the Plan as of January 1, 1999.

3.2      RE-EMPLOYMENT OF FORMER PARTICIPANT. A vested Participant (or a
         nonvested Participant whose prior Service cannot be disregarded) whose
         participation ceased because of termination of employment with the
         Employer shall resume participation upon his re-employment; provided,
         however, that such an individual shall be entitled to commence elective
         deferrals as soon as administratively possible following his return to
         participation in the Plan.

3.3      TERMINATION OF ELIGIBILITY. In the event a Participant is no longer a
         member of an eligible class of Employees and he becomes ineligible to
         participate, such Employee shall resume participation upon his return
         to an eligible class of Employees; provided, however, that such an
         individual shall be entitled to commence elective deferrals as soon as
         administratively possible following his return to participation in the
         Plan.

         In the event an Employee who is not a member of an eligible class of
         Employees becomes a member of an eligible class, such Employee shall
         participate upon becoming a member of an eligible class of Employees,
         if such Employee has satisfied the eligibility requirements of Section
         3.1 and would have otherwise previously become a Participant; provided,
         however, that such an individual shall be entitled to commence elective
         deferrals as soon as administratively possible following his return to
         participation in the Plan.

3.4      COMPLIANCE WITH USERRA. Notwithstanding any provision of this Plan to
         the contrary, for reemployments on or after December 12, 1994,
         Participants shall receive service credit and be eligible to make
         deferrals and receive Employer contributions with respect to periods of
         qualified military service (within the meaning of Section 414(u)(5) of
         the Code) in accordance with Section 414(u) of the Code.

                                       11
<PAGE>

            ARTICLE FOUR--ELECTIVE DEFERRALS, EMPLOYER CONTRIBUTIONS,
                    ROLLOVERS AND TRANSFERS FROM OTHER PLANS

4.1      ELECTIVE DEFERRALS.

         (a)      ELECTIONS. A Participant may elect to defer a portion of his
                  Compensation for a Plan Year. The amount of a Participant's
                  Compensation that is deferred in accordance with the
                  Participant's election shall be withheld by the Employer from
                  the Participant's Compensation on a ratable basis throughout
                  the Plan Year. The amount deferred on behalf of each
                  Participant shall be contributed by the Employer to the Plan
                  and allocated to the Participant's Account.

         (b)      CHANGES IN ELECTION. A Participant may prospectively elect to
                  change or revoke the amount (or percentage) of his elective
                  deferrals during the Plan Year by filing a written election
                  with the Employer, or via such other method as permitted by
                  applicable law.

         (c)      LIMITATIONS ON DEFERRALS. No Participant shall defer on a
                  pre-tax basis an amount which exceeds the lesser of (i)
                  sixteen percent (16%) of his Compensation (or for Participants
                  employed by Addison-Wesley Iberoamericana in Puerto Rico, ten
                  percent (10%) of Compensation) for the applicable Plan Year;
                  or (ii) $10,000 (or such amount as adjusted for cost-of-living
                  increases under Section 402(g) of the Code) for any calendar
                  year ending with or within the Plan Year; provided, however,
                  that for Participants employed by Addison-Wesley
                  Iberoamericana in Puerto Rico, the applicable dollar
                  limitation shall equal $7,000 (as adjusted by applicable law)
                  and shall not be subject to adjustment under Section 402(g) of
                  the Code.

         (d)      ADMINISTRATIVE RULES. All elections made under this Section
                  4.1, including the amount and frequency of deferrals, shall be
                  subject to the rules of the Administrator which shall be
                  consistently applied and which may be changed from time to
                  time.

         (e)      NO AFTER-TAX CONTRIBUTIONS. In no event shall a Participant be
                  permitted to make after-tax contributions to the Plan.

4.2      EMPLOYER CONTRIBUTIONS.

         (a)      SUBSIDIARY CONTRIBUTIONS. The board of directors of Pearson
                  Inc. shall determine the amount, if any, that the Employers
                  shall contribute on behalf of the respective Participants in
                  each participating Subsidiary (as identified on Schedule A
                  annexed hereto). In this regard, the rate of matching
                  contribution under subsection (b) below, if any, and the
                  additional Employer contribution under subsection (c) below,
                  if any, may vary among the participating Subsidiaries.

         (b)      EMPLOYER MATCHING CONTRIBUTIONS. Subject to subsection (a)
                  above, each calendar month, the Employer shall contribute to
                  the Plan, for the behalf of each eligible Participant, a
                  discretionary matching contribution equal to a percentage (as
                  determined by the Employer's board of directors) of such
                  Participant's elective deferrals for such period. The rate of
                  matching contribution, in effect from time to time, for each
                  participating Subsidiary, shall be set forth under Schedule A
                  annexed hereto. The Employer's board of directors may also
                  determine to

                                       12
<PAGE>

                  suspend or reduce its contributions under this Section for any
                  Plan Year or any portion thereof. Allocations under this
                  Section shall be subject to the special rules of Section 13.3
                  in any Plan Year in which the Plan is a Top-Heavy Plan (as
                  defined in Section 13.2(c)).

                  Notwithstanding the foregoing provisions of this Section
                  4.2(b), if a Participant is no longer eligible to make
                  elective deferrals to the Plan during the Plan Year solely as
                  a result of having his elective deferrals reach the maximum
                  amount set out in Section 4.1(c), such Participant shall be
                  entitled to receive a supplemental matching contribution to
                  the extent required to ensure that such Participant receives
                  the same rate of matching contribution for the Plan Year as
                  any other Participant employed by the same Subsidiary and with
                  the same rate of elective deferrals for such Plan Year. The
                  supplemental matching contributions received by any such
                  Participants for the Plan Year shall, however, be limited to
                  the extent required to comply with the requirements of
                  applicable Federal law. To be eligible for this supplemental
                  matching contribution, the Participant must be employed by the
                  applicable Subsidiary on the last day of the period for which
                  the supplemental matching contribution allocation is made;
                  provided, however, that if the Participant's failure to be
                  employed on the last day of such period is due to the
                  Participant's being on an authorized leave: of absence,
                  Disability, death or retirement on or after his Normal
                  Retirement Date during the Plan Year, such Participant shall
                  nevertheless be entitled to share in the allocation of any
                  such supplemental matching contributions for the balance of
                  the Plan Year.

         (c)      ADDITIONAL EMPLOYER CONTRIBUTIONS. Additional Employer
                  contributions may be made at the discretion of the Employer's
                  board of directors for any Plan Year, subject to limits for
                  tax deductions under the Code and provided that the special
                  allocation in Section 13.3 has been satisfied if the Plan is a
                  Top-Heavy Plan (as defined in Section 13.2(c)).

         (d)      ALLOCATION FOR ADDITIONAL EMPLOYER CONTRIBUTIONS. To be
                  eligible for an allocation of additional Employer
                  contributions under Section 4.2(c) for a Plan Year, a
                  Participant must be employed by the Employer on the last day
                  of the Plan Year; provided, however, that if the Participant's
                  failure to be employed on the last day of the Plan Year is due
                  to the Participant's death, Disability or retirement on or
                  after his Normal Retirement Date during such Plan Year, such
                  Participant shall nevertheless be entitled to share in the
                  allocation of any additional Employer contributions for such
                  Plan Year.

         (e)      ALLOCATION OF ADDITIONAL EMPLOYER CONTRIBUTIONS. Any
                  contribution made under Section 4.2(c) shall be allocated
                  among the Accounts of eligible Participants in accordance with
                  the ratio that each such eligible Participant's Compensation
                  bears to the total Compensation of all such eligible
                  Participants for the Plan Year.

         (e)      Notwithstanding anything herein to the contrary, in any
                  situation where the exclusion of certain Participants from
                  receiving an allocation of any additional Employer
                  contributions hereunder would result in the Plan failing to
                  satisfy minimum coverage requirements under applicable
                  provisions of the Code or Income Tax Regulations, then the
                  following shall apply:

                  (1)      Such affected Non-Highly Compensated Participants
                           shall receive an allocation of additional Employer
                           contributions in order of priority based upon such
                           Participant's date of termination with the Employer
                           ("Termination Date") during the Plan Year, so that an
                           individual Non-Highly Compensated Employee
                           Participant with the most recent

                                       13
<PAGE>

                           Termination Date during the Plan Year shall be first
                           deemed an eligible Participant, and so on, until the
                           ratio of Non-Highly Compensated Employee Participants
                           who receive an allocation of additional Employer
                           contributions is at least seventy percent (70%) of
                           the percent of Highly-Compensated Employee
                           Participants who receive such allocation.

                  (2)      If two individuals referred to in subsection (1) have
                           the same Termination Date, then they shall be deemed
                           eligible Participants in order of a priority based
                           upon the earliest Employment Date with the Employer.

4.3      ROLLOVERS AND TRANSFERS OF FUNDS FROM OTHER PLANS. With the approval of
         the Administrator, there may be paid to the Trustee amounts which have
         been held under other plans qualified under Code Section 401 either (a)
         maintained by the Employer which have been discontinued or terminated
         with respect to any Employee, or (b) maintained by another employer
         with respect to which any Employee has ceased to participate. Any such
         transfer or rollover may also be made by means of an Individual
         Retirement Account qualified under Section 408 of the Code, where the
         Individual Retirement Account was used as a conduit from the former
         plan. Any amounts so transferred on behalf of any Employee shall be
         nonforfeitable and shall be maintained under a separate Plan account,
         to be paid in addition to amounts otherwise payable under this Plan.
         The amount of any such account shall be equal to the fair market value
         of such account as adjusted for income, expenses, gains, losses, and
         withdrawals attributable thereto.

         An Employee who would otherwise be eligible to participate in the Plan
         but for the failure to satisfy the service requirements for
         participation as set forth under Section 3.1, shall be eligible to
         complete a rollover to the Plan. Such an Employee shall also be
         eligible to obtain a loan or withdrawal in accordance with the
         provisions of Article Eight prior to satisfying such service
         requirements.

4.4      TIMING OF CONTRIBUTIONS. Employer contributions shall be made to the
         Plan no later than the time prescribed by law for filing the Employer's
         Federal income tax return (including extensions) for its taxable year
         ending with or within the Plan Year. Elective deferrals under Section
         4.1 shall be paid to the Plan as soon as administratively possible, but
         no later than the fifteenth (15th) business day of the month following
         the month in which such deferrals would have been payable to the
         Participant in cash, or such later date as permitted or prescribed by
         the Department of Labor.

                                       14
<PAGE>

                         ARTICLE FIVE--ACCOUNTING RULES

5.1      INVESTMENT OF ACCOUNTS AND ACCOUNTING RULES.

         (a)      INVESTMENT FUNDS. The investment of Participants' Accounts
                  shall be made in a manner consistent with the provisions of
                  the Trust. The Administrator, in its discretion, may allow the
                  Trust to provide for separate funds for the directed
                  investment of each Participant's Account.

         (b)      PARTICIPANT DIRECTION OF INVESTMENTS. In the event
                  Participants' Accounts are subject to their investment
                  direction, each Participant may direct how his Account is to
                  be invested among the available investment funds in the
                  percentage multiples established by the Administrator. In the
                  event a Participant fails to make an investment election, with
                  respect to all or any portion of his Account subject to his
                  investment direction, the Trustee shall invest all or such
                  portion of his Account in the investment fund to be designated
                  by the Administrator. A Participant may change his investment
                  election, with respect to future contributions and, if
                  applicable, forfeitures, and/or amounts previously accumulated
                  in the Participant's Account in accordance with procedures
                  established by the Administrator. Any such change in a
                  Participant's investment election shall be effective at such
                  time as may be prescribed by the Administrator. If the Plan's
                  recordkeeper or investments are changed, the Administrator may
                  apply such administrative rules and procedures as are
                  necessary to provide for the transfer of records and/or
                  assets, including without limitation, the suspension of
                  Participant's investment directions, withdrawals and
                  distributions for such period of time as is necessary, and the
                  transfer of Participants' Accounts to designated funds or an
                  interest bearing account until such change has been completed.

         (c)      ALLOCATION OF INVESTMENT EXPERIENCE. As of each Valuation
                  Date, the investment fund(s) of the Trust shall be valued at
                  fair market value, and the income, loss, appreciation and
                  depreciation (realized and unrealized), and any paid expenses
                  of the Trust attributable to such fund shall be apportioned
                  among Participants Accounts within the fund based upon the
                  value of each Account within the fund as of the preceding
                  Valuation Date.

         (d)      ELIGIBILITY OF CONTRIBUTIONS. Employer contributions shall be
                  allocated to the Account of each eligible Participant as of
                  the last day of the period for which the contributions are
                  made. Forfeitures which arise in a Plan Year shall be
                  allocated as of the last day of such Plan Year, or as soon as
                  administratively possible thereafter.

         (e)      MANNER AND TIME OF DEBITING DISTRIBUTIONS. For any Participant
                  who is entitled to receive a distribution from his Account,
                  such distribution shall be made in accordance with the
                  provisions of Section 7.2. The amount distributed shall be
                  based upon the fair market value of the Participant's vested
                  Account as of the Valuation Date preceding the distribution,.

5.2      PARTICIPANTS OMITTED IN ERROR. In the event a Participant is not
         allocated a share of the Employer contribution and/or forfeitures as a
         result of an administrative error in any Plan Year, the Employer may
         elect to either (a) make an additional contribution on behalf of such
         omitted Participant in an appropriate amount, or (b) deduct the
         appropriate amount from the next succeeding

                                       15
<PAGE>

         Employer contribution and/or forfeitures and allocate such amount to
         the Participant's Account prior to making the allocations set forth
         under Section 5.1(d).

                                       16
<PAGE>

            ARTICLE SIX--VESTING. RETIREMENT AND DISABILITY BENEFITS

6.1      VESTING. A Participant shall at all times have a nonforfeitable
         (vested) right to his Account derived from elective deferrals, any
         "after-tax" contributions made to any plan which was subsequently
         merged hereunder, any amounts transferred from the Harpercollins
         Retirement Account and 401(k) Tax-Deferred Savings Plan, the ACI 401(k)
         Retirement Plan, the Profit Participation Plan of The Dun & Bradstreet
         Corporation, the Strategic Simulations Inc. 401(k) Plan, the Micrologic
         Software Inc. Profit Sharing Plan, the Software Toolworks Inc.
         Retirement Plan, the Viking Penguin Inc. Supplemental Savings Plan, the
         All American Communications, Inc. 401(k) Savings Plan, the Viacom
         Investment Plan, the Invest Learning 401(k) Savings Plan, the
         IRI/Skylight Publishing, Inc. 401(k) Plan and Trust, the Educational
         Management Group, Inc. Profit Sharing Plan and Trust in connection with
         the merger of such plan(s), any Employer "fail-safe" contributions
         under Section 10.2, and any rollovers or transfers from other plans, as
         adjusted for investment experience. Except as otherwise provided with
         respect to Normal Retirement, Disability, or death, a Participant shall
         have a nonforfeitable (vested) right to a percentage of the value of
         his Account derived from any Employer matching contributions under
         Section 4.2(a) and/or additional Employer contributions under Section
         4.2(c) as follows:

                          YEARS OF VESTING SERVICE          VESTED PERCENTAGE

                          LESS THAN 1 YEAR                          0%
                          1 YEAR BUT LESS THAN 2               33-1/3%
                          2 YEARS BUT LESS THAN 3              66-2/3%
                          3 YEARS AND THEREAFTER                  100%

         Notwithstanding the foregoing, except as otherwise provided with
         respect to Normal Retirement, Disability or death, a Participant shall
         have a nonforfeitable (vested) right to a percentage of the value of
         his Account derived from any profit sharing contributions transferred
         from the Putnam Berkley Group, Inc. Profit Sharing Retirement Plan in
         connection with the merger of such plan, as follows:

                           YEARS OF VESTING SERVICE          VESTED PERCENTAGE

                           Less than 3 years                         0%
                           3 YEARS BUT LESS THAN 4                  20%
                           4 YEARS BUT LESS THAN 5                  40%
                           5 YEARS AND THEREAFTER                  100%

6.2      FORFEITURE OF NONVESTED BALANCE. The nonvested portion of a
         Participant's Account, as determined in accordance with Section 6.1,
         shall be forfeited as of the earlier of (i) as soon as administratively
         practical following the date on which the Participant receives
         distribution of his vested Account, or (ii) as soon as administratively
         practical after the last day of the Plan Year in which the Participant
         incurs five (5) consecutive one (1)-year Breaks in Service. However, no
         forfeiture shall occur solely as a result of a Participant's withdrawal
         of any after-tax contributions pursuant to Section

                                       17
<PAGE>

         8.6. The amount forfeited shall be used to pay Plan expenses and/or
         used to reduce Employer contributions under Section 4.2(a)/4.2(b).

         If the Participant returns to the employment of the Employer prior to
         incurring five (5) consecutive one (1)-year Breaks in Service, and
         prior to receiving distribution of his vested Account, the nonvested
         portion shall be restored. However, if the nonvested portion of the
         Participant's Account was allocated as a forfeiture as the result of
         the Participant receiving distribution of his vested Account balance,
         the nonvested portion shall be restored if

         (a)      the Participant resumes employment prior to incurring five (5)
                  consecutive one (1)-year Breaks in Service; and

         (b)      the Participant repays to the Plan, as of the earlier of (i)
                  the date which is five (5) years after his reemployment date
                  or (ii) the date which is the last day of the period in which
                  the Participant incurs five (5) consecutive one (1)-year
                  Breaks in Service, an amount equal to the total distribution
                  derived from Employer contributions under Section 4.2 and, if
                  applicable, Section 13.3.

         The nonvested amount shall be restored to the Participant's Account,
         without interest or adjustment for interim Trust valuation experience,
         by a special Employer contribution or from the next succeeding Employer
         contribution and forfeitures, as appropriate.

6.3      DISTRIBUTION OF LESS THAN ENTIRE VESTED ACCOUNT BALANCE. If a
         distribution (including a withdrawal) of any portion of a Participant's
         Account is made to the Participant at a time when he has a vested
         percentage in such Account equal to less than one-hundred percent
         (100%), a separate record shall be maintained of said Account balance.
         The Participant's vested interest at any time in this separate account
         shall be an amount equal to the formula P(AB+D)-D, where P is the
         vested percentage at the relevant time, AB is the Account balance at
         the relevant time, and D is the amount of the distribution (or
         withdrawal) made to the Participant.

6.4      NORMAL RETIREMENT. A Participant who is in the employment of the
         Employer at his Normal Retirement Date shall have a nonforfeitable
         interest in one hundred percent (100%) of his Account, if not otherwise
         one hundred percent (100%) vested under the vesting schedule in Section
         6.1. A Participant who continues employment with the Employer after his
         Normal Retirement Date shall continue to participate under the Plan.

6.5      DISABILITY. If a Participant incurs a Disability, the Participant shall
         have a nonforfeitable interest in one hundred percent (100%) of his
         Account, if not otherwise one hundred percent (100%) vested under the
         vesting schedule in Section 6.1. Payment of such Participant's Account
         balance shall be made at the time and in the manner specified in
         Article Seven, following receipt by the Administrator of the
         Participant's written distribution request.

                                       18
<PAGE>

             ARTICLE SEVEN--MANNER AND TIME OF DISTRIBUTING BENEFITS

7.1      MANNER OF PAYMENT. The Participant's vested Account shall be
         distributed to the Participant (or to the Participant's Beneficiary in
         the event of the Participant's death) by either of the following
         methods as elected by the Participant or, when applicable, the
         Participant's Beneficiary, unless a grandfathered distribution option
         under Appendix A hereunder applies to the Participant or Participant's
         Beneficiary:

         (a)      in a single lump-sum cash payment; or

         (b)      provided the Participant's vested account exceeds $3,500, in
                  periodic installments (at least annual), subject to the
                  minimum distribution rules of Section 7.4.

7.2      TIME OF COMMENCEMENT OF BENEFIT PAYMENTS. Subject to the following
         provisions of this Section, distribution of the Participant's vested
         Account shall be made or commence no later than the sixtieth (60) day
         after the later of the close of the Plan Year in which: (a) the
         Participant attains age sixty-five (65) (or Normal Retirement Date, if
         earlier) or (b) the date the Participant terminates Service with the
         Employer.

         Notwithstanding any provision contained herein to the contrary, a
         Participant who is not vested in any portion of his Account balance
         attributable to Employer contributions shall be deemed to have received
         distribution of such portion of his Account as of the end of the Plan
         Year following the Plan Year in which he separates from Service.

         For years beginning after December 31, 1996, in no event shall
         distribution of the Participant's vested Account be made or commence
         later than the April 1st following the end of the calendar year in
         which the Participant attains age seventy and one-half (7011/z), or,
         except for a Participant who is a five percent (5%) owner of the
         Employer (within the meaning of Section 401(a)(9) of the Code), if
         later, the April 1st following the calendar year in which the
         Participant retires or otherwise separates from Service.
         Notwithstanding the foregoing, the provisions of this paragraph shall
         be subject to any prior election complying with the provisions of
         Section 242(b) of TEFRA. In addition, any Participant attaining age
         seventy and one-half (70 1/2) prior to January 1, 1999 may elect to
         receive distribution of his vested Account in accordance with the
         provisions of this Article Seven.

7.3      FURNISHING INFORMATION. Prior to the payment of any benefit under the
         Plan, each Participant or Beneficiary may be required to complete such
         administrative forms and furnish such proof as may be deemed necessary
         or appropriate by the Employer, Administrator, and/or Trustee.

7.4      MINIMUM DISTRIBUTION RULES FOR INSTALLMENT PAYMENTS. Subject to any
         limitations set forth in Appendix A, if a distribution is made in
         installments, the following rules shall apply:

         (a)      PAYMENTS TO PARTICIPANT OR TO PARTICIPANT AND SURVIVING
                  SPOUSE. Payment shall commence no later than a date provided
                  for in Section 7.2. The amount to be distributed each year
                  shall be equal

                                       19
<PAGE>

                  to the vested balance in the Participant's Account as of the
                  preceding Valuation Date multiplied by the following fraction:
                  the numerator shall be one (1) and the denominator shall be
                  twenty (20) or, if less, the life expectancy of the
                  Participant (or the joint life expectancies of the Participant
                  and the Participant's spouse) determined as of the Valuation
                  Date preceding the first payment and reduced by one for each
                  succeeding year.

         (b)      PAYMENTS TO PARTICIPANT AND NON-SPOUSE BENEFICIARY. Payment
                  shall commence no later than a date provided for in Section
                  7.2. The amount to be distributed each year shall be equal to
                  the vested balance in the Participant's Account as of the
                  preceding Valuation Date multiplied by the following fraction:
                  the numerator shall be one (1) and the denominator shall be
                  twenty (20) or, if less, the joint life expectancies of the
                  Participant and the Participant's Beneficiary computed as of
                  the Valuation Date preceding the first payment and reduced by
                  one (1) for each succeeding year. Payments shall be restricted
                  under this option to insure compliance with the minimum
                  distribution incidental death benefit requirement of Section
                  401(a)(9) of the Code and the regulations promulgated
                  thereunder.

         (c)      PAYMENTS TO BENEFICIARY. Payment shall commence no later than
                  a date provided for in Section 7.8. The amount to be
                  distributed each year shall be at least equal to the vested
                  balance in the Participant's Account as of the preceding
                  Valuation Date multiplied by the following fraction: the
                  numerator shall be one (1) and the denominator shall be twenty
                  (20) or, if less, the life expectancy of the Participant's
                  Beneficiary computed as of the Valuation Date preceding the
                  first payment and reduced by one (1) for each succeeding year.

         (d)      RECALCULATION OF LIFE EXPECTANCY. If distribution is to be
                  made over the life expectancy of the Participant or, where the
                  Participant's spouse is his Beneficiary, the life expectancy
                  of the Participant's surviving spouse, or the joint life
                  expectancies of the Participant and his spouse, such life
                  expectancies shall not be recalculated, unless the Participant
                  or his surviving spouse, as the case may be, affirmatively
                  elects. Any such election shall be irrevocable as to the
                  Participant (and spouse, if applicable) and shall apply to all
                  subsequent years. In no event, however, shall the life
                  expectancy of a non-spouse Beneficiary be recalculated.

         (e)      PRIOR ELECTION. Notwithstanding the requirements of this
                  Section and Section 7.2, any distributions made in accordance
                  with a written election by the Participant or the
                  Participant's Beneficiary before January 1, 1984 may be made
                  or may continue to be made under the provisions of such
                  election, provided such method of distribution would not have
                  disqualified the Plan under Code Section 401(a)(9) as in
                  effect prior to January 1, 1984.

7.5      JOINT AND SURVIVOR ANNUITY.

         (a)      ANNUITY FORM OF PAYMENT: If distribution of a Participant's
                  vested Account balance commences during his lifetime, the
                  portion of his vested Account (which is subject to the
                  provisions of this Section 7.5) shall be applied to the
                  purchase of a "SINGLE LIFE ANNUITY" for a Participant who is
                  unmarried as of his benefit commencement date, or if the
                  Participant is married as of his benefit commencement date,
                  applied to the purchase of a "QUALIFIED JOINT AND SURVIVOR
                  ANNUITY":

                                       20
<PAGE>

                  A "QUALIFIED JOINT AND SURVIVOR ANNUITY" is an immediate
                  annuity for the life of the Participant with a survivor
                  annuity for the life of the spouse which is not less than
                  fifty percent (50%), and not more than one hundred percent
                  (100%), of the amount of the annuity which is payable during
                  the joint lives of the Participant and his spouse.

                  A "SINGLE LIFE ANNUITY" is an annuity for the life of the
                  Participant.

         (b)      WAIVER OF ANNUITY: The Participant may, at any time during the
                  "election period", elect to waive the annuity described above
                  and elect any optional form of benefit available under the
                  Plan.

                  The "ELECTION PERIOD" under this Section shall be the ninety
                  (90)-day period prior to the "annuity starting date," which
                  date shall be the first day of the first period in which an
                  amount is payable as an annuity or, if such benefit is not
                  payable as an annuity, the first day on which the Participant
                  may begin to receive distribution from the Plan.

                  An election to waive the applicable annuity form of payment
                  under the Plan must be made in writing in a form acceptable to
                  the Administrator. In addition, an election to waive the
                  qualified joint and survivor annuity shall not take effect
                  unless (1) the Participant's spouse consents in writing to the
                  election, (2) the election designates a specific alternate
                  Beneficiary, if applicable, including any class of
                  Beneficiaries or any contingent Beneficiaries, which may not
                  be changed without spousal consent (unless the Participant's
                  spouse expressly permits designations by the Participant
                  without any further spousal consent), (3) the spouse's consent
                  acknowledges the effect of the election, and (4) the spouse's
                  consent is witnessed by a Plan representative or a notary
                  public. In addition, a Participant's waiver of a qualified
                  joint and survivor annuity shall not be effective unless the
                  election designates a form of benefit payment which may not be
                  changed without spousal consent (or the Participant's spouse
                  expressly permits designation by the Participant without any
                  further spousal consent). Notwithstanding the foregoing,
                  spousal consent hereunder shall not be required if it is
                  established to the satisfaction of the Administrator that the
                  spouse's consent cannot be obtained because such spouse cannot
                  be located, or because of such other circumstances as may be
                  prescribed in regulations pursuant to Section 417 of the Code.

                  Any consent by a spouse obtained under this Section (or
                  establishment that the consent of such spouse cannot be
                  obtained) shall be effective only with respect to such spouse.
                  A consent that permits designations by the Participant without
                  any requirement of further consent by such spouse must
                  acknowledge that the spouse has the right to limit consent to
                  a specific Beneficiary, and a specific form of benefit where
                  applicable, and that the spouse voluntarily elects to
                  relinquish either or both of such rights/right. No consent
                  obtained under this provision shall be valid unless the
                  Participant has received notice as provided below. In
                  addition, any waiver made in accordance with this Section may
                  be revoked at any time prior to the commencement of benefits
                  under the Plan. A Participant is not limited to the number of
                  revocations or elections that may be made hereunder.

         (c)      NOTICE REQUIREMENT: The Administrator shall provide to each
                  Participant, not less than thirty (30) days and not more than
                  ninety (90) days prior to the commencement of benefits, a
                  written explanation of:

                                       21
<PAGE>

                  (1)      the terms and conditions of the qualified joint and
                           survivor annuity or life annuity;

                  (2)      the Participant's right to waive such applicable
                           annuity and the effect of such waiver;

                  (3)      the rights of the Participant's spouse regarding the
                           required consent to an election to waive the
                           qualified joint and survivor annuity; and

                  (4)      the right to make, and the effect of, a revocation of
                           an election to waive the applicable annuity.

         (d)      RESTRICTIONS: Notwithstanding anything contained herein to the
                  contrary, if the vested balance of the Participant's Account
                  does not exceed $3,500, distribution of the Participant's
                  vested Account shall be made in the form of a lump sum
                  payment. However, no distribution shall be made pursuant to
                  this subsection after the first day of the first period for
                  which an amount is payable as an annuity unless the
                  Participant and the Participant's spouse, if applicable,
                  consent in writing to such distribution. For purposes of this
                  subsection, "vested balance of a Participant's Account" shall
                  mean the aggregate value of a Participant's vested Account
                  balance attributable to Employer contributions, Employee
                  contributions and rollover contributions, if applicable,
                  whether vested before or upon the death of a Participant.

7.6      AMOUNT OF DEATH BENEFIT.

         (a)      DEATH BEFORE TERMINATION OF EMPLOYMENT. In the event of the
                  death of a Participant while in the employ of the Employer,
                  vesting in the Participant's Account shall be one hundred
                  percent (100%), if not otherwise one hundred percent (100%)
                  vested under Section 6.1, with the credit balance of the
                  Participant's Account being payable to his Beneficiary.

         (b)      DEATH AFTER TERMINATION OF EMPLOYMENT. In the event of the
                  death of a former Participant after termination of employment,
                  but prior to the complete distribution of his vested Account
                  balance under the Plan, the undistributed vested balance of
                  the Participant's Account shall be paid to the Participant's
                  Beneficiary.

7.7      DESIGNATION OF BENEFICIARY. Each Participant shall file with the
         Administrator a designation of Beneficiary to receive payment of any
         death benefit payable hereunder if such Beneficiary should survive the
         Participant. However, no Participant who is married shall be permitted
         to designate a Beneficiary other than his spouse unless the
         Participant's spouse has signed a written consent witnessed by a Plan
         representative or a notary public, which provides for the designation
         of an alternate Beneficiary.

         Subject to the above, Beneficiary designations may include primary and
         contingent Beneficiaries, and may be revoked or amended at any time in
         similar manner or form, and the most recent designation shall govern. A
         designation of a Beneficiary made by an unmarried Participant shall
         cease to be effective upon his marriage. In the absence of an effective
         designation of Beneficiary, the Participant's vested Account shall be
         paid to the surviving spouse of the Participant, or, if no surviving
         spouse, to

                                       22
<PAGE>

         the Participant's surviving issue, by right of representation, or, if
         none, to the Participant's estate. Notification to Participants of the
         death benefits under the Plan and the method of designating a
         Beneficiary shall be given at the time and in the manner provided by
         regulations and rulings under the Code.

         In the event of the death of a Beneficiary who has begun to receive
         benefits under the Plan, any benefits remaining to be paid to the
         Beneficiary shall be paid to his estate.

7.8      DISTRIBUTION OF DEATH BENEFITS.

         (a)      DISTRIBUTION BEGINNING BEFORE DEATH - If the Participant dies
                  after distribution of his vested Account has commenced, any
                  survivor's benefit must be paid at least as rapidly as under
                  the method of payment in effect at the time of the
                  Participant's death.

         (b)      DISTRIBUTION BEGINNING AFTER DEATH - If the Participant dies
                  before distribution of his vested Account has commenced,
                  distribution of the Participant's vested Account shall be
                  completed by December 31 of the calendar year containing the
                  fifth anniversary of the Participant's death, except as
                  provided below:

                  (i)      if any portion of the Participant's vested Account is
                           payable to a designated Beneficiary, and if
                           distribution is to be made over the life or over a
                           period certain not greater than the life expectancy
                           of the designated Beneficiary (pursuant to Section
                           7.1, Section 7.9 and Appendix A) such payments shall
                           commence on or before December 31 of the calendar
                           year immediately following the calendar year in which
                           the Participant died;

                  (ii)     if the designated Beneficiary is the Participant's
                           surviving spouse, the date distribution is required
                           to begin shall not be earlier than the later of (A)
                           December 31 of the calendar year immediately
                           following the calendar year in which the Participant
                           died and (B) December 31 of the calendar year in
                           which the Participant would have attained age seventy
                           and one-half (70 1/2).

                  For purposes of this paragraph (b), if the surviving spouse
                  dies after the Participant, but before payments to such
                  spouse begin, the provisions of this paragraph, with the
                  exception of paragraph (ii) herein, shall be applied as if
                  the surviving spouse were the Participant.

                  Notwithstanding the foregoing, if the Participant has no
                  designated Beneficiary (within the meaning of Section
                  401(a)(9) of the Code and the regulations thereunder),
                  distribution of the Participant's vested Account must be
                  completed by December 31 of the calendar year containing
                  the fifth anniversary of the Participant's death.

7.9      QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY.

         (a)      If a Participant dies before distribution of benefits has
                  commenced and is survived by his spouse, the portion of his
                  vested Account balance (which is subject to the provisions of
                  this Section 7.9 and which is payable to the Participant's
                  surviving spouse) shall be applied to the purchase of an

                                       23
<PAGE>

                  annuity for the life of the Participant's surviving spouse.
                  The Participant's surviving spouse may commence the payment of
                  such qualified pre-retirement survivor annuity under this
                  Section within a reasonable period following the Participant's
                  death.

         (b)      Where the provisions of Section 7.5 apply as the normal form
                  of benefit, the Participant may elect to waive such survivor
                  annuity death benefit during the period commencing on the
                  first day of the Plan Year in which the Participant attains
                  age thirty-five (35) (or the date he terminates employment, if
                  earlier) and ending on the date of his death. Any such
                  election, however, shall not take effect unless it is
                  accompanied by the written consent of the Participant's
                  spouse, which consent acknowledges the effect of such election
                  and is witnessed by a Plan representative or a notary public.
                  A Participant who will not yet attain age thirty-five (35) as
                  of the end of any current Plan Year may make a special
                  qualified election to waive the qualified pre-retirement
                  survivor annuity for the period beginning on the date of such
                  election and ending on the first day of the Plan Year in which
                  the Participant will attain age thirty-five (35). Such
                  election shall not be valid unless the Participant receives a
                  written explanation of the qualified pre-retirement survivor
                  annuity in such terms as are comparable to the explanation
                  required under Section 7.9(c). Qualified pre-retirement
                  survivor annuity coverage shall be reinstated automatically as
                  of the first day of the Plan Year in which the Participant
                  attains age thirty-five (35). Any new waiver on or after such
                  date shall be subject to the full requirements of this
                  Section.

                  The election to waive such survivor annuity death benefit must
                  be made in writing in a form acceptable to the Administrator
                  and must include the Participant's designation of a
                  Beneficiary. The designation of a Beneficiary may not be
                  changed unless a new consent is signed by the Participant's
                  spouse.

                  In the event of such an election, hereunder, any death benefit
                  derived from the portion of the Participant's vested Account
                  otherwise subject to the provisions of this Section 7.9, shall
                  be paid to the Participant's Beneficiary in a manner selected
                  by the Beneficiary or Participant subject to the provisions of
                  Section 7.8.

         (c)      The Administrator shall furnish to each Participant, subject
                  to the provisions of this Section 7.9, a written explanation
                  of: (1) the terms and conditions of the survivor annuity death
                  benefit; (2) the Participant's right to make, and the effect
                  of, an election to waive the survivor annuity death benefit,
                  and to revoke such election; and (3) the right of the
                  Participant's spouse to prevent such an election by
                  withholding the necessary consent. Such explanation shall be
                  provided to the Participant within the period beginning on the
                  later of the first day of the Plan Year in which the
                  Participant attains age thirty-two (32) and ending on the last
                  day of the Plan Year preceding the Plan Year in which the
                  Participant attains age thirty-five (35), or within a
                  reasonable period after the Participant commences
                  participation in the Plan, or after the Participant separates
                  from Service if the Participant has not attained age
                  thirty-five (35) at the time of his separation from Service.

                  For purposes of the preceding paragraph, a "reasonable period"
                  shall mean the end of the two (2)-year period beginning one
                  (1) year prior to the date the applicable event occurs, and
                  ending one (1) year after that date. In the case of a
                  Participant who separates from Service before the Plan Year in
                  which age thirty-five (35) is attained, notice shall be
                  provided within the two (2) year period beginning one (1) year
                  prior to separation and ending one (1) year after separation.

                                       24
<PAGE>

                  If such a Participant thereafter returns to employment with
                  the Employer, the applicable period for such Participant shall
                  be redetermined.

                  Following the Participant's death, if such death benefit is to
                  be paid to the Participant's surviving spouse in the form of a
                  survivor annuity, the surviving spouse may elect to waive the
                  survivor annuity and receive any optional form of death
                  benefit available under the Plan.

         Notwithstanding the foregoing, the provisions of this Section shall not
         apply if the vested balance of the Participant's Account does not
         exceed $3,500.

7.10     ELIGIBLE ROLLOVER DISTRIBUTIONS. Notwithstanding the foregoing
         provisions of this Article Seven, the provisions of this Section 7.10
         shall apply to distributions made under the Plan.

         (a)      A distributee may elect, at the time and in the manner
                  prescribed by the Administrator, to have any portion of an
                  eligible rollover distribution paid directly to an eligible
                  retirement plan specified by the distributee in a direct
                  rollover.

         (b)      Definitions:

                  (i)      ELIGIBLE ROLLOVER DISTRIBUTION. An eligible rollover
                           distribution is any distribution of all or any
                           portion of the balance to the credit of the
                           distributee, except that an eligible rollover
                           distribution does not include: any distribution that
                           is one of a series of substantially equal periodic
                           payments (not less frequently than annually) made for
                           the life (or life expectancy) of the distributee or
                           the joint lives (or joint life expectancies) of the
                           distributee and the distributee's designated
                           Beneficiary, or for a specified period of ten (10)
                           years or more; any distribution to the extent such
                           distribution is required under Section 401(a)(9) of
                           the Code; and the portion of any distribution that is
                           not includable in gross income (determined without
                           regard to the exclusion for net unrealized
                           appreciation with respect to employer securities).

                  (ii)     ELIGIBLE RETIREMENT PLAN. An eligible retirement plan
                           is an individual retirement account described in
                           Section 408(a) of the Code, an individual retirement
                           annuity described in Section 408(b) of the Code, an
                           annuity plan described in Section 403(a) of the Code
                           or a qualified trust described in Section 401(a) of
                           the Code, that accepts the distributee's eligible
                           rollover distribution. However, in the case of an
                           eligible rollover distribution to the surviving
                           spouse, an eligible retirement plan is an individual
                           retirement account or individual retirement annuity.

                  (iii)    DISTRIBUTEE. A distributee includes an Employee or
                           former Employee. In addition, the Employee's or
                           former Employee's surviving spouse and the Employee's
                           or former Employee's spouse or former spouse who is
                           the alternate payee under a qualified domestic
                           relations order, as defined in Section 414(p) of the
                           Code, are distributees with regard to the interest of
                           the spouse or former spouse.

                  (iv)     DIRECT ROLLOVER. A direct rollover is a payment by
                           the Plan to the eligible retirement plan specified by
                           the distributee.

                                       25
<PAGE>

         (c)      If a distribution is one to which Sections 401(a)(11) and 417
                  of the Code do not apply, such distribution may commence less
                  than 30 days after the notice required under Section
                  1.411(a)-11(c) of the Income Tax Regulations is given,
                  provided that:

                  (i)      the Administrator clearly informs the Participant
                           that the Participant has a right to a period of at
                           least 30 days after receiving the notice to consider
                           the decision of whether or not to elect a
                           distribution (and, if applicable, a particular
                           distribution option); and

                  (ii)     the Participant, after receiving the notice,
                           affirmatively elects a distribution.

         (d)      Effective January 1, 1997, if a distribution is one to which
                  Sections 401(a)(11) and 417 of the Code applies, the
                  distribution may commence less than thirty (30) days, but not
                  less than seven (7) days, after the notice required under
                  Section 1.411(a)-11(c) of the Income Tax Regulations is given,
                  provided that the requirements of paragraphs (c) (i) and (c)
                  (ii) above are satisfied with respect to both the Participant
                  and the Participant's spouse, if applicable.

                                       26
<PAGE>

                 ARTICLE EIGHT--LOANS AND IN-SERVICE WITHDRAWALS

8.1      LOANS.

         (a)      PERMISSIBLE AMOUNT AND PROCEDURES. Upon the application of a
                  Participant, the Administrator may, in accordance with a
                  uniform and nondiscriminatory policy, direct the Trustee to
                  grant a loan to the Participant, which loan shall be secured
                  by the Participant's vested Account balance. The Participant's
                  signature shall be required on a promissory note. In addition,
                  if any portion of the loan is secured by amounts transferred
                  from the Viking Penguin Inc. Supplemental Savings Plan or the
                  All American Communications, Inc. 401(k) Savings Plan and if
                  the Participant is married, such Participant's spouse shall be
                  required to consent in writing to the making of the loan. Such
                  written consent must (1) be obtained within the ninety
                  (90)-day period preceding the granting of the loan, (2)
                  acknowledge the effect of the loan, and (3) be witnessed by a
                  Plan representative or notary public. Such consent shall
                  thereafter be binding with respect to the consenting spouse or
                  any subsequent spouse with respect to that loan. In
                  determining a rate of interest on such loan, the Administrator
                  may refer to the rate of interest used for obligations of a
                  comparable nature by commercial lending institutions within a
                  radius of fifty (50) miles of the Employer's principal place
                  of business. Participant loans shall be treated as segregated
                  investments, and interest repayments shall be credited only to
                  the Participant's Account.

         (b)      LIMITATION ON AMOUNT OF LOANS. A Participant's loan shall not
                  exceed the lesser of:

                  (1)      $50,000, which amount shall be reduced by the highest
                           outstanding loan balance during the preceding twelve
                           (12)-month period; or

                  (2)      one-half (1/2) of the vested value of the
                           Participant's Account, determined as of the Valuation
                           Date preceding the date of the Participant's loan.

The minimum loan shall be $1,000. Any loan must be repaid within five (5) years,
unless made for the purpose of acquiring the primary residence of the
Participant, in which case such loan may be repaid over a longer period of time.
The repayment of any loan must be made in at least quarterly installments of
principal and interest; provided, however, that this requirement shall not apply
for a period, not longer than one year, that a Participant is on a leave of
absence ("Leave"), either without pay from the Employer or at a rate of pay
(after income and employment tax withholding) that is less than the amount of
the installment payments required under the terms of the loan. However, the loan
must be repaid by the latest date permitted under Section 72(p)(2)(B) of the
Code and the installments due after the Leave ends (or, if earlier, upon the
expiration of the first year of the Leave) must not be less than those required
under the terms of the original loan.

If a Participant defaults on any outstanding loan, the unpaid balance, and any
interest due thereon, shall become due and payable in accordance with the terms
of the underlying promissory note; provided, however, that such foreclosure on
the promissory note and attachment of security shall not occur until a
distributable event occurs in accordance with the provisions of Article Seven.

If a Participant terminates employment while any loan balance is outstanding,
the unpaid balance, and any interest due thereon, shall become due and payable
in accordance with the terms of the

                                       27
<PAGE>

underlying promissory note. If such amount is not paid to the Plan, it shall be
charged against the amounts that are otherwise payable to the Participant or the
Participant's Beneficiary under the provisions of the Plan.

In the case of a Participant who has loans outstanding from other plans of the
Employer (or a member of the Employer's related group (within the meaning of
Section 2.6(b)), the Administrator shall be responsible for reporting to the
Trustee the existence of said loans in order to aggregate all such loans within
the limits of Section 72(p) of the Code.

8.2      HARDSHIP DISTRIBUTIONS. In the case of a financial hardship resulting
         from a proven immediate and heavy financial need, a Participant may
         receive a distribution not to exceed the lesser of (i) the vested value
         of the Participant's Account determined as of the Valuation Date
         immediately preceding such withdrawal request, excluding, however, any
         earnings on his elective deferrals after December 31, 1988, or (ii) the
         amount necessary to satisfy the financial hardship. The amount of any
         such immediate and heavy financial need may include any amounts
         necessary to pay Federal, state or local income taxes or penalties
         reasonably anticipated to result from the distribution. Such
         distribution shall be made in accordance with nondiscriminatory and
         objective standards consistently applied by the Administrator. Hardship
         distributions under this Section shall be deemed to be the result of an
         immediate and heavy financial need if such distribution is to (a) pay
         expenses for medical care (as described in Section 213(d) of the Code)
         previously incurred by the Participant, the Participant's spouse, or
         any dependents of the Participant (as defined in Section 152 of the
         Code), or to permit the Participant, the Participant's spouse, or any
         dependents of the Participant to obtain such medical care, (b) purchase
         the principal residence of the Participant (excluding mortgage
         payments), (c) pay tuition and related educational fees for the next
         twelve (12) months of post-secondary education for the Participant,
         Participant's spouse, or any of the Participant's dependents or (d)
         prevent the eviction of the Participant from his principal residence or
         foreclosure on the Participant's principal residence. In addition, any
         hardship distribution hereunder shall only be made provided that the
         funds for such hardship are not available from other financial
         resources of the Participant, the Participant's spouse or the
         Participant's minor children. Distributions paid pursuant to this
         Section shall be deemed to be made as of the Valuation Date immediately
         preceding the hardship distribution, and the Participant's Account
         shall be reduced accordingly.

         The provisions of this Section (relating to hardship distributions) are
         intended to comply with Treasury Regulations issued under Section
         401(k) of the Code, and shall be so interpreted.

         Notwithstanding the foregoing, if the Participant is married, and if
         any portion of the amount to be withdrawn consists of amounts
         transferred from the Viking Penguin Inc. Supplemental Savings Plan or
         the All American Communications, Inc. 401(k) Savings Plan, the
         Participant must obtain his spouse's written and notarized consent to
         such withdrawal.

8.3      WITHDRAWALS AFTER AGE 59 1/2. After attaining age fifty-nine and
         one-half (59 1/2), a Participant, by giving written notice to the
         Administrator, may withdraw from the Plan a sum (a) not in excess of
         the credit balance of his vested Account and (b) not less than such
         minimum amount as the Administrator may establish from time to time to
         facilitate administration of the Plan. Any such withdrawals shall be
         made in accordance with nondiscriminatory and objective standards
         consistently applied by the Administrator.

                                       28
<PAGE>

         Notwithstanding the foregoing, if the Participant is married, and if
         any portion of the amount to be withdrawn consists of amounts
         transferred from the Viking Penguin Inc. Supplemental Savings Plan or
         the All American Communications, Inc. 401(k) Savings Plan, the
         Participant must obtain his spouse's written and notarized consent to
         such withdrawal.

8.4      WITHDRAWALS OF PRE-1989 EMPLOYER CONTRIBUTIONS, VIKING PENGUIN ACCOUNT
         AND/OR DUN & BRADSTREET ACCOUNT. A Participant, by giving written
         notice to the Administrator, may withdraw from the Plan a sum (a) not
         in excess of the credit balance of his vested Account attributable to
         any Employer contributions made on his behalf prior to January 1, 1989,
         any portion of his Account derived from amounts transferred from the
         Viking Penguin Inc. Supplemental Savings Plan, and/or any portion of
         his Account derived from employer contributions previously made on his
         behalf and transferred from the Profit Participation Plan of The Dun &
         Bradstreet Corporation, and (b) not less than such minimum amount as
         the Administrator may establish from time to time to facilitate
         administration of the Plan. Any such withdrawals shall be made in
         accordance with nondiscriminatory and objective standards consistently
         applied by the Administrator.

         Notwithstanding the foregoing, if the Participant is married, and if
         any portion of the amount to be withdrawn consists of amounts
         transferred from the Viking Penguin Inc. Supplemental Savings Plan, the
         Participant must obtain his spouse's written and notarized consent to
         such withdrawal.

8.5      WITHDRAWALS OF EMPLOYER MATCHING CONTRIBUTIONS FROM PUTNAM BERKLEY
         SAVINGS PLAN AND THE VIACOM PLAN. A Participant, by giving written
         notice to the Administrator, may withdraw from the Plan a sum not in
         excess of the vested portion of his Account derived from employer
         contributions transferred from the Putnam Berkley Group, Inc. Employee
         Savings Plan ("Putnam Berkley Savings Plan") and any employer matching
         contributions transferred from the Viacom Investment Plan (the "Viacom
         Plan"); provided (1) such Participant has completed five (5) years of
         participation in the Plan (which includes participation under the
         Putnam Berkley Savings Plan or the Viacom Plan), or (2) such employer
         contributions have remained for a period of two (2) years in the Putnam
         Berkley Savings Plan or the Viacom Plan, or a combination of the Putnam
         Berkley Savings Plan or the Viacom Plan, as the case may be, and the
         Plan. Any withdrawals hereunder shall be subject to such minimum
         withdrawal amounts as the Administrator may establish from time to time
         to facilitate administration of the Plan. In addition, any such
         withdrawals shall be made in accordance with nondiscriminatory and
         objective standards consistently applied by the Administrator.

8.6      WITHDRAWALS OF CERTAIN AFTER-TAX CONTRIBUTIONS. If any portion of a
         Participant's Account consists of amounts transferred from the
         Harpercollins Retirement Account and 401(k) Tax-Deferred Savings Plan,
         the Profit Participation Plan of The Dun & Bradstreet Corporation, the
         Putnam Berkley Group, Inc. Employee Savings Plan and/or the Viacom
         Investment Plan, such Participant, by giving written notice to the
         Administrator, may withdraw from the Plan a sum (a) not in excess of
         such portion of his Account, and (b) not less than such minimum amount
         as the Administrator may establish from time to time to facilitate
         administration of the Plan. Any such

                                       29
<PAGE>

         withdrawals shall be made in accordance with nondiscriminatory and
         objective standards consistently applied by the Administrator.

8.7      WITHDRAWALS OF ROLLOVER CONTRIBUTIONS. A Participant, by giving written
         notice to the Administrator, may withdraw from the Plan a sum (a) not
         in excess of such portion of his Account attributable to any rollover
         contributions, and (b) not less than such minimum amount as the
         Administrator may establish from time to time to facilitate
         administration of the Plan. Any such withdrawals shall be made in
         accordance with nondiscriminatory and objective standards consistently
         applied by the Administrator.

         Notwithstanding the foregoing, if the Participant is married, and if
         any portion of the amount to be withdrawn consists of amounts
         transferred from the Viking Penguin Inc. Supplemental Savings Plan or
         the All American Communications, Inc. 401(k) Savings Plan, the
         Participant must obtain his spouse's written and notarized consent to
         such withdrawal.

8.8      WITHDRAWALS OF PRENTICE-HALL ACCOUNT. If any portion of a Participant's
         Account consists of amounts transferred from the Prentice-Hall and
         Subsidiaries Profit Sharing Plan ("P-H Plan") in connection with the
         merger of the P-H Plan with the Paramount Communications, Inc.
         Employees' Savings Plan (the "PCI Plan") (prior to the PCI Plan merger
         with Viacom Investment Plan) on December 31, 1986, such Participant, by
         giving written notice to the Administrator, may withdraw a sum (a) not
         in excess of such portion attributable to employer contributions made
         under the P-H Plan including earnings thereon prior to December 31,
         1986 and (b) not less than such minimum amount as the Administrator may
         establish from time to time to facilitate administration of the Plan.
         Any such withdrawals shall be made in accordance with nondiscriminatory
         and objective standards consistently applied by the Administrator.

                                       30
<PAGE>

                   ARTICLE NINE -- ADMINISTRATION OF THE PLAN

9.1      PLAN ADMINISTRATION. Pearson Inc. shall be the Plan Administrator,
         hereinbefore and hereinafter called the Administrator, and "named
         fiduciary" (for purposes of Section 402(a)(1) of the Employee
         Retirement Income Security Act of 1974, as amended from time to time)
         of the Plan, unless Pearson Inc., by action of its board of directors,
         shall designate a person or committee of persons to be the
         Administrator and named fiduciary. The administration of the Plan, as
         provided herein, including a determination of the payment of benefits
         to Participants and their Beneficiaries, shall be the responsibility of
         the Administrator; provided, however, that the Administrator may
         delegate any of its powers, authority, duties or responsibilities to
         any person or committee of persons. The Administrator shall have full
         discretion to interpret the terms of the Plan, to determine factual
         questions that arise in the course of administering the Plan, to adopt
         rules and regulations regarding the administration of the Plan, to
         determine the conditions under which benefits become payable under the
         Plan, and to make any other determinations that the Administrator
         believes are necessary and advisable for the administration of the
         Plan. Any determination made by the Administrator shall be final and
         binding on all parties.

         In the event more than one party shall act as Administrator, all
         actions shall be made by majority decisions. In the administration of
         the Plan, the Administrator may (a) employ agents to carry out
         nonfiduciary responsibilities (other than Trustee responsibilities),
         (b) consult with counsel, who may be counsel to the Employer, and (c)
         provide for the allocation of fiduciary responsibilities (other than
         Trustee responsibilities) among its members. Actions dealing with
         fiduciary responsibilities shall be taken in writing and the
         performance of agents, counsel and fiduciaries to whom fiduciary
         responsibilities have been delegated shall be reviewed periodically.

         The expenses of administering the Plan and the compensation of all
         employees, agents, or counsel of the Administrator, including
         accounting fees, recordkeeper's fees, and the fees of any benefit
         consulting firm, shall be paid by the Plan, or, shall be paid by the
         Employer if the Employer so elects. To the extent required by
         applicable law, compensation may not be paid by the Plan to full-time
         Employees of the Employer.

         In the event the Employer pays the expenses of administering the Plan,
         the Employer may seek reimbursement from the Plan for the payment of
         such expenses. Reimbursement shall be permitted only for Plan expenses
         paid by the Employer within the last twelve (12)-month period.

         The Administrator shall obtain from the Trustee, not less often than
         annually, a report with respect to the value of the assets held in the
         Trust Fund, in such form as may be required by the Administrator.

         The Administrator shall administer the Plan and adopt such rules and
         regulations as, in the opinion of the Administrator, are necessary or
         advisable to implement and administer the Plan and to transact its
         business.

                                       31
<PAGE>

9.2      CLAIMS PROCEDURE

         (a)      Pursuant to procedures established by the Administrator,
                  claims for benefits under the Plan made by a Participant or
                  Beneficiary (the "claimant") must be submitted in writing to
                  the Administrator. Approved claims shall be processed and
                  instructions issued to the Trustee or custodian authorizing
                  payment as claimed.

                  If a claim is denied in whole or in part, the Administrator
                  shall notify the claimant whose claim for benefit has been
                  denied within sixty (60) days after receipt of the claim (or
                  within one hundred twenty (120) days, if special circumstances
                  require an extension of time for processing the claim, and
                  provided written notice indicating the special circumstances
                  and the date by which a final decision is expected to be
                  rendered is given to the claimant within the initial sixty
                  (60) day period). If notification is not given in such period,
                  the claim shall be considered denied as of the last day of
                  such period and the claimant may request a review of the
                  claim.

                  The notice of the denial of the claim shall be written in a
                  manner calculated to be understood by the claimant and shall
                  set forth the following:

                  (i)      the specific reason or reasons for the denial of the
                           claim;

                  (ii)     the specific references to the pertinent Plan
                           provisions on which the denial is based;

                  (iii)    a description of any additional material or
                           information necessary to perfect the claim, and an
                           explanation of why such material or information is
                           necessary; and

                  (iv)     a statement that any appeal of the denial must be
                           made by giving to the Administrator, within sixty
                           (6O) days after receipt of the denial of the claim,
                           written notice of such appeal, such notice to include
                           a full description of the pertinent issues and basis
                           of the claim.

         (b)      Upon denial of a claim in whole or part, the claimant (or his
                  duly authorized representative) shall have the right to submit
                  a written request to the Administrator for a full and fair
                  review of the denied claim, to be permitted to review
                  documents pertinent to the denial, and to submit issues and
                  comments in writing. Any appeal of the denial must be given to
                  the Administrator within the period of time prescribed under
                  (a)(iv) above. If the claimant (or his duly authorized
                  representative) fails to appeal the denial to the
                  Administrator within the prescribed time, the Administrator's
                  adverse determination shall be final, binding and conclusive.

                  The Administrator may hold a hearing or otherwise ascertain
                  such facts as it deems necessary and shall render a decision
                  which shall be binding upon both parties. The Administrator
                  shall advise the claimant of the results of the review within
                  sixty (60) days after receipt of the written request for the
                  review, unless special circumstances require an extension of
                  time for processing, in which case a decision shall be
                  rendered as soon as possible but not later than one hundred
                  twenty (120) days after receipt of the request for review. If
                  such extension of time is required, written notice of the
                  extension shall be furnished to the claimant prior to the
                  commencement of the extension. The decision of the review
                  shall be written in a manner calculated to be understood by
                  the claimant and shall include specific reasons for the
                  decision and specific references to the pertinent Plan
                  provisions on which the decision is based. The decision of the
                  Administrator shall be final, binding and conclusive.

                                       32
<PAGE>

9.3      TRUST AGREEMENT. The Trust Agreement entered into by and between the
         Employer and the Trustee, including any supplements or amendments
         thereto, or any successor Trust Agreement, is incorporated by reference
         herein.

                                       33
<PAGE>

                   ARTICLE TEN--SPECIAL COMPLIANCE PROVISIONS

10.1     DISTRIBUTION OF EXCESS DEFERRAL AMOUNTS. Notwithstanding any other
         provision of the Plan, "Excess Deferral Amounts" (as defined below)
         (and income or loss allocable thereto, including all earnings, expenses
         and appreciation or depreciation in value, whether or not realized)
         shall be distributed no later than each April 15 to Participants who
         claim Excess Deferral Amounts for the preceding calendar year.

         "Excess Deferral Amount" shall mean the amount of elective deferrals
         for a calendar year that the Participant designates to the Plan
         pursuant to the following procedure. The Participant's designation:
         shall be submitted to the Administrator in writing no later than March
         1; shall specify the Participant's Excess Deferral Amount for the
         preceding calendar year; and shall be accompanied by the Participant's
         written statement that if the Excess Deferral Amount is not
         distributed, it will, when added to amounts deferred under other plans
         or arrangements described in Section 401(k), 408(k) or 403(b) of the
         Code, exceed the limit imposed on the Participant by Section 402(g) of
         the Code for the year in which the deferral occurred.

         An Excess Deferral Amount, and the income or loss allocable thereto,
         may be distributed before the end of the calendar year in which the
         elective deferrals were made. A Participant who has an Excess Deferral
         Amount for a taxable year, taking into account only his elective
         deferrals under the Plan or any other plans of the Employer (including
         any member of the Employer's related group (within the meaning of
         Section 2.6(b)), shall be deemed to have designated the entire amount
         of such Excess Deferral Amount.

10.2     LIMITATIONS ON 401(k) CONTRIBUTIONS.

         (a)      AVERAGE ACTUAL DEFERRAL PERCENTAGE TEST. Amounts contributed
                  as elective deferrals under Section 4.1(a) and, if so elected
                  by the Employer, any "fail-safe" contributions made under this
                  Section, are considered to be amounts deferred pursuant to
                  Section 401(k) of the Code. For purposes of this Section,
                  these amounts are referred to as the "deferred amounts." For
                  purposes of the "average actual deferral percentage test"
                  described below, (i) such deferred amounts must be made before
                  the last day of the twelve (12)-month period immediately
                  following the Plan Year to which the contributions relate (ii)
                  the deferred amounts relate to Compensation that either (A)
                  would have been received by the Participant in the Plan Year
                  but for the Participant's election to make deferrals, or (B)
                  is attributable to services performed by the Participant in
                  the Plan Year but for the Participant's election to make
                  deferrals, would have been received by the Participant within
                  two and one-half (2 1/2) months after the close of the Plan
                  Year. The Employer shall maintain records sufficient to
                  demonstrate satisfaction of the average actual deferral
                  percentage test and the deferred amounts used in such test.

                  Effective for Plan Years beginning on or after January 1,
                  1997, as of the last day of each Plan Year, the deferred
                  amounts for the Plan Year for the Participants who are
                  Highly-Compensated Employees for the Plan Year shall satisfy
                  either of the following tests:

                                       34
<PAGE>

                  (1)      The average actual deferral percentage for the
                           eligible Participants who are Highly-Compensated
                           Employees for the Plan Year shall not exceed the
                           average actual deferral percentage for eligible
                           Participants who were Nonhighly-Compensated Employees
                           for the Plan Year multiplied by 1.25; or

                  (2)      The average actual deferral percentage for eligible
                           Participants who are Highly-Compensated Employees for
                           the Plan Year shall not exceed the average actual
                           deferral percentage of eligible Participants who were
                           Nonhighly-Compensated Employees for the Plan Year
                           multiplied by two (2), provided that the average
                           actual deferral percentage for eligible Participants
                           who are Highly-Compensated Employees for the Plan
                           Year does not exceed the average actual deferral
                           percentage for eligible Participants who were
                           Nonhighly-Compensated Employees in the Plan Year by
                           more than two (2) percentage points, or such lesser
                           amount as the Secretary of the Treasury shall
                           prescribe to prevent the multiple use of this
                           alternative limitation with respect to any
                           Highly-Compensated Employee.

                  Notwithstanding the foregoing, if elected by the Employer, the
                  foregoing percentage tests shall be applied as though the
                  references therein to "the Plan Year" read "the prior Plan
                  Year;" provided, however, the change in testing methods
                  complies with the requirements set forth in Notice 98-1 and
                  any other superseding guidance, and provided further, any such
                  election shall be set forth in the Plan document when it is
                  formally amended and restated to comply with changes permitted
                  or required by the Tax Reform Act of 1986, the Uruguay Round
                  Agreements Act ("GATT"), the Uniformed Services Employment and
                  Reemployment Rights Act of 1994 ("USERRA"), the Small Business
                  Job Protection Act of 1996 ("SBJPA") and the Taxpayer Relief
                  Act of 1997 ("TRA'97").

                  Effective for testing years beginning January 1, 1999, in the
                  event the Plan changes from the current year testing method to
                  the prior year testing method, then, for purposes of the first
                  testing year for which the change is effective, the average
                  actual deferral percentage for Nonhighly-Compensated Employees
                  for the prior year shall be determined by taking into account
                  only (a) elective deferrals for those Nonhighly-Compensated
                  Employees that were taken into account for purposes of the
                  average actual deferral percentage test (and not the actual
                  contribution percentage test) under the current year testing
                  method for the prior year and (b) any qualified nonelective
                  contributions that were allocated to the Accounts of those
                  Nonhighly-Compensated Employees for the prior year but were
                  not used to satisfy the actual average deferral percentage
                  test or the average contribution percentage test under the
                  current year testing method for the prior year.

                  In the event the Plan changes from the current year to the
                  prior year testing method for the first time for either the
                  1997 or 1998 testing year, the average actual deferral
                  percentage for Nonhighly-Compensated Employees used for that
                  testing year shall be the same as the average actual deferral
                  percentage for Nonhighly-Compensated Employees used for the
                  prior testing year.

                  For purposes of the above tests, the "actual deferral
                  percentage" shall mean the ratio (expressed as a percentage)
                  that the deferred amounts, which are allocated to the
                  Participant's Account as of any day in the Plan Year, on
                  behalf of each eligible Participant for the Plan Year bears to
                  the eligible Participant's compensation, (within the meaning
                  of Section 1.414(s)-1(d)(2) of the Income Tax Regulations) for
                  the Plan Year. The "average actual deferral percentage" shall
                  mean

                                       35
<PAGE>

                  the average (expressed as a percentage) of the actual deferral
                  percentages of the eligible Participants in each group.
                  "Eligible Participant" shall mean each Employee who is
                  eligible to participate in the Plan under Section 3.1.

                  For purposes of this Section 10.2, the actual deferral
                  percentage for any eligible Participant who is a
                  Highly-Compensated Employee for the Plan Year and who is
                  eligible to have elective deferrals allocated to his account
                  under two (2) or more plans or arrangements described in Code
                  Section 401(k) that are maintained by the Employer or any
                  employer who is a related group member (within the meaning of
                  Section 2.6(b)) shall be determined as if all such deferrals
                  were made under a single arrangement. In the event that this
                  Plan satisfies the requirements of Code Section 401(k),
                  401(a)(4) or 410(b) only if aggregated with one (1) or more
                  other plans, or if one (1) or more other plans satisfy the
                  requirements of such Section of the Code only if aggregated
                  with this Plan, then the provisions of this Section 10.2 shall
                  be applied by determining the actual deferral percentage of
                  eligible Participants as if all such plans were a single plan.
                  Any adjustments to the Nonhighly-Compensated Employee actual
                  deferral percentage for the prior year shall be made in
                  accordance with Notice 98-1 and any superseding guidance,
                  unless the Employer has elected to use the current year
                  testing method. Plans may be aggregated in order to satisfy
                  Section 401(k) of the Code only if they have the same Plan
                  Year and use the same average actual deferral percentage
                  testing method.

                  The determination and treatment of deferred amounts and the
                  actual deferral percentage of any Participant shall be subject
                  to the prescribed requirements of the Secretary of the
                  Treasury.

                  In the event the average actual deferral percentage test is
                  not satisfied for a Plan Year, the Employer, in its
                  discretion, may make a special "fail-safe" contribution for
                  certain eligible Participants who are Nonhighly Compensated
                  Employees, to be allocated among their Accounts in proportion
                  to their Compensation for the Plan Year.

         (b)      DISTRIBUTIONS OF EXCESS CONTRIBUTIONS.

                  (1)      IN GENERAL. If the average actual deferral percentage
                           test of Section 10.2(a) is not satisfied for a Plan
                           Year, then the "excess contributions", and income
                           allocable thereto, shall be distributed, to the
                           extent required under Treasury regulations, no later
                           than the last day of the Plan Year following the Plan
                           Year for which the excess contributions were made.
                           However, if such excess contributions are distributed
                           later than two and one-half (2-1/2) months following
                           the last day of the Plan Year in which such excess
                           contributions were made, a ten percent (10%) excise
                           tax shall be imposed upon the Employer with respect
                           to such excess contributions.

                  (2)      EXCESS CONTRIBUTIONS. For purposes of this Section,
                           "excess contributions" shall consist of the excess of
                           the aggregate amount of deferred amounts made by or
                           on behalf of the affected Highly-Compensated
                           Employees for such Plan Year over the maximum amount
                           of such contributions permitted under the test under
                           Section 10.2(a). In order to comply with Section
                           401(k)(8)(C) of the Code (as amended by the Small
                           Business Job Protection Act of 1996), effective
                           January 1, 1997, excess contributions shall be
                           allocated to the Highly-Compensated Employees with
                           the largest amounts of contributions taken into
                           account in calculating the average actual deferral
                           percentage test for the year in which the

                                       36
<PAGE>

                           excess arose, beginning with the Highly-Compensated
                           Employee with the largest amount of such
                           contributions and continuing in descending order
                           until all the excess contributions have been
                           allocated. For purposes of the preceding sentence,
                           the "largest amount" is determined after distribution
                           of any excess contributions.

                  (3)      DETERMINATION OF INCOME. The income allocable to
                           excess contributions allocated to each Participant
                           shall be determined by multiplying the income
                           allocable to the Participant's deferred amounts for
                           the Plan Year by a fraction, the numerator of which
                           is the excess contributions made on behalf of the
                           Participant for the Plan Year, and the denominator of
                           which is the sum of the Participant's Account
                           balances attributable to the Participant's deferred
                           amounts on the last day of the Plan Year.

                  (4)      MAXIMUM DISTRIBUTABLE AMOUNT. The excess
                           contributions to be distributed to a Participant
                           shall be adjusted for income and, if there is a loss
                           allocable to the excess contribution, shall in no
                           event be less than the lesser of the Participant's
                           Account under the Plan or the Participant's deferred
                           amounts for the Plan Year. Excess contributions shall
                           be distributed from that portion of the Participant's
                           Account attributable to such deferred amounts to the
                           extent allowable under Treasury regulations.

10.3     NONDISCRIMINATION TEST FOR EMPLOYER MATCHING CONTRIBUTIONS.

         (a)      AVERAGE CONTRIBUTION PERCENTAGE TEST. The provisions of this
                  Section shall apply if Employer matching contributions are
                  made in any Plan Year under Section 4.2(a).

                  Effective for Plan Years beginning on or after January 1,
                  1997, as of the last day of each Plan Year, the average
                  contribution percentage for Highly-Compensated Employees for
                  the Plan Year shall satisfy either of the following tests:

                  (1)      The average contribution percentage for eligible
                           Participants who are Highly-Compensated Employees for
                           the Plan Year shall not exceed the average
                           contribution percentage for eligible Participants who
                           were Nonhighly-Compensated Employees for the Plan
                           Year multiplied by 1.25; or

                  (2)      The average contribution percentage for eligible
                           Participants who are Highly-Compensated Employees for
                           the Plan Year shall not exceed the average
                           contribution percentage for eligible Participants who
                           were Nonhighly-Compensated Employees for the Plan
                           Year multiplied by two (2), provided that the average
                           contribution percentage for eligible Participants who
                           are Highly-Compensated Employees for the Plan Year
                           does not exceed the average contribution percentage
                           for eligible Participants who were
                           Nonhighly-Compensated Employees in the Plan Year by
                           more than two (2) percentage points or such lesser
                           amount as the Secretary of the Treasury shall
                           prescribe to prevent the multiple use of this
                           alternative limitation with respect to any
                           Highly-Compensated Employee.

                  Notwithstanding the foregoing, if elected by the Employer, the
                  foregoing percentage tests shall be applied as though the
                  references therein to "the Plan Year" read "the prior Plan
                  Year;" provided, however, the change in testing methods
                  complies with the requirements set forth in

                                       37
<PAGE>

                  Notice 98-1 and any other superseding guidance, and provided
                  further, any such election shall be set forth in the Plan
                  document when it is formally amended and restated to comply
                  with changes permitted or required by the Tax Reform Act of
                  1986, the Uruguay Round Agreements Act ("GATT"), the Uniformed
                  Services Employment and Reemployment Rights Act of 1994
                  ("USERRA"), the Small Business Job Protection Act of 1996
                  ("SBJPA") and the Taxpayer Relief Act of 1997 ("TRA'97").

                  Effective for testing years beginning January 1, 1999, in the
                  event the Plan changes from the current year testing method to
                  the prior year testing method, then, for purposes of the first
                  testing year for which the change is effective, the average
                  contribution percentage for Nonhighly-Compensated Employees
                  for the prior year shall be determined by taking into account
                  only (a) after-tax contributions for those Nonhighly-
                  Compensated Employees for the prior year, (b) matching
                  contributions for those Nonhighly-Compensated Employees that
                  were taken into account for purposes of the average
                  contribution percentage test (and not the average actual
                  deferral percentage test) under the current year testing
                  method for the prior year, and (c) any qualified nonelective
                  contributions that were allocated to the Accounts of those
                  Nonhighly-Compensated Employees for the prior year but that
                  were not used to satisfy the average contribution percentage
                  test or the average actual deferral percentage test under the
                  current year testing method for the prior year.

                  In the event the Plan changes from the current year to the
                  prior year testing method for the first time for either the
                  1997 or 1998 testing year, the average contribution percentage
                  for Nonhighly-Compensated Employees used for that testing year
                  shall be the same as the average contribution percentage for
                  Nonhighly-Compensated Employees used for the prior testing
                  year.

                  For purposes of the above tests, the "average contribution
                  percentage" shall mean the average (expressed as a percentage)
                  of the contribution percentages of the "eligible Participants"
                  in each group. The "contribution percentage" shall mean the
                  ratio (expressed as a percentage) that the sum of Employer
                  matching contributions and elective deferrals (to the extent
                  such elective deferrals are not used to satisfy the average
                  actual deferral percentage test of Section 10.2) under the
                  Plan on behalf of the eligible Participant for the Plan Year
                  bears to the eligible Participant's compensation (within the
                  meaning of Section 1.414(s)-1(d)(2) of the Income Tax
                  Regulations) for the Plan Year. Such average contribution
                  percentage shall be determined without regard to matching
                  contributions that are used either to correct excess
                  contributions hereunder or because contributions to which they
                  relate are excess deferrals under Section 10.1 or excess
                  contributions under Section 10.2. "Eligible Participant" shall
                  mean each Employee who is eligible to participate in the Plan
                  under Section 3.1.

                  For purposes of this Section 10.3, the contribution percentage
                  for any eligible Participant who is a Highly-Compensated
                  Employee for the Plan Year and who is eligible to have
                  Employer matching contributions and elective deferrals
                  allocated to his account under, two (2) or more plans
                  described in Section 401(a) of the Code or under arrangements
                  described in Section 401(k) of the Code that are maintained by
                  the Employer or any member of the Employer's related group
                  (within the meaning of Section 2.6(b)), shall be determined as
                  if all such contributions were made under a single plan.

                  In the event that this Plan satisfies the requirements of
                  Section 401(m), 401(a)(4) or 410(b) of the Code only if
                  aggregated with one (1) or more other plans, or if one (1) or
                  more other plans

                                       38
<PAGE>

                  satisfy the requirements of such Sections of the Code only if
                  aggregated with this Plan, then the provisions of this Section
                  10.3 shall be applied by determining the contribution
                  percentages of eligible Participants as if all such plans were
                  a single plan. Any adjustments to the Nonhighly-Compensated
                  Employee actual contribution percentage for the prior year
                  shall be made in accordance with Notice 98-1 and any
                  superseding guidance, unless the Employer has elected to use
                  the current year testing method. Plans may be aggregated in
                  order to satisfy Section 401(m) of the Code only if they have
                  the same Plan Year and use the same average contribution
                  percentage testing method.

                  The determination and treatment of the contribution percentage
                  of any Participant shall satisfy such other requirements as
                  may be prescribed by the Secretary of the Treasury.

         (b)      DISTRIBUTION OF EXCESS EMPLOYER MATCHING CONTRIBUTIONS.

                  (1)      IN GENERAL. If the nondiscrimination tests of Section
                           10.3(a) are not satisfied for a Plan Year, then the
                           "excess aggregate contributions", and any income
                           allocable thereto, shall be forfeited; if otherwise
                           forfeitable, no later than the last day of the Plan
                           Year following the Plan Year for which the
                           nondiscrimination tests are not satisfied, and shall
                           be used to reduce Employer contributions under
                           Section 4.2(a). To the extent that such "excess
                           aggregate contributions" are nonforfeitable, such
                           excess contributions shall be distributed to the
                           Participant on whose behalf the excess contributions
                           were made no later than the last day of the Plan Year
                           following the Plan Year for which such "excess
                           aggregate contributions" were made. However, if such
                           excess aggregate contributions are distributed later
                           than two and one-half (2-1/2) months following the
                           last day of the Plan Year in which such excess
                           aggregate contributions were made, a ten percent
                           (10%) excise tax shall be imposed upon the Employer
                           with respect to such excess aggregate contributions.
                           For purposes of the limitations of Section 11.1(b)(1)
                           of the Plan, excess aggregate contributions shall be
                           considered annual additions.

                  (2)      EXCESS AGGREGATE CONTRIBUTIONS. For purposes of this
                           Section, "excess aggregate contributions" shall
                           consist of the excess of the amount of Employer
                           matching contributions made on behalf of the
                           Highly-Compensated Employees for such Plan Year over
                           the maximum amount of all such contributions
                           permitted under the nondiscrimination tests under
                           Section 10.3(a). In order to comply with Section
                           401(m)(6)(C) of the Code (as amended by the Small
                           Business Job Protection Act of 1996), effective
                           January 1, 1997, excess contributions shall be
                           allocated to the Highly-Compensated Employee with the
                           largest "contribution percentage amounts" (as defined
                           below) taken into account in calculating the average
                           contribution percentage test for the year in which
                           the excess arose, beginning with the
                           Highly-Compensated Employee with the largest
                           contribution percentage amounts and continuing in
                           descending order until all the excess aggregate
                           contributions have been allocated. For purposes of
                           the preceding sentence, the "largest amount" is
                           determined after distribution of any excess aggregate
                           contributions.

                           For purposes of the preceding paragraph,
                           "contribution percentage amounts" shall mean the sum
                           of Employer matching contributions and, if
                           applicable, Employee after-tax contributions, and
                           elective deferrals (to the extent not used to satisfy
                           the average actual

                                       39
<PAGE>

                           deferral percentage test of Section 10.2) made under
                           the Plan on behalf of the Participant for the Plan
                           Year.

                  (3)      DETERMINATION OF INCOME. The income allocable to
                           excess contributions allocated to each Participant
                           shall be determined by multiplying the income
                           allocable to the Employer matching contributions and
                           such elective deferrals by a fraction, the numerator
                           of which is the excess aggregate contributions on
                           behalf of the Participant for the Plan Year, and the
                           denominator of which is the sum of the Participant's
                           Account balances attributable to Employer matching
                           contributions and such elective deferrals, on the
                           last day of the Plan Year.

         Notwithstanding the foregoing, to the extent otherwise required to
         comply with the requirements of Section 401(a)(4) of the Code and the
         regulations thereunder, vested matching contributions may be forfeited.

10.4     LIMITATION ON THE MULTIPLE USE ALTERNATIVE. The sum of the average
         actual deferral percentage of Highly-Compensated Employees under
         Section 10.2(a) and the average contribution percentage of
         Highly-Compensated Employees under Section 10.3(a) shall not exceed the
         "aggregate limit", as defined in Section 401(m)(9) of the Code and the
         regulations promulgated thereunder.

         If the aggregate limit is exceeded, the average contribution percentage
         of the Highly-Compensated Employees shall be reduced in accordance with
         the provisions of Section 10.3(b). In lieu of reducing the average
         contribution percentage, the Administrator may reduce the average
         actual deferral percentage of the Highly-Compensated Employees in
         accordance with the provisions of Section 10.2(b). The reductions under
         this Section shall be made only to the extent necessary to comply with
         the restrictions on the multiple use of the "alternative limitation"
         within the meaning of Code Section 401(m)(9).

                                       40
<PAGE>

                 ARTICLE ELEVEN--LIMITATION ON ANNUAL ADDITIONS

11.1     RULES AND DEFINITIONS.

         (a)      RULES. The following rules shall limit additions to
                  Participants' Accounts:

                  (1)      If the Participant does not participate, and has
                           never participated, in another qualified plan
                           maintained by the Employer, the amount of annual
                           additions which may be credited to the Participant's
                           Account for any limitation year shall not exceed the
                           lesser of the "maximum permissible" amount (as
                           hereafter defined) or any other limitation contained
                           in this Plan. If the Employer contribution that would
                           otherwise be allocated to the Participant's Account
                           would cause the annual additions for the limitation
                           year to exceed the maximum permissible amount, the
                           amount allocated shall be reduced so that the annual
                           additions for the limitation year shall equal the
                           maximum permissible amount.

                  (2)      Prior to determining the Participant's actual
                           compensation for the limitation year, the Employer
                           may determine the maximum permissible amount for a
                           Participant on the basis of a reasonable estimation
                           of the Participant's compensation for the limitation
                           year, uniformly determined for all Participants
                           similarly situated.

                  (3)      As soon as is administratively feasible after the end
                           of the limitation year, the maximum permissible
                           amount for the limitation year shall be determined on
                           the basis of the Participant's actual compensation
                           for the limitation year.

                  (4)      If, as a result of the allocation of forfeitures, a
                           reasonable error in estimating a Participant's annual
                           Compensation, a reasonable error in determining
                           elective deferrals, the limitations of Section 415 of
                           the Code are exceeded, such, excess shall be disposed
                           of as follows:

                           (A)      Any nondeductible voluntary Employee
                                    after-tax contributions and, to the extent
                                    elected by the Administrator pursuant to a
                                    nondiscriminatory procedure, elective
                                    deferrals under Section 4.1(a) (plus
                                    attributable earnings), to the extent they
                                    would reduce the excess amount, shall be
                                    returned to the Participant.

                           (B)      If an excess amount still exists after the
                                    application of subparagraph (A), and the
                                    Participant is covered by the Plan at the
                                    end of the limitation year, the excess
                                    amount in the Participant's Account shall be
                                    used to reduce Employer contributions
                                    (including any allocation of forfeitures, if
                                    applicable) for such Participant in the next
                                    limitation year, and each succeeding
                                    limitation year if necessary;

                           (C)      If an excess amount still exists after the
                                    application of subparagraphs (A), and the
                                    Participant is not covered by the Plan at
                                    the end of the limitation year, the excess
                                    amount shall be held unallocated in a
                                    suspense account and applied to reduce
                                    future Employer contributions (including
                                    allocation of any forfeitures) for all
                                    remaining Participants in the next
                                    limitation year, and each succeeding
                                    limitation year if necessary. Excess amounts
                                    may not be distributed to Participants or
                                    former Participants.

                                       41
<PAGE>

                           (D)      If a suspense account is in existence at any
                                    time during the limitation year pursuant to
                                    this Section 11.1(a)(4), it shall not
                                    participate in the allocation of the Trust's
                                    investment gains and losses. In addition,
                                    all amounts held in the suspense account
                                    shall be allocated and reallocated to
                                    Participants' Accounts before any Employer
                                    or Employee contributions may be made for
                                    the limitation year.

                  (5)      If, in addition to this Plan, the Participant is
                           covered under another defined contribution plan
                           maintained by the Employer, or a welfare benefit
                           fund, as defined in Code Section 419(e), maintained
                           by the Employer, or an individual medical account, as
                           defined in Code Section 415(1)(2), maintained by the
                           Employer which provides an annual addition, the
                           annual additions which may be credited to a
                           Participant's account under all such plans for any
                           such limitation year shall not exceed the maximum
                           permissible amount. Benefits shall be reduced under
                           any discretionary defined contribution plan before
                           they are reduced under any defined contribution
                           pension plan. If both plans are discretionary
                           contribution plans, they shall first be reduced under
                           this Plan. Any excess amount attributable to this
                           Plan shall be disposed of in the manner described in
                           Section 11.1(a)(4).

                  (6)      If the Employer maintains, or at any time maintained,
                           a qualified defined benefit plan covering any
                           Participant in this Plan, the sum of the
                           Participant's defined benefit plan fraction and
                           defined contribution plan fraction shall not exceed
                           1.0 in any limitation year. The annual additions
                           which may be credited to the Participant's Account
                           under this Plan for any limitation year shall be
                           limited so that if the limitations of Code Section
                           415(e) become applicable, benefits under a defined
                           benefit plan shall have first been provided before
                           benefits under a defined contribution plan are
                           provided.

                           The combined limitation set forth in the preceding
                           paragraph shall not apply to any limitation year
                           beginning after December 31, 1999.

                  (7)      In any Plan Year in which the Plan becomes a Super
                           Top-Heavy Plan (as defined in Section 13.2(b)), the
                           denominators of the defined benefit fraction and
                           defined contribution fraction shall be computed using
                           one hundred percent (100%) of the maximum dollar
                           limitation instead of one hundred and twenty-five
                           percent (125%).

                  (8)      In any year in which the Plan is a Top-Heavy Plan (as
                           defined in Section 13.2(c)) (but not a Super
                           Top-Heavy Plan), the limitations shall be similarly
                           reduced, subject to the special provisions of Section
                           13.3, which provide for the use of the one hundred
                           and twenty-five percent (125%) limitation subject to
                           the added minimum allocations.

         (b)      DEFINITIONS.

                  (1)      ANNUAL ADDITIONS: The following amounts credited to a
                           Participant's Account for the limitation year shall
                           be treated as annual additions:

                           (A)      Employer contributions;

                           (B)      Elective deferrals;

                                       42
<PAGE>

                           (C)      Employee after-tax contributions, if any;

                           (D)      Forfeitures, if any; and

                           (E)      Amounts allocated after March 31, 1984 to an
                                    individual medical account, as defined in
                                    Section 415(1)(2) of the Code, which is part
                                    of a pension or annuity plan maintained by
                                    the Employer. Also, amounts derived from
                                    contributions paid or accrued after December
                                    31, 1985 in taxable years ending after such
                                    date which are attributable to
                                    post-retirement medical benefits allocated
                                    to the separate account of a Key Employee,
                                    as defined. in Section 419A(d)(3), and
                                    amounts under a welfare benefit fund, as
                                    defined in Section 419(e), maintained by the
                                    Employer, shall be treated as annual
                                    additions to a defined contribution plan.

                           Employer and employee contributions taken into
                           account as annual additions shall include "excess
                           contributions" as defined in Section 401(k)(8)(B) of
                           the Code, "excess aggregate contributions" as defined
                           in Section 401(m)(6)(B) of the Code, and "excess
                           deferrals" as defined in Section 402(g) of the Code,
                           regardless of whether such amounts are distributed,
                           recharacterized or forfeited, unless such amounts
                           constitute excess deferrals that were distributed to
                           the Participant no later than April 15 of the taxable
                           year following the taxable year of the Participant in
                           which such deferrals were made.

                           For this purpose, any excess amount applied under
                           Section 11.1(a)(4) in the limitation year to reduce
                           Employer contributions shall be considered annual
                           additions for such limitation year.

                  (2)      COMPENSATION: For purposes of determining maximum
                           permitted benefits under this Section, compensation
                           shall include all of a Participant's earned income,
                           wages, salaries, and fees for professional services,
                           and other amounts received for personal services
                           actually rendered in the course of employment with
                           the Employer, including, but not limited to,
                           commissions paid to salesmen, compensation for
                           services on the basis of a percentage of profits,
                           commissions on insurance premiums, tips and bonuses,
                           and effective for limitation years beginning after
                           December 31, 1997, including also any elective
                           deferrals (as defined in Section 402(g)(3) of the
                           Code) made by an Employee to the Plan and any amount
                           contributed or deferred by an Employee on an elective
                           basis and not includable in the gross income of the
                           Employee under Section 125 of the Code; and excluding
                           the following:

                           (A)      Except as provided in the preceding
                                    paragraph of this Section 11.1(b)(2),
                                    Employer contributions to a plan of deferred
                                    compensation which are not included in the
                                    Employee's gross income for the taxable year
                                    in which contributed, or Employer
                                    contributions under a simplified employee
                                    pension plan (funded with individual
                                    retirement accounts or annuities) to the
                                    extent such contributions are deductible by
                                    the Employee, or any distributions from a
                                    plan of deferred compensation;

                           (B)      Amounts realized from the exercise of a
                                    nonqualified stock option, or when
                                    restricted stock (or property) held by the
                                    Employee either becomes freely transferable
                                    or is no longer subject to a substantial
                                    risk of forfeiture;

                                       43
<PAGE>

                           (C)      Amounts realized from the sale, exchange, or
                                    other disposition of stock acquired under a
                                    qualified stock option; and

                           (D)      Other amounts which received special tax
                                    benefits, or contributions made by the
                                    Employer (whether or not under a salary
                                    reduction agreement) toward the purchase of
                                    an annuity described in Section 403(b) of
                                    the Code (whether or not the amounts are
                                    actually excludable from the gross income of
                                    the Employee).

                           Compensation shall be measured on the basis of
                           compensation paid in the limitation year.

                  (3)      DEFINED BENEFIT FRACTION: This shall mean a fraction,
                           the numerator of which is the sum of the
                           Participant's projected annual benefits under all the
                           defined benefit plans maintained or previously
                           maintained by the Employer, and the denominator of
                           which is the lesser of one hundred and twenty-five
                           percent (125%) of the dollar limitation in effect for
                           the limitation year under Section 415(b)(1)(A) of the
                           Code or one hundred and forty percent (140%) of the
                           highest average compensation including any adjustment
                           under Code Section 415(b).

                  (4)      DEFINED CONTRIBUTION FRACTION: This shall mean a
                           fraction, the numerator of which is the sum of the
                           annual additions to the Participant's account under
                           all the defined contribution plans (whether or not
                           terminated), welfare benefit funds, and individual
                           medical accounts maintained by the Employer for the
                           current and all prior limitation years, and the
                           denominator of which is the sum of the maximum
                           aggregate amounts for the current and all prior
                           limitation years of Service with the Employer,
                           regardless of whether a defined contribution plan was
                           maintained by the Employer.

                           The maximum aggregate amount in any limitation year
                           is the lesser of one hundred and twenty-five percent
                           (125%) of the dollar limitation then in effect under
                           Section 415(c)(1)(A) of the Code or thirty-five (35%)
                           of the Participant's compensation for such year.

                           If the Employee, as of the end of the first day of
                           the first limitation year beginning after December
                           31, 1986, was a participant in one (1) or more
                           defined contribution plans maintained by the Employer
                           which were in existence on May 5, 1986, the numerator
                           of this fraction shall be adjusted if the sum of this
                           fraction and the defined benefit fraction would
                           otherwise exceed 1.0 under the terms of this Plan.
                           Under the adjustment, an amount equal to the product
                           of (i) the excess of the sum of the fractions over
                           1.0 and (ii) the denominator of this fraction, will
                           be permanently subtracted from the numerator of this
                           fraction. The adjustment is calculated using the
                           fractions as they would be computed as of the end of
                           the last limitation year beginning before January 1,
                           1987, and disregarding any changes in the terms and
                           conditions of the Plan made after May 5, 1986, but
                           using the Code Section 415 limitation applicable to
                           the first limitation year beginning on or after
                           January 1, 1987.

                           The annual addition for any limitation year beginning
                           before January 1, 1987, shall not be recomputed to
                           treat all Employee contributions as annual additions.

                                       44
<PAGE>

                  (5)      DEFINED CONTRIBUTION DOLLAR LIMITATION: Effective
                           January 1, 1995, this shall mean $30,000 as adjusted
                           under Section 415(d) of the Code.

                  (6)      EMPLOYER: This term refers to the Employer that
                           adopts this Plan, and all members of a controlled
                           group of corporations (as defined in Section 414(b)
                           of the Code, as modified by Section 415(h)),
                           commonly-controlled trades or businesses (as defined
                           in Section 414(c), as modified by Section 415(h)), or
                           affiliated service groups (as defined in Section
                           414(m)) of which the Employer is a part, or any other
                           entity required to be aggregated with the Employer
                           under Code Section 414(o).

                  (7)      HIGHEST AVERAGE COMPENSATION: This means the average
                           compensation for the three (3) consecutive limitation
                           years with the Employer that produces the highest
                           average.

                  (8)      LIMITATION YEAR: This shall mean the Plan Year,
                           unless the Employer elects a different twelve (12)
                           consecutive month period. The election shall be made
                           by the adoption of a Plan amendment by the Employer.
                           If the limitation year is amended to a different
                           twelve (12) consecutive month period, the new
                           limitation year must begin on a date within the
                           limitation year in which the amendment is made.

                  (9)      MAXIMUM PERMISSIBLE AMOUNT: This shall mean an amount
                           equal to the lesser of the defined contribution
                           dollar limitation or twenty-five percent (25%) of the
                           Participant's compensation for the limitation year.
                           If a short limitation year is created because of an
                           amendment changing the limitation year to a different
                           twelve (12)-consecutive month period, the maximum
                           permissible amount shall not exceed the defined
                           contribution dollar limitation multiplied by the
                           following fraction:

                           Number of months in the short limitation year
                           ---------------------------------------------
                                               12

                  (10)     PROJECTED ANNUAL BENEFIT: This is the annual
                           retirement benefit (adjusted to an actuarially
                           equivalent straight life annuity if such benefit is
                           expressed in a form other than a straight life
                           annuity or qualified joint and survivor annuity) to
                           which the Participant would be entitled under the
                           terms of the plan, assuming:

                           (A)      the Participant will continue employment
                                    until normal retirement age under the plan
                                    (or current age, if later), and

                           (B)      the Participant's compensation for the
                                    current limitation year and all other
                                    relevant factors used to determine benefits
                                    under the plan will remain constant for all
                                    future limitation years.

                                       45
<PAGE>

                    ARTICLE TWELVE--AMENDMENT AND TERMINATION

12.1     AMENDMENT. The Employer, by resolution of its board of directors, (or,
         to the extent permitted by resolution of such board of directors, by
         action of a duly authorized officer of the Employer) shall have the
         right to amend, alter or modify the Plan at any time, or from time to
         time, in whole or in part. Any such amendment shall become effective
         under its terms upon adoption by the Employer. However, no amendment
         affecting the duties, powers or responsibilities of the Trustee may be
         made without the written consent of the Trustee. No amendment shall be
         made to the Plan which shall:

         (a)      make it possible (other than as provided in Section 14.3) for
                  any part of the corpus or income of the Trust Fund (other than
                  such part as may be required to pay taxes and administrative
                  expenses) to be used for or diverted to purposes other than
                  the exclusive benefit of the Participants or their
                  Beneficiaries;

         (b)      decrease a Participant's account balance or eliminate an
                  optional form of payment with respect to benefits accrued as
                  of the later of (i) the date such amendment is adopted, or
                  (ii) the date the amendment becomes effective; or

         (c)      alter the schedule for vesting in a Participant's Account with
                  respect to any Participant with three (3) or more Years of
                  Vesting Service without his consent or deprive any Participant
                  of any nonforfeitable portion of his Account.

         Notwithstanding the other provisions of this Section or any other
         provisions of the Plan, any amendment or modification of the Plan may
         be made retroactively if necessary or appropriate to conform to or to
         satisfy the conditions of any law, governmental regulation, or ruling,
         and to meet the requirements of the Employee Retirement Income Security
         Act of 1974, as it may be amended.

12.2     TERMINATION OF THE PLAN. The Employer, by resolution of its board of
         directors, reserves the right at any time and in its sole discretion to
         discontinue payments under the Plan and to terminate the Plan. In the
         event the Plan is terminated, or upon complete discontinuance of
         contributions under the Plan by the Employer, the rights of each
         Participant to his Account on the date of such termination or
         discontinuance of contributions, to the extent of the fair market value
         under the Trust Fund, shall become fully vested and nonforfeitable. The
         Employer shall direct the Trustee to distribute the Trust Fund in
         accordance with the Plan's distribution provisions to the Participants
         and their Beneficiaries, each Participant or Beneficiary receiving a
         portion of the Trust Fund equal to the value of his Account as of the
         date of distribution. These distributions may be implemented by the
         continuance of the Trust and the distribution of the Participants'
         Account shall be made at such time and in such manner as though the
         Plan had not terminated, or by any other appropriate method, including
         rollover into Individual Retirement Accounts. Upon distribution of the
         Trust Fund, the Trustee shall be discharged from all obligations under
         the Trust and no Participant or Beneficiary shall have any further
         right or claim therein. In the event of the partial termination of the
         Plan, the Accounts of all affected Participants shall become fully
         vested and nonforfeitable and the provisions of the preceding paragraph
         shall apply with respect to such Participant's Accounts.

                                       46
<PAGE>

12.3     DISTRIBUTION UPON SALE OR DISPOSITION OF STOCK OR ASSETS. The vested
         balances of affected Participants (as defined below) may be
         distributed, in a single lump-sum payment, as soon as administratively
         practical following:

         (i)      the sale or other disposition of the Employer's interest in a
                  subsidiary (within the meaning of Section 409(d)(3) of the
                  Code) to an entity that is not a "related group member"
                  (within the meaning of Section 2.6(b)), provided that the
                  Employer and not the acquirer continues to maintain the Plan
                  after the disposition. In this case, affected Participants
                  shall be those Participants who continue employment with such
                  subsidiary.

         (ii)     the sale or other disposition of "substantially all" (within
                  the meaning of Section 1.401(k)-1(d)(4) of the Income Tax
                  Regulations) of the assets used by the Employer in a trade or
                  business to an unrelated corporation, provided that the
                  Employer and not the acquirer continues to maintain the Plan
                  after the disposition. In this case, affected Participants
                  shall be those Participants who continue employment with the
                  corporation acquiring such assets.

                                       47
<PAGE>

                     ARTICLE THIRTEEN--TOP-HEAVY PROVISIONS

13.1     APPLICABILITY. The provisions of this Article shall become applicable
         only for any Plan Year in which the Plan is a Top-Heavy Plan (as
         defined in Section 13.2(c)). The determination of whether the Plan is a
         Top-Heavy Plan shall be made each Plan Year by the Administrator.

13.2     DEFINITIONS. For purposes of this Article, the following definitions
         shall apply:

         (a)      "Key Employee": "Key Employee" shall mean any Employee or
                  former Employee (and the Beneficiaries of such Employee) who,
                  at any time during the determination period, was (1) an
                  officer of the Employer earning compensation (as defined in
                  Section 416(i) of the Code) in excess of fifty percent (50%)
                  of the dollar limitation under Section 415(b)(1)(A) of the
                  Code, (2) an owner (or considered an owner under Section 318
                  of the Code) of both more than a one-half percent (l/2%)
                  interest in the Employer and one of the ten (10) largest
                  interests in the Employer if such individual's compensation
                  exceeds the dollar limitation under Section 415(c)(1)(A) of
                  the Code, (3) a five percent (5%) owner of the Employer, or
                  (4) a one percent (1 %) owner of the Employer who has an
                  annual compensation of more than $150,000. For purposes of
                  this Section, annual compensation shall mean compensation as
                  defined in Code Section 415(c)(3), but including amounts
                  contributed by the Employer pursuant to a salary reduction
                  agreement which are excludable from the Employee's income
                  under Code Sections 125, 402(g), 402(h) or 403(c). The
                  determination period of the Plan is the Plan Year containing
                  the "determination date" as defined in Section 13.2(c)(4) and
                  the four (4) preceding Plan Years.

                  The determination of who is a Key Employee (including the
                  terms "5% owner" and "1% owner") shall be made in accordance
                  with Section 416(i)(1) of the Code and the regulations
                  thereunder.

         (b)      "Super Top-Heavy Plan": The Plan shall constitute a "Super
                  Top-Heavy Plan" if it meets the test for status as a Top-Heavy
                  Plan, where "90%" is substituted for "60%" at each place in
                  Section 13.2(c).

         (c)      "Top-Heavy Plan":

                  (1)      The Plan shall constitute a "Top-Heavy Plan" if any
                           of the following conditions exist:

                           (A)      The top-heavy ratio for the Plan exceeds
                                    sixty percent (60%) and the Plan is not part
                                    of any required aggregation group or
                                    permissive aggregation group of plans; or

                           (B)      The Plan is part of a required aggregation
                                    group of plans (but is not part of a
                                    permissive aggregation group) and the
                                    top-heavy ratio for the group of plans
                                    exceeds sixty percent (60%); or

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

                                       48
<PAGE>

                  (2)      If the Employer maintains one (1) or more defined
                           contribution plans (including any simplified employee
                           pension plan funded with individual retirement
                           accounts or annuities) and the Employer maintains or
                           has maintained one (1) or more defined benefit plans
                           which have covered or could cover a Participant in
                           this Plan, the top-heavy ratio is a fraction, the
                           numerator of which is the sum of account balances
                           under the defined contribution plans for all Key
                           Employees and the actuarial equivalents of accrued
                           benefits under the defined benefit plans for all Key
                           Employees, and the denominator of which is the sum of
                           the account balances under the defined contribution
                           plans for all Participants and the actuarial
                           equivalents of accrued benefits under the defined
                           benefit plans for all Participants. Both the
                           numerator and denominator of the top-heavy ratio
                           shall include any distribution of an account balance
                           or an accrued benefit made in the five (5)-year
                           period ending on the determination date and any
                           contribution due to a defined contribution pension
                           plan but unpaid as of the determination date. In
                           determining the accrued benefit of a non-Key Employee
                           who is participating in a plan that is part of a
                           required aggregation group, the method of determining
                           such benefit shall be either (i) in accordance with
                           the method, if any, that uniformly applies for
                           accrual purposes under all plans maintained by the
                           Employer or any member of the Employer's related
                           group (within the meaning of Section 2.6(b)), or (ii)
                           if there is no such method, as if such benefit
                           accrued not more rapidly than the slowest accrual
                           rate permitted under the fractional accrual rate of
                           Code Section 411(b)(1)(C).

                  (3)      For purposes of (1) and (2) above, the value of
                           account balances and the actuarial equivalents of
                           accrued benefits shall be determined as of the most
                           recent Valuation Date that falls within or ends with
                           the twelve (12)-month period ending on the
                           determination date. The account balances and accrued
                           benefits of a Participant who is not a Key Employee
                           but who was a Key Employee in a prior year shall be
                           disregarded. The accrued benefits and account
                           balances of Participants who have performed no Hours
                           of Service with any Employer maintaining the plan for
                           the five (5)-year period ending on the determination
                           date shall be disregarded. The calculations of the
                           top-heavy ratio, and the extent to which
                           distributions, rollovers, and transfers are taken
                           into account shall be made under Section 416 of the
                           Code and regulations issued thereunder. Deductible
                           Employee contributions shall not be taken into
                           account for purposes of computing the top-heavy
                           ratio. When aggregating plans, the value of account
                           balances and accrued benefits shall be calculated
                           with reference to the determination dates that fall
                           within the same calendar year.

                  (4)      DEFINITION OF TERMS FOR TOP-HEAVY STATUS:

                           (A)      "Top-heavy ratio" shall mean the following:

                                   (1)      If the Employer maintains one or
                                            more defined contribution plans
                                            (including any simplified employee
                                            pension plan funded with individual
                                            retirement accounts or annuities)
                                            and the Employer has never
                                            maintained any defined benefit plans
                                            which have covered or could cover a
                                            Participant in this Plan, the
                                            top-heavy ratio is a fraction, the
                                            numerator of which is the sum of the
                                            account

                                       49
<PAGE>

                                            balances of all Key Employees as of
                                            the determination date (including
                                            any part of any account balance
                                            distributed in the
                                            five (5)-year period ending on the
                                            determination date), and the
                                            denominator of which is the sum of
                                            the account balances (including any
                                            part of any account balance
                                            distributed in the five (5)-year
                                            period ending on the determination
                                            date) of all Participants as of the
                                            determination date. Both the
                                            numerator and the denominator shall
                                            be increased by any contributions
                                            due but unpaid to a defined
                                            contribution pension plan as of the
                                            determination date.

                           (B)      "Permissive aggregation group" shall mean
                                    the required aggregation group of plans plus
                                    any other plan or plans of the Employer
                                    which, when considered as a group with the
                                    required aggregation group, would continue
                                    to satisfy the requirements of Section
                                    401(a)(4) and 410 of the Code.

                           (C)      "Required aggregation group" shall mean (i)
                                    each qualified plan of the Employer
                                    (including any terminated plan) in which at
                                    least one Key Employee participates, and
                                    (ii) any other qualified plan of the
                                    Employer which enables a plan described in
                                    (i) to meet the requirements of Section
                                    401(a)(4) or 410 of the Code.

                           (D)      "Determination date" shall mean, for any
                                    Plan Year subsequent to the first Plan Year,
                                    the last day of the preceding Plan Year. For
                                    the first Plan Year of the Plan,
                                    "determination date" shall mean the last day
                                    of that Plan Year.

                           (E)      "Valuation Date" shall mean the last day of
                                    the Plan Year.

                           (F)      Actuarial equivalence shall be based on the
                                    interest and mortality rates utilized to
                                    determine actuarial equivalence when
                                    benefits are paid from any defined benefit
                                    plan. If no rates are specified in said
                                    plan, the following shall be utilized: pre-
                                    and post-retirement interest -- five percent
                                    (5%); post-retirement mortality based on the
                                    Unisex Pension (1984) Table as used by the
                                    Pension Benefit Guaranty Corporation on the
                                    date of execution hereof.

13.3     ALLOCATION OF EMPLOYER CONTRIBUTIONS AND FORFEITURES FOR A TOP-HEAVY
         PLAN YEAR.

         (a)      Except as otherwise provided below, in any Plan Year in which
                  the Plan is a Top-Heavy Plan, the Employer contributions and
                  forfeitures allocated on behalf of any Participant who is a
                  non-Key Employee shall not be less than the lesser of three
                  percent (3%) of such Participant's compensation (as defined in
                  Section 11.1(b)(2) and as limited by Section 401(a)(17) of the
                  Code) or the largest percentage of Employer contributions,
                  elective deferrals, and forfeitures as a percentage-of the Key
                  Employee's Compensation (as defined in Section 11.1(b)(2) and
                  as limited by Section 401(a)(17) of the Code), allocated on
                  behalf of any Key Employee for that Plan Year. This minimum
                  allocation shall be made even though, under other Plan
                  provisions, the Participant would not otherwise be entitled to
                  receive an allocation or would have received a lesser
                  allocation for the Plan Year because of insufficient Employer
                  contributions under Section 4.2 or the Participant's failure
                  to make elective deferrals under Section 4.1.

         (b)      The minimum allocation under this Section shall not apply to
                  any Participant who was not employed by the Employer on the
                  last day of the Plan Year.

                                       50
<PAGE>

         (c)      Neither elective deferrals nor Employer matching contributions
                  may be taken into account for the purpose of satisfying the
                  minimum allocation.

         (d)      For purposes of the Plan, a non-Key Employee shall be any
                  Employee or Beneficiary of such Employee, any former Employee,
                  or Beneficiary of such former Employee, who is not or was not
                  a Key Employee during the Plan Year ending on the
                  determination date, nor during the four (4) preceding Plan
                  Years.

         (e)      If no defined benefit plan has ever been part of a permissive
                  or required aggregation group of plans of the Employer, the
                  contributions and forfeitures under this step shall be offset
                  by any allocation of contributions and forfeitures under any
                  other defined contribution plan of the Employer with a Plan
                  Year ending in the same calendar year as this Plan's Valuation
                  Date.

         (f)      There shall be no duplication of the minimum benefits required
                  under Code Section 416. Benefits shall be provided under
                  defined contribution plans before under defined benefit plans.
                  If a defined benefit plan (active or terminated) is part of
                  the permissive or required aggregation group of plans, the
                  allocation method of subparagraph (a) above shall apply,
                  except that "3%" shall be increased to "5%."

         (g)      There shall be no duplication of the minimum benefits required
                  under Code Section 416. Benefits shall be provided under
                  defined contribution plans before defined benefit plans. If a
                  defined benefit plan (active or terminated) is part of the
                  permissive or required aggregation group of plans, and if any
                  Participant in the Plan would have his benefits limited due to
                  the application of the Code limitation rule in Section 11.1 in
                  a Plan Year in which the Plan is a Top-Heavy Plan but not a
                  Super Top-Heavy Plan, the allocation method of subparagraph
                  (f) above shall apply, except that "5%"shall be increased to
                  "7.5%." In the event any Participant in the Plan would have
                  his benefits limited due to the application of the special
                  Code limitation rule in Section 11.1 in a Plan Year in which
                  the Plan is a Top-Heavy Plan but not a Super Top-Heavy Plan
                  and the Participant is covered only by a defined contribution
                  plan, the allocation method of subparagraph (a) shall apply,
                  except that "3%" shall be increased to "4%".

13.4     VESTING. The provisions contained in Section 6.1 relating to vesting
         shall continue to apply in any Plan Year in which the Plan is a
         Top-Heavy Plan, and apply to all benefits within the meaning of Section
         411(a)(7) of the Code except those attributable to Employee
         contributions and elective deferrals under Section 4.1, including
         benefits accrued before the effective date of Section 416 and benefits
         accrued before the Plan became a Top-Heavy Plan. Further, no reduction
         in vested benefits may occur in the event the Plan's status as a
         Top-Heavy Plan changes for any Plan Year and the vesting schedule is
         amended. In addition, if a Plan's status changes from a Top-Heavy Plan
         to that of a non-Top-Heavy Plan, a Participant with three (3) Years of
         Vesting Service shall continue to have his vested rights determined
         under the schedule which he selects, in the event the vesting schedule
         is subsequently amended.

         Payment of a Participant's vested Account balance under this Section
         shall be made in accordance with the provisions of Article Seven.

                                       51
<PAGE>

                   ARTICLE FOURTEEN--MISCELLANEOUS PROVISIONS

14.1     PLAN DOES NOT AFFECT EMPLOYMENT. Neither the creation of this Plan, any
         amendment thereto, the creation of any fund nor the payment of benefits
         hereunder shall be construed as giving any legal or equitable right to
         any Employee or Participant against the Employer, its officers or
         Employees, or against the Trustee. All liabilities under this Plan
         shall be satisfied, if at all, only out of the Trust Fund held by the
         Trustee. Participation in the Plan shall not give any Participant any
         right to be retained in the employ of the Employer, and the Employer
         hereby expressly retains the right to hire and discharge any Employee
         at any time with or without cause, as if the Plan had not been adopted,
         and any such discharged Participant shall have only such rights or
         interests in the Trust Fund as may be specified herein.

14.2     SUCCESSOR TO THE EMPLOYER. In the event of the merger, consolidation,
         reorganization or sale of assets of the Employer, under circumstances
         in which a successor person, firm, or corporation shall carry on all or
         a substantial part of the business of the Employer, and such successor
         shall employ a substantial number of Employees of the Employer and
         shall elect to carry on the provisions of the Plan, such successor
         shall be substituted for the Employer under the terms and provisions of
         the Plan upon the filing in writing with the Trustee of its election to
         do so.

14.3     REPAYMENTS TO THE EMPLOYER. Notwithstanding any provisions of this Plan
         to the contrary:

         (a)      Any monies or other Plan assets attributable to any
                  contribution made to this Plan by the Employer because of a
                  mistake of fact shall be returned to the Employer within one
                  (1) year after the date of contribution.

         (b)      Any monies or other Plan assets attributable to any
                  contribution made to this Plan by the Employer shall be
                  refunded to the Employer, to the extent such contribution is
                  predicated on the deductibility thereof under the Code and the
                  income tax deduction for such contribution is disallowed. Such
                  amount shall be refunded within one (1) taxable year after the
                  date of such disallowance or within one (1) year of the
                  resolution of any judicial or administrative process with
                  respect to the disallowance. All Employer contributions
                  hereunder are expressly contributed based upon such
                  contributions' deductibility under the Code.

14.4     BENEFITS NOT ASSIGNABLE. Except as provided in Section 414(p) of the
         Code with respect to "qualified domestic relations orders," the rights
         of any Participant or his Beneficiary to any benefit or payment
         hereunder shall not be subject to voluntary or involuntary alienation
         or assignment.

         With respect to any "qualified domestic relations order" relating to
         the Plan, the Plan shall permit distribution to an alternate payee
         under such order at any time, irrespective of whether the Participant
         has attained his "earliest retirement age" (within the meaning of
         Section 414(p)(4)(B) of the Code) under the Plan. A distribution to an
         alternate payee prior to the Participant's attainment of his earliest
         retirement age shall, however, be available only if the order specifies
         distribution at that tune or permits an agreement between the Plan and
         the alternate payee to authorize an earlier distribution.

                                       52
<PAGE>

         Nothing in this paragraph shall, however, give a Participant a right to
         receive distribution at a time otherwise not permitted under the Plan
         nor does it permit the alternate payee to receive a form of payment not
         otherwise permitted under the Plan or under said Section 414(p) of the
         Code.

14.5     MERGER OF PLANS. In the case of any merger or consolidation of this
         Plan with, or transfer of the assets or liabilities of the Plan to, any
         other plan, the terms of such merger, consolidation or transfer shall
         be such that each Participant would receive (in the event of
         termination of this Plan or its successor immediately thereafter) a
         benefit which is no less than what the Participant would have received
         in the event of termination of this Plan immediately before such
         merger, consolidation or transfer.

14.6     INVESTMENT EXPERIENCE NOT A FORFEITURE. The decrease in value of any
         Account due to adverse investment experience shall not be considered an
         impermissible "forfeiture" of any vested balance.

14.7     CONSTRUCTION. Wherever appropriate, the use of the masculine gender
         shall be extended to include the feminine and/or neuter or vice versa;
         and the singular form of words shall be extended to include the plural;
         and the plural shall be restricted to mean the singular.

14.8     GOVERNING DOCUMENTS. A Participant's rights shall be determined under
         the terms of the Plan as in effect at the Participant's date of
         separation from Service.

14.9     GOVERNING LAW. The provisions of this Plan shall be construed under the
         laws of the state of the situs of the Trust, except to the extent such
         laws are preempted by Federal law.

14.10    HEADINGS. The Article headings and Section numbers are included solely
         for ease of reference. If there is any conflict between such headings
         or numbers and the text of the Plan, the text shall control.

14.11    COUNTERPARTS. This Plan may be executed in any number of counterparts,
         each of which shall be deemed an original; said counterparts shall
         constitute but one and the same instrument, which may be sufficiently
         evidenced by any one counterpart.

14.12    LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN. In the event that all
         or any portion of the distribution payable to a Participant or to a
         Participant's Beneficiary hereunder shall, at the expiration of five
         (5) years after it shall become payable, remain unpaid solely by reason
         of the inability of the Administrator to ascertain the whereabouts of
         such Participant or Beneficiary, after sending a registered letter,
         return receipt requested, to the last known address, and after further
         diligent effort, the amount so distributable shall be used to pay Plan
         expenses and/or reallocated in the same manner as a forfeiture under
         Section 6.2 pursuant to this Plan. In the event a Participant

                                       53
<PAGE>

         or Beneficiary is located subsequent to the forfeiture of his Account
         balance, such Account balance shall be restored.

                     ______________________________________

IN WITNESS WHEREOF, the Employer, by its duly authorized officer, has caused
this Plan to be executed on the ______________ day of ________________, 1999.

                                                              PEARSON INC.

                                     By _____________________________________
                                        Authorized Officer

                                       54<PAGE>

                                                                 EXHIBIT 4.12

                               PEARSON INC.
              DISCRETIONARY STOCK OPTION PLAN FOR AUTHORS

1.  PURPOSE.  This Plan authorizes the Company, its Parent, Affiliates or
subsidiaries to provide Authors who create or contribute to materials to be
published by the Company, its Parent, Affiliates or subsidiaries, with
Options to acquire Shares in the Parent. The Company believes that this
incentive program will cause those persons to increase their interest in the
welfare of the Company, its Parent, Affiliates and subsidiaries, and aid in
producing high-quality products.

2.  DEFINITIONS.

    Capitalized terms used herein shall have the meanings set forth in this
Section.

    (a)  "Affiliate" shall mean any person or entity that, either directly or
indirectly through one or more intermediaries, (i) controls the Company, or
(ii) is controlled by the Company or a person described in clause (i).

    (b)  "Author" shall mean a person engaged by the Grantor Company to
compose novels or other manuscripts for publication by the Grantor Company.

    (c)  "Company" shall mean Pearson Inc., a corporation organized under the
laws of Delaware.

    (d)  "Grantor Company" shall mean the Company, its Parent, Affiliate or
any subsidiary which grants an Option to an Author.

    (e)  "Options" shall refer to options issued under and subject to the
Plan.

    (f)  "Parent" shall mean Pearson plc.

    (g)  "Plan" shall mean the Discretionary Stock Option Plan for Authors as
set forth herein and as amended from time to time.

    (h)  "Share" shall mean an ordinary share, 25p per share of the Parent,
which may be in the form of American Depository Receipts.

    (i)  "Trust" shall mean the trust that is created by the Pearson Inc.
Trust Agreement, dated June 15, 2000, or any successor trust thereto.

3.  ELIGIBILITY.  Authors who are designated by the Grantor Company shall be
eligible to receive an Option.

4.  OPTION TERMS.  The terms of each Option shall be determined at the sole
discretion of the Grantor Company and set forth in an option agreement
between the Grantor Company and the Author, not inconsistent with the terms of
the Plan.

<PAGE>

5.  SOURCE OF SHARES.  In order to satisfy the Grantor Company's obligation
upon the exercise of an Option, Shares shall be purchased on the open-market
by the Grantor Company at the time of such exercise and/or shall be
distributed from the Trust from Shares previously purchased on the open
market by the Trust through funds contributed by the Grantor Company.

6.  ADJUSTMENT UPON CHANGES IN CAPITALIZATION.  In the event any
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or exchange of Shares or
other securities, any special and nonrecurring dividend or distribution
(whether in the form of cash, securities or other property), liquidation,
dissolution, or other similar transactions or events, affects the Shares such
that an adjustment is, in the sole discretion of the Grantor Company,
appropriate in order to prevent dilution or enlargement of the rights of any
Author, then the Grantor Company shall equitably adjust (i) the number and
kind of Shares that may be delivered or deliverable in respect of the Option,
and/or (ii) the exercise price. In addition, the Grantor Company is
authorized to make adjustments in the terms and conditions of and the
criteria included in, the Option (including, without limitation, cancellation
of the Option in exchange for its intrinsic (i.e. in-the-money) value, if
any, or substitution of the Option using stock of a successor or other
entity) in recognition of unusual of nonrecurring events (including, without
limitation, an event described in the preceding sentence) affecting the
Company its Parent, Affiliate or subsidiary or the financial statements of
the Company, its Parent, affiliate or subsidiary, or in response to changes
in applicable laws, regulations, or accounting principles.

7.  RESTRICTIONS ON ISSUING STOCK.  The Grantor Company shall not be
obligated to issue or deliver Shares upon exercise of the Option or take any
other action in a transaction subject to the requirements of any applicable
securities law, any requirement under any listing agreement between Parent
and any national securities exchange or automated quotation system or any
other law, regulation or contractual obligation of the Grantor Company or
Parent until the Grantor Company is satisfied that such laws, regulations,
and other obligations have been complied with in full. As a condition to
exercise of the Option, the Grantor Company may require such customary
representations from the Author as it deems are necessary to ensure
compliance with applicable securities laws. Certificates representing Shares
issued pursuant to exercise of the Option will be subject to such
stop-transfer orders and other restrictions as may be applicable under such
laws, regulations and other obligations of the Grantor Company, including any
requirement that a legend or legends be placed thereon.

8.  NO STOCKHOLDER RIGHTS; NO EFFECT ON RIGHT TO TERMINATE AGREEMENT.  An
Option shall neither (i) confer on the Author any of the rights of a
stockholder of Parent unless and until Shares are duly issued or transferred
and delivered to the Author upon exercise of the Option, nor (ii) interfere
in any way with the right of the Company, its Parent, Affiliate or subsidiary
to terminate its relationship or any other agreements with the Author.

9.  COMPLIANCE WITH LAWS.  No action will be taken under this Plan in
breach of U.K. law.

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