Document:

Exhibit 10.2

MAGELLAN HEALTH SERVICES, INC.

2006 DIRECTOR EQUITY COMPENSATION PLAN

1.                  Purposes. The purpose of this 2006
Director Equity Compensation Plan (the “Plan”) is to serve as part of an
appropriate and efficient package of compensation arrangements intended to
attract, retain and fairly compensate individuals with the appropriate skills
and qualifications to serve as directors of Magellan Health Services, Inc.
(the “Company”) while increasing participating directors’ stock ownership in
the Company and thereby further aligning their interests and those of the
Company’s shareholders. The amount, timing and other terms of cash compensation
that may be paid by the Company to directors are not governed by this Plan. In
addition, adoption of this Plan shall not limit the authority of the Board to
adopt other compensation programs in which directors may participate.

2.                  Definitions. In addition to the terms
defined in Section 1, the following terms shall be defined as set forth
below:

(a)            “Administrator” shall
have the meaning set forth in Section 11.b.

(b)           “Annual Award Date”
shall have the meaning set forth in Section 5.a.

(c)            “Annual Award” shall
have the meaning set forth in Section 5.a.

(d)           “Black-Scholes
Valuation” means the present value of an Option as of the date in question,
calculated by means of the Black-Scholes option pricing model, so called, as
calculated by a qualified financial analyst or compensation expert based on
historical market price information and assumptions as to rates of interest and
other factors which the Board believes are reasonable under the circumstances.

(e)            “Board” means the
Board of Directors of the Company as then constituted.

(f)              “Change of Control”
means the first to occur after the effective date of this Plan of any of the
following events:

(i)                any “person,” as
such term is used in Sections 3(a)(9) and 13(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), acquires Voting Stock
(as defined below) and immediately thereafter is a “beneficial owner,” as such
term is used in Rule 13d-3 promulgated under the Exchange Act, of 30% or
more of the Voting Stock of the Company;

(ii)             the majority of the
Board of Directors of the Company consists of individuals other than “Continuing
Directors,” which shall mean the members of the Board on the effective date of
the Plan; provided that any person becoming a director subsequent to the date
hereof whose election or nomination for election was supported by two-thirds of
the directors who then comprised the Continuing Directors, shall be considered
to be a Continuing Director;

(iii)          the Board of Directors
of the Company adopts and, if required by law or the certificate of
incorporation of the Company, the shareholders approve the dissolution of the
Company or a plan of liquidation or comparable plan providing for the
disposition of all or substantially all of the Company’s assets, and all
material conditions to such transactions have been satisfied;

(iv)         all or substantially all
of the assets of the Company are disposed of pursuant to a merger,
consolidation, share exchange, reorganization or other transaction unless the
shareholders of the Company immediately prior to such merger, consolidation,
share exchange, reorganization or other transaction beneficially own, directly
or indirectly, in substantially

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the same proportion as they previously owned the
Voting Stock or other ownership interests of the Company, a majority of the
Voting Stock or other ownership interests of the entity or entities, if any,
that succeed to the business of the Company; or

(v)            the Company merges or
combines with another company and, immediately after the merger or combination,
the shareholders of the Company immediately prior to the merger or combination
own, directly or indirectly, 50% or less of the Voting Stock of the successor
company with the proportionate ownership of individual shareholders not
substantially changed, provided that in making such determination there shall
be excluded from the number of shares of Voting Stock held by such
shareholders, but not from the Voting Stock of the successor company, any
shares owned by affiliates of such other company who were not also affiliates
of the Company prior to such merger or combination.

For purposes of this
Section 2(f), the term “Voting Stock” shall mean the Company’s Ordinary
Common Stock and any other capital stock which entitles the holder thereof to
vote (either as part of a voting group or generally) in the election of
directors.

(g)           “Disability” means a
Qualifying Director’s termination of service as a director of the Company due
to physical or mental incapacity of long duration which renders such person
unable to perform the duties of a director of the Company.

(h)           “Fair Market Value”
means, with respect to Shares, the fair market value of such Shares determined
by such methods or procedures as shall be established from time to time by the
Board. Unless otherwise determined by the Board, the Fair Market Value of a
Share as of any given date means the average of the opening and closing prices
of the Shares reported on the NASDAQ National Market for such date, or, if no
Shares were traded on that date, on the next preceding day on which there was
such a trade.

(i)               “Mandatory
Retirement” means the termination of a directors’ service in accordance with
any mandatory retirement policy adopted by the Board and then in effect.

(j)               “Option” means the
right, granted to a Qualifying Director under Section 5, to purchase a
specified number of Shares at the specified exercise price for a specified
period of time under the Plan. All Options will be non-qualified stock options.

(k)            “Restricted Shares”
means Shares granted to a Qualifying Director under Section 5, subject to
a risk of forfeiture and restrictions on transfer for a specified period as provided
in Section 6.

(l)               “Shares” means
shares of Ordinary Common Stock of the Company or such other securities as may
be substituted for Shares pursuant to Section 9.

(m)         “Qualifying Annual
Meeting” shall mean the annual meeting of shareholders held in 2006 or
thereafter.

(n)           “Qualifying Director”
means a person who (i) is serving as a director of the Company at the
close of business on the date of a “Qualifying Annual Meeting,” or is elected
as a director of the Company after each such date and before the next following
annual meeting of shareholders of the Company and is designated by the Board of
Directors to participate in the Plan and (ii) has been designated by the
Board of Directors as an “independent director” as determined for purposes of
Article III, Section 3 of the Bylaws of the Company as from time to
time in effect or, although not so designated, is not an officer or employee of
the Company or any subsidiary of the Company and does not otherwise participate
in the management of the Company and has been designated by the Board of
Directors to participate in the Plan.

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3.                  Effective Date. The Plan has been adopted
by the Board and shall be effective as of the date of approval by the Company’s
shareholders at the 2006 annual meeting of shareholders, by the affirmative
vote of a majority of the voting power present in person or by proxy and
entitled to vote on the matter of approval of this Plan. Such shareholder
approval shall be a condition to the right of each participant to receive any
awards hereunder.

4.                  Participation. Only Qualifying Directors
shall be eligible to participate in the Plan.

5.                  Award of
Restricted Shares and Options.

a.                 Time of Award.
Immediately following the date of each Qualifying Annual Meeting of the Company
(each, an “Annual Award Date”), each Qualifying Director shall be issued by the
Company, in consideration of the services to be provided by him or her as a
director of the Company for the ensuing year, a number of Restricted Shares and
Options determined in accordance with Section 5(b) (an “Annual Award”),
subject to adjustment in accordance with Section 9; provided,
however, that a lesser number of
Restricted Shares and Options, as may be determined by the Board, may be issued
to a Qualifying Director whose service as a director commences after a
Qualifying Annual Meeting and before the next Qualifying Annual Meeting; and provided  further, that
the issuance of shares of Restricted Stock will be delayed for ten days, with
the performance of services during such period being deemed payment of lawful
consideration having a value at least equal to the par value of the Restricted
Stock.

b.                Determination of
Awards. The Annual Awards shall consist of: (i) 750 Restricted Shares, and
(ii) a number of Options with an aggregate value, determined on the basis
of a Black-Scholes Valuation as of the Annual Award Date, equal to the Fair
Market Value on the Annual Award Date of 2,250 Shares. All such Options shall
be awarded with an exercise price equal to 100% of the Fair Market Value of a
Share as of the Annual Award Date and shall expire on the earlier of
(i) the date which is ten (10) years following the Annual Award Date
(or such earlier date as may be specified by the Board prior to award), or
(ii) if not otherwise forfeited upon termination of service, one year
after the Qualifying Director ceases to serve as a director of the Company for
any reason.

c.                 Applicability of
Restrictions. The issuance of Restricted Shares and Options hereunder pursuant
to each Annual Award shall be subject to the restrictions on transfer and
ownership thereof provided by Section 6 of this Plan. In addition, the
Company shall not be obligated to issue Shares except upon compliance with
applicable provisions of law, including federal and state securities laws.

d.                Issuance of
Instruments. Certificates representing Restricted Shares shall bear an
appropriate legend referring to the terms, conditions and restrictions
applicable to such Restricted Shares, the Company shall retain physical
possession of the certificate, and the Qualifying Director shall have delivered
a stock power to the Company, endorsed in blank, relating to the Restricted
Shares. Upon the lapse of restrictions on the Restricted Shares, the Share
certificate shall be released by the Company to the Qualifying Director with
any legend relating to such restrictions removed. Options shall be evidenced by
award notices in such form as may be adopted from time to time by the
Administrator and shall bear an appropriate legend referring to the terms, conditions
and restrictions applicable to such Options, until the lapse of such
restrictions in accordance with the terms of this Plan.

6.                  Restrictions on Ownership and Transfer of Restricted
Shares and Options. Prior to the vesting and lapse of restrictions
on Restricted Shares and Options as provided in this Section 6, the
Restricted Shares and Options comprising an Annual Award shall not be
transferable by the recipient, except by will or the laws of descent and
distribution, or to a beneficiary in the event of a Qualifying Director’s
death,

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and will not otherwise be subject to alienation,
anticipation, encumbrance, garnishment, attachment, levy, execution or other
legal or equitable process, nor subject to the debts, contracts, liabilities or
engagement, or torts of any Qualifying Director or his or her beneficiary. Any
attempt to alienate, sell, transfer, assign, pledge, garnish, attach or take
any other action subject to legal or equitable process or encumber or dispose
of any interest in the Plan shall be void. Such Restricted Shares and Options
shall vest and become non-forfeitable in full at the close of business on the
date which is one full year following the Annual Award Date, subject to the
following:

a.                 In the event of a
Change of Control of the Company or the termination of a Qualifying Director’s
service as a director due to his or her death or Disability, the Annual Award,
if not previously vested or forfeited, shall immediately vest and become
non-forfeitable in full. Following the death or Disability of a Qualifying
Director, his or her estate, heirs, distributees or personal representative
shall succeed to all of the Qualifying Director’s right, title and interest in
and to the Restricted Shares and Options.

b.                In the event of
termination of the Qualifying Director’s service as a director due to Mandatory
Retirement, the award, if not previously vested or forfeited, shall immediately
vest and become non-forfeitable in full.

c.                 Unless otherwise
determined by the Board, an award of Restricted Shares and/or Options that has
not vested in accordance with this Section 6 at or before the time of
termination of the Qualifying Director’s service as a director for any reason
other than as set forth in Section 6.a. and b. will cease to vest and will
be forfeited upon such termination.

d.                From and after the
time vested in accordance with this Section 6, Restricted Shares and
Options may only be sold or otherwise transferred in accordance with policies
generally established by the Board with respect to sales of shares of the
Company by directors of the Company and applicable securities laws.

e.                 Once granted to a
Qualifying Director, Restricted Shares may be voted by the Qualifying Director
(or his or her successor) without restriction by virtue of the Plan.

f.                   Once granted to
a Qualifying Director, Restricted Shares shall, unless otherwise determined by
the Board, be entitled to receive cash dividends which are not large, special
and non-recurring and which are paid prior to the lapse of the risk of
forfeiture on such Restricted Shares. Other dividends will be payable or not
payable and subject to adjustment to the Restricted Shares in accordance with
Section 9, with the resulting additional Restricted Shares subject to the
same terms, including risk of forfeiture, as the Restricted Shares on which the
dividend was paid.

g.                Notwithstanding
the foregoing vesting and forfeiture provisions, the Administrator may permit a
Qualifying Director to transfer Options to trusts, limited liability companies,
partnerships and other like entities solely for the purpose of estate planning,
provided that any such transfer is consistent with the registration of any
offer and sale of Shares related thereto on Form S-8, S-3 or other
applicable registration form as may be used in connection with the Plan, and
any such transferee is also subject to the restrictions to which the Qualifying
Director is subject under the Plan. In addition, the foregoing vesting and
forfeiture provisions shall not impair any change in or exchange of the shares
occurring by reason of a merger, consolidation, recapitalization,
reorganization or like transaction involving the Company.

7.                  Payment of Option Exercise Price. Prior to
the exercise of an Option, the holder thereof shall have none of the rights of
a shareholder of the Company. The exercise price of an Option shall be paid to
the Company either in cash or by the surrender of Shares or the withholding of
Shares from those deliverable upon exercise of the Option, or any combination
thereof, or in such other lawful form or manner as may be established by the
Administrator.

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8.                  Shares Available Under the Plan. Subject
to adjustment as provided in Section 9 below, the total number of Shares
reserved and available for delivery under the Plan for awards shall be 120,000;
provided, however, that no more than 15,000 Restricted Shares in the aggregate
may be awarded under the Plan. The Shares delivered under the Plan may consist
of authorized and unissued or treasury shares, and Shares underlying Restricted
Shares or Options which are forfeited shall be available for future awards.

9.                  Change in Capital Stock. The total number
and kind of shares which may be issued under the Plan and that are granted
under Section 5 shall be appropriately adjusted for any change in the
outstanding Shares through recapitalization, stock split, stock dividend,
merger or consolidation in which the Company is the surviving corporation or
similar transaction. In such case, the number of shares subject to outstanding
Restricted Stock and Options, and related terms (including the exercise price
of each Option) also shall be adjusted so as to prevent dilution or enlargement
of the rights of participants. Such adjustments and the manner of application
thereof shall be determined by the Board in its discretion.

10.            Nonassignability. No rights under this
Plan shall be assignable or transferable by a Qualifying Director other than as
set forth in the first paragraph of Section 6 or in Section 6.g.

11.            Administration.

a.                 Authority. The
Board and the Administrator, acting under the direction of the Board, shall
administer and interpret this Plan in accordance with its terms, and shall have
all powers necessary to accomplish such purpose. The Board may delegate any or
all of its functions to a committee of the Board, provided that the Board shall
approve the form and amount of compensation to directors under any provision of
the Plan. The Administrator may perform any function of the Board under the
Plan, except for adopting material amendments to the Plan and any other
function from time to time specifically reserved by the Board to itself. The
Board and the Administrator may each appoint agents and delegate thereto powers
and duties under the Plan, except as otherwise limited by the Plan.

b.                Administrator. The
Administrator shall be the chief legal officer of the Company, or, if that
officer is unavailable, the chief financial officer; provided, however, that
the Board may designate a different individual or committee to serve as
Administrator.

12.            Changes to the Plan and Awards. The Board
may amend, suspend, discontinue or terminate the Plan or the award of
Restricted Shares and Options under the Plan, without the consent of any other
party, including the shareholders of the Company; provided
that any amendment shall be subject to shareholder approval if and to the
extent then required under applicable rules of the NASDAQ National Market
or any other stock exchange or automated quotation system upon which the Shares
may then be listed or quoted; and provided  further that no such action may materially impair the rights
of a recipient of an award previously made without the consent of such
recipient. Without the prior approval of the shareholders of the Company, the
Board may not amend or replace previously granted Options in a transaction that
constitutes a “repricing.” For this purpose, “repricing” means:
(i) amending the terms of an Option after it is granted to lower its
exercise price; (ii) any other action that is treated as a repricing under
generally accepted accounting principles; and (iii) canceling an Option at
a time when its exercise price is equal to or greater than the fair market
value of the underlying Shares, in exchange for another Option, Restricted
Shares or other equity, unless the cancellation and exchange occurs in
connection with a merger, acquisition, spin-off or other similar corporate
transaction. Adjustments to Restricted Stock and Options under Section 9
will not be deemed repricings, however.

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13.            Governing Law. This Plan, awards granted
hereunder and actions taken in connection herewith shall be governed and
construed in accordance with the laws of the State of Delaware (regardless of
the law that might otherwise govern under applicable Delaware principles of
conflicts of laws).

14.            Tax
Compliance.

(a)            Certain Terms Relating
to Code Section 409A. “409A Awards” means awards that constitute a
deferral of compensation under Section 409A of the Internal Revenue Code
of 1986, as amended, and regulations thereunder. “Non-409A Awards” means an
award other than 409A Awards (including those exempt as “short-term deferrals”
under Proposed Treasury Regulation § 1.409A-1(b)(4) and any successor
regulation). Although the Board retains authority under the Plan to grant
Options and Restricted Shares on terms that will qualify those awards as 409A
Awards, Options and Restricted Shares are intended to be Non-409A Awards unless
otherwise expressly specified by the Committee.

(b)           Compliance with Code
Section 409A. For purposes of this Plan, references to an award term or
event (including any authority or right of the Company or a participant) being “permitted”
under Section 409A shall mean (i) for a 409A Award, that the term or
event will not cause the participant to be liable for payment of interest or a
tax penalty under Section 409A and (ii) for a Non-409A Award, that
the term or event will not cause the award to be treated as subject to
Section 409A. Other provisions of the Plan notwithstanding, the terms of
any 409A Award and any Non-409A Award, including any authority of the Company
and rights of the participant with respect to the award, shall be limited to
those terms permitted under Section 409A, and any terms not permitted
under Section 409A shall be automatically modified and limited to the extent
necessary to conform with Section 409A.

 6Exhibit
10.3

MAGELLAN HEALTH SERVICES, INC.

2006 EMPLOYEE STOCK PURCHASE PLAN

1.    PURPOSE.   The purpose of the Magellan
Health Services, Inc. 2006 Employee Stock Purchase Plan (the “Plan”), is
to provide employees of Magellan Health Services, Inc. (the “Company”) and
its subsidiary companies with an opportunity to be compensated through the
benefits of stock ownership and to acquire an interest in the Company through
the purchase of Common Stock of the Company. It is the intention of the Company
to have the Plan qualify as an “employee stock purchase plan” under
Section 423 of the Internal Revenue Code of 1986 (the “Code”). The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that
section of the Code.

2.    DEFINITIONS.

(a)          “Base Pay” means the compensation
payable to an employee by the Company or a designated subsidiary (as defined in
Code Section 424(f)) (a “subsidiary”), calculated at that employee’s base
salary or standard hourly rate of compensation, but excluding overtime,
commissions, shift differential, incentive bonus compensation and compensation
payable under any deferred compensation or other fringe benefit plan.

(b)         “Employee” means for each Offering
Period (as defined in Section 4) any person who is employed by the Company
or by any subsidiary of the Company designated from time to time by the
Committee (as defined in Section 13) to participate in such Offering
Period.

3.    ELIGIBILITY.

(a)           Any
Employee who shall be employed on the 60th day preceding the Offering Date of
an Offering Period shall be eligible to participate in the Plan for such
Offering Period. Notwithstanding the foregoing, the Committee, in its sole
discretion, may credit the employment service of persons employed by a business
acquired by the Company or by any subsidiary thereof for the purpose of
satisfying the 60-day rule herein.

(b)           Any provision of the Plan to
the contrary notwithstanding, no Employee shall be granted an option:

(i)              If, immediately after the grant
such Employee would own shares, and/or hold outstanding options to purchase
stock, possessing 5% or more of the total combined voting power or value of all
classes of shares of the Company or of any subsidiary of the Company; or

(ii)             Which permits his rights to
purchase shares under all employee stock purchase plans of the Company and its
subsidiaries to accrue at a rate which exceeds $25,000 of the fair market value
of the shares (determined at the time such option is granted) for each calendar
year in which such stock option is outstanding at any time.

4.    OFFERING PERIODS.   The Committee shall
establish the Offering Periods under the Plan which shall be of not less than
three months nor more than twelve months duration each, the first of which
shall not begin before this Plan is approved by the shareholders of the
Company, and the last of which shall end not later than December 31, 2010.
The beginning date (the “Offering Date”) and the ending date (the “Termination
Date”) of each Offering Period shall be set in advance of each Offering Period
by the Committee.

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5.    PARTICIPATION.   An eligible Employee
may become a participant only by completing an election notice provided by the
Company and filing it with the designated representative of the Company no
later than the date specified by the Company in the election notice form.

Unless otherwise adjusted
in accordance with rules established by the Committee in its sole
discretion, payroll deductions for a participant with respect to an Offering
Period shall commence with the first pay date beginning on or after the
Offering Date, and shall end with the last pay date ending on or before the
Termination Date, unless sooner terminated by the participant as provided in
Section 10. All Employees granted options under the Plan shall have the
same rights and privileges, except that the amount of stock which may be
purchased under such option may vary in a uniform manner as described in
Section 7.

6.    METHOD OF PAYMENT.   Payments for shares
under the Plan may be made only by payroll deductions, as follows:

(a)           If
a participant wishes to participate in the Plan, then at the time he files his
election notice, he shall elect to have deductions made from his Base Pay at a
rate, expressed as a percentage, not to exceed 10% of his annualized Base Pay
as of the Offering Date. Any or all amounts withheld during the one-month
period immediately preceding the Termination Date in any Offering Period may be
applied to the purchase of shares on the Termination Date or to the purchase of
shares offered for the next subsequent Offering Period in a manner as may be determined
by the Committee, in its sole discretion, but only if such application is
administered consistently among all participants during such Offering Period.

(b)           All
payroll deductions made for a participant shall be credited to his account
under the Plan. A participant may not make any separate cash payment into such
account. A participant’s account shall be no more than a bookkeeping account
maintained by the Company, and neither the Company nor any subsidiary shall be
obligated to segregate or hold in trust or escrow any funds in a participant’s
account.

(c)           A
participant’s election to have deductions made from his Base Pay shall be
effective for all pay dates occurring during the Offering Period which
commences immediately following the filing, in accordance with Section 5,
of the participant’s election notice and for each subsequent Offering Period
until such election is modified or revoked by the participant or until such
participant no longer meets the eligibility requirements of Section 3(a).
A participant may discontinue his participation in the Plan as provided in
Section 10.

A participant may elect
to change the rate of payroll deductions at such times and in accordance with
such rules as may be prescribed by the Committee; any such change in the
rate of payroll deductions shall be applicable only with respect to Offering
Periods commencing after a participant files with the Committee an election
notice requesting such change.

7.    GRANTING OF OPTION.

(a)           Subject
to any adjustment under Sections 12 or 17, on the Offering Date for each
Offering Period, a participant shall be granted an option to purchase a number
of whole shares determined by dividing the amount to be withheld for
participation in the Plan and applied to such Offering Period by the option
price per share of Common Stock determined in accordance with
Section 7(b).

(b)           The
option price per share of shares purchased with payroll deductions for a
participant will be equal to the 95% of the closing price of the Common Stock
on the Association of Securities Dealers Automatic Quotation System (NASDAQ) on
the Termination Date. If no shares are traded on any such exchange (or any
other national exchange) on either such date, such price shall be determined on
the last trading date for such shares immediately preceding the Offering Date
or the

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Termination Date, as applicable. The closing price
shall be determined at the end of the regular trading session and not any
extended-hours or after-hours trading sessions.

8.    EXERCISE OF OPTION.   Unless a
participant gives written notice of withdrawal pursuant to
Section 10(a) or such participant’s payroll deductions are returned
in accordance with Section 10(c), his option for the purchase of shares
during an Offering Period with payroll deductions will be exercised
automatically for him on the Termination Date of that Offering Period. The
automatic exercise shall, subject to Sections 12 and 17, be for the purchase of
the maximum number of full shares subject to his option which the sum of payroll
deductions credited to the participant’s account (without interest) on the
Termination Date can purchase at the option price.

9.    DELIVERY.   As promptly as practicable
after the end of an Offering Period, the Company will deliver the shares
purchased upon the exercise of the option to a designated broker selected by
the Company to administer and hold shares in individual accounts established for
the benefit of each participant. The Committee, in its sole discretion, may
establish procedures to permit a participant to receive such shares directly.
Amounts credited to the participant’s account in excess of the amount necessary
to pay the option price for the maximum number of full shares subject to his
option shall either be refunded to the participant or credited to the
participant’s account for the next subsequent Offering Period as may be
determined by the Committee, in its sole discretion.

10.  WITHDRAWAL.

(a)          A participant may withdraw payroll
deductions credited to his account under the Plan by giving written notice to
the representative of the Company designated on the election notice form. A
participant may withdraw amounts credited to his account at any time prior to
the first day of the calendar month that includes the Termination Date or such
later date as may be established by the Committee in its sole discretion. All
of the participant’s payroll deductions credited to his account will be paid to
him (without interest) promptly after receipt of his notice of withdrawal, and
no further deductions will be made from his pay during that Offering Period.

(b)         A participant’s withdrawal will not
limit his eligibility to participate in any similar plan which may hereafter be
adopted by the Company or in any subsequent Offering Period.

(c)          Upon termination of the participant’s
employment during an Offering Period for any reason, including death or
retirement, the payroll deductions credited to his account for such period
(without interest) will be returned to him or, in the case of his death, to the
person or persons entitled thereto under Section 14. Notwithstanding the
foregoing, the payroll deductions credited to the account of any participant
whose employment is terminated during the calendar month that includes the
Termination Date shall not be returned but shall instead be used to purchase
shares in accordance with Section 8.

11.    NO
INTEREST.   No interest shall be accrued or payable with respect to amounts
in a participant’s account.

12.    STOCK.

(a) The
shares of Common Stock to be sold to participants under the Plan may, at the
election of the Company, be either treasury shares or shares originally issued
for such purpose. The maximum number of shares which shall be made available
for sale under the Plan shall be 100,000 shares and the maximum number of
shares available for sale in each Offering Period shall be determined by the
Committee in its sole discretion, subject in each case to adjustment upon
changes in capitalization of the Company as provided in Section 17. If the
total number of shares for which options are to be exercised for an Offering
Period in accordance with Section 8 exceeds the number of shares then
available under the Plan for such Offering Period, the Company shall make a pro
rata allocation of

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the shares available based on a fraction, the
numerator of which shall be the number of shares with respect to which a
participant has an option to purchase for an Offering Period and the
denominator of which shall be the number of shares available for purchase, with
rounding down for each participant to the nearest whole number.

(b)         A participant will have no interest in
shares covered by an option until such option has been exercised.

13.  ADMINISTRATION.   The Plan shall be
administered by a Committee (the “Committee”) consisting of not less than three
members who shall be appointed by the Chief Executive Officer of the Company.
Each member of the Committee shall be either a director, an officer, or an
employee of the Company or of a subsidiary thereof. The Committee shall be
vested with full authority to make, administer, and interpret such
rules and regulations as it deems necessary to administer the Plan, and
any determination, decision, or action of the Committee in connection with the
construction, interpretation, administration, or application of the Plan shall
be final, conclusive, and binding upon all participants and all persons
claiming under or through any participant.

14.  DESIGNATION OF BENEFICIARY.   A
participant may file a written designation of a beneficiary who is to receive
any shares or cash to the participant’s credit under the Plan in the event of
such participant’s death before, on, or after the Termination Date but prior to
the delivery of shares and, if applicable, cash. Such designation of
beneficiary may be changed by the participant at any time by written notice.
Upon the death of a participant and upon receipt by the Company of proof of the
identity and existence at the participant’s death of a beneficiary validly
designated by him under the Plan, the Company shall deliver such shares or cash
to the account of such beneficiary. In the event of the death of a participant
and in the absence of a beneficiary validly designated under the Plan who is
living at the time of such participant’s death, the Company shall deliver such
shares or cash to the account of the executor or administrator of the estate of
the participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company) the Company, in its discretion, may deliver such
shares or cash to the account of the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent, or relative is known
to the Company, then to the account of such other person as the Company may
designate. No designated beneficiary shall, prior to the death of the
participant by whom he has been designated, acquire any interest in the shares
or cash credited to the participant under the Plan.

15.  TRANSFERABILITY.   Neither payroll
deductions credited to a participant’s account nor any rights with regard to
the exercise of an option or to receive shares under the Plan may be assigned,
transferred, pledged, or otherwise disposed of in any way by the participant.
Any such attempted assignment, transfer, pledge, or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds in accordance with Section 10.

16.  USE OF FUNDS.   All payroll deductions
received or held by the Company under the Plan may be used by the Company for
any corporate purpose.

17.  ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.   In
the event that the outstanding shares of Common Stock of the Company are
hereafter increased or decreased or changed into or exchanged for a different
number or kind of shares or other securities of the Company by reason of a
recapitalization, reclassification, stock split, combination of shares, or
dividend payable in shares of Common Stock, an appropriate adjustment shall be
made by the Committee to the number and kind of shares as to which outstanding
options shall be exercisable and to the option price. No fractional shares
shall be issued or optioned in making the foregoing adjustments. All
adjustments made by the Committee under this paragraph shall be conclusive and
binding on all participants and all persons claiming under or through any
participant.

 4
 

 

Subject to any required
action by the stockholders, if the Company shall be a party to any
reorganization involving a merger, consolidation, acquisition of the stock or
acquisition of the assets of the Company, the Committee in its discretion may
declare (a) that all options granted hereunder are to be terminated after
giving at least ten days’ notice to holders of outstanding options, or
(b) that any option granted hereunder shall pertain to and apply with
appropriate adjustment as determined by the Committee to the securities of the
resulting corporation to which a holder of the number of shares of Common Stock
subject to the option would have been entitled. The adoption of a plan of
dissolution or liquidation by the Board of Directors and stockholders of the
Company shall cause every option outstanding hereunder to terminate on the
fifteenth day thereafter, except that, in the event of the adoption of a plan
of dissolution or liquidation in connection with a reorganization as provided
in the preceding sentence, options outstanding hereunder shall be governed by
and shall be subject to the provisions of the preceding sentence.

Any issue by the Company
of stock of any class, or securities convertible into shares of stock of any
class, shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to any
option, except as specifically provided otherwise in this Section 17. The
grant of an option pursuant to the Plan shall not affect in any way the right
or power of the Company to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure or to merge or to consolidate
or to dissolve, liquidate or sell, or transfer all or any part of its business
or assets.

18.  AMENDMENT OR TERMINATION.   The Board of
Directors of the Company may at any time terminate or amend the Plan. No such
termination can affect options previously granted and no amendment can make any
change in any option theretofore granted which would adversely affect the
rights of any participant. No amendment can be made without prior approval of
the stockholders of the Company if such amendment would:

(a)          Require the sale of more shares than
are authorized under Section 12; or

(b)         Permit payroll deductions or cash
payments at a rate in excess of 10% of a participant’s Base Pay.

19.   
NOTICES.   All notices or other communications by a participant to
the Company under or in connection with the Plan shall not be deemed to have
been duly given until actually received by the representative of the Company
designated on the election notice form provided in accordance with
Section 5.

20.  PAYEE.   If (i) the Company utilizes
a designated broker to administer and hold in individual accounts the shares
purchased by the participants, (ii) the Company subsequently cannot
ascertain the whereabouts of a participant whose account is held with the
designated broker, (iii) after three years from the date of the last
purchase by such participant, a notice of such account balance and pending
action under this section is mailed to the last known address of such person,
as shown on the records of the designated broker or the Company, and
(iv) within three months after such mailing, such person has not made
written claim therefor, then the Committee may direct that such account balance
(including both shares and withholdings) otherwise due to such person be
canceled and returned to the Company. Upon such cancellation, the Company or
the designated broker shall have no further liability therefor, except that, in
the event such person, within one year of the date of the notice referred to in
(iii) above, notifies the Company or the broker of his whereabouts and
requests the amounts due to him under the Plan, the number of shares (as may be
adjusted to reflect any extraordinary corporate event or recapitalization)
together with any dividends or other accretions thereon and the amount of withholdings
contained in such account so canceled shall be delivered to him as provided
herein by the Plan.

 5

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