EXHIBIT 10.1
THIRD AMENDMENT TO EMPLOYMENT AGREEMENT
     This THIRD AMENDMENT TO EMPLOYMENT AGREEMENT (“Third Amendment”), dated
July 19, 2007, is by and between THE BON-TON STORES, INC., a Pennsylvania
corporation (the “Company”), and BYRON L. BERGREN (“Employee”).
WITNESSETH:
     WHEREAS, the Company and Employee entered into an Agreement dated as of
August 24, 2004 (“Agreement”) with respect to the employment of Employee as the
President and Chief Executive Officer of the Company;
     WHEREAS, the Company and Employee entered into an amendment to the
Agreement as of May 1, 2005 (“First Amendment”) pursuant to which the annual
Base Salary payable to Employee was increased;
     WHEREAS, the Company and Employee entered into a second amendment to the
Agreement on May 23, 2006 (“Second Amendment”) pursuant to which several
provisions of the Agreement were modified;
     WHEREAS, the Human Resources and Compensation Committee (“HRCC”) of the
Company’s Board of Directors (“Board”) has approved the cash bonus opportunities
described below in this Third Amendment for which Employee shall be eligible for
Fiscal Year 2007 (defined below) and Fiscal Year 2008 (defined below) and the
grants of restricted shares described below in this Third Amendment, and the
Board has approved this Third Amendment, which includes an extension of the
Agreement through the Term (defined below); and
     WHEREAS, capitalized terms used but not defined herein shall have the
meanings ascribed thereto in the Agreement (as previously amended by the First
Amendment and the Second Amendment).
     NOW THEREFORE, in consideration of the mutual promises and covenants
contained herein and intending to be legally bound hereby, the Company and
Employee agree as follows:
     1. Position and Responsibilities. Amendment of Paragraph 1 of Agreement.
          (a) Paragraph 1 of the Agreement is amended to set forth the following
agreement between the Company and Employee:
               (i) Employee shall be the Company’s President and Chief Executive
Officer through January 31, 2009.
               (ii) Thereafter, through February 5, 2010, Employee shall serve
the Company in an important role to be determined by the Board based upon its
decision as to what is in the best interests of the Company. Employee shall
report to the Board through February 5, 2010, and the Board agrees to nominate
Employee to serve as a Director of the Board for the

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period through February 5, 2010. For purposes hereof, an “important role” with
respect to Employee’s employment commencing February 1, 2009 shall mean a role,
as determined by the Board, consisting of Board-level activities, activities to
facilitate the transition of the new Chief Executive Officer and/or such other
activities as would be consistent with Employee’s position at such time as a
Director and former Chief Executive Officer of the Company.
          (b) In all other respects, Paragraph 1 of the Agreement shall remain
in effect.
     2. Term of Agreement; Renewal; Effective Date of this Third Amendment.
          (a) Amendment of Paragraph 2 of Agreement. The following shall be
substituted for Paragraph 2 of the Agreement:
“Term of Agreement. This Agreement, and Employee’s relationship hereunder, shall
commence as of the date this Agreement has been executed by both parties (the
“Effective Date”), and shall continue through and terminate on February 5, 2010
(the “Term”), unless sooner terminated in accordance with Paragraph 12 below.”
          (b) Effective Date of this Third Amendment. This Third Amendment shall
be effective upon execution by Employee and the Company (“Effective Date of this
Third Amendment”) except as otherwise provided in paragraph 7(b) of this Third
Amendment.
     3. Place of Performance. Amendment of Paragraph 3 of Agreement. Paragraph 3
of the Agreement is amended to set forth the following agreement between the
Company and Employee:
          (a) Employee shall be based at the Company’s executive offices in
York, Pennsylvania, except for travel required for Company business, provided
that Employee, at his option, may elect to relocate his primary office to the
Company’s executive offices in Milwaukee, Wisconsin and his primary residence to
the Milwaukee, Wisconsin metropolitan area.
          (b) In the event that Employee elects to relocate his primary office
and primary residence to Milwaukee, Wisconsin, Employee shall be reimbursed for
relocation expenses in accordance with the Company’s relocation policy
applicable to Company senior executives and, at the time of the relocation of
his primary residence to the Milwaukee metropolitan area, Employee shall
receive, in addition, a payment in the amount of one hundred thousand dollars
($100,000), less applicable taxes and normal deductions, to assist in such
relocation.
          (c) In all other respects, Paragraph 3 of the Agreement shall remain
in effect.

 

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     4. Salary. Amendment of Paragraph 4(a) of the Agreement.
          (a) It is agreed that Employee’s Base Salary at the annual rate of One
Million Dollars ($1,000,000), which became effective on May 1, 2006, shall
remain in effect through February 5, 2010.
          (b) Employee shall receive a bonus of One Hundred Fifty Thousand
Dollars ($150,000), less taxes and normal deductions, as soon as practicable
after the Effective Date of this Third Amendment, but in no event later than ten
(10) business days following the Effective Date of this Third Amendment.
          (c) In all other respects, Paragraph 4(a) of the Agreement shall
remain in effect.
     5. Bonus. Amendment of Paragraph 4(b) of the Agreement. Paragraph 4(b) of
the Agreement is further amended to set forth the following agreement between
the Company and Employee:
          (a) Fiscal Year 2007. For the fiscal year of the Company beginning
February 4, 2007 (“Fiscal Year 2007”):
               (i) Employee shall be eligible for a bonus pursuant to the terms
and conditions previously established by the HRCC under The Bon-Ton Stores, Inc.
Cash Bonus Plan (“Cash Bonus Plan”) with the following parameters: a threshold
bonus of one hundred twelve and one half percent (112.5%) of Employee’s Base
Salary effective May 1, 2006; a target bonus of one hundred fifty percent (150%)
of Employee’s Base Salary effective May 1, 2006; and a maximum bonus of two
hundred percent (200%) of Employee’s Base Salary effective May 1, 2006. If
earned, one bonus will be paid depending upon the level of achievement as
specified in subparagraphs (ii) through (v) below.
               (ii) This bonus shall be based on attainment of specified levels
of achievement with respect to two performance measures. The achievement by the
Company of a level of Net Income as determined in accordance with the Company’s
normal accounting practices, consistent with past practices (“Net Income”) shall
account for eighty percent (80%) of the potential bonus payout, and the
achievement of the Total Company Sales Plan as determined in accordance with the
Company’s normal accounting practices, consistent with past practices (“Total
Company Sales Plan”) shall account for twenty (20%) of the potential bonus
payout. Employee’s bonus for Fiscal Year 2007 shall be calculated in a manner
consistent with the Company’s past practices and consistent with the bonus
determinations for Fiscal Year 2007 for the other senior executives of the
Company under the Cash Bonus Plan.
               (iii) The amount payable to Employee at the various levels of
achievement is set out on a table entitled CEO 2007 Bonus Metrics (“CEO 2007
Bonus Metrics Table”), approved by the HRCC at its meeting on March 26, 2007,
and delivered to Employee.
               (iv) A bonus as specified in the CEO 2007 Bonus Metrics Table
between the levels of the threshold bonus and target bonus, or between the
levels of the target

 

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bonus and the maximum bonus, as applicable, shall be paid for achievement of the
performance measures specified in the CEO 2007 Bonus Metrics Table, subject to
the following.
                    (A) Failure to achieve Net Income at the level required for
the threshold bonus as specified on the CEO 2007 Bonus Metrics Table shall
result in no payment of any portion of the 2007 bonus.
                    (B) Failure to achieve the Total Company Sales Plan at the
level required for the threshold bonus as specified on the CEO 2007 Bonus
Metrics Table shall result in no payment of the Total Company Sales Plan portion
of the 2007 bonus, but the portion of the bonus based upon Net Income
nevertheless shall be payable provided the Net Income required for that
threshold bonus is achieved.
               (v) The bonus shall be determined and awarded in accordance with
objectives previously determined by the HRCC consistent with the Cash Bonus Plan
as amended and restated.
          (b) Fiscal Year 2008. For the fiscal year of the Company beginning
February 3, 2008 (“Fiscal Year 2008”):
               (i) Employee shall be eligible for a bonus under the Cash Bonus
Plan with the following parameters: a threshold bonus of seventy-five percent
(75%) of Employee’s Base Salary effective May 1, 2006; a target bonus of one
hundred percent (100%) of Employee’s Base Salary effective May 1, 2006; and a
maximum bonus of one hundred fifty percent (150%) of Employee’s Base Salary
effective May 1, 2006. If earned, one bonus will be paid depending upon the
level of achievement.
               (ii) The bonus shall be determined and awarded in accordance with
objectives to be determined by the HRCC consistent with the Cash Bonus Plan and
communicated to Employee.
          (c) Fiscal Year 2009. Employee shall not be eligible to participate in
the Cash Bonus Plan for the Company’s fiscal year beginning February 1, 2009
(“Fiscal Year 2009”) unless otherwise determined by the HRCC.
          (d) In all other respects, Paragraph 4(b) of the Agreement shall
remain in effect.
     6. Long Term Incentive Program. Amendment of Paragraph 6 of the Agreement.
Paragraph 6 of the Agreement is further amended to set forth the following
agreement between the Company and Employee:

 

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          (a) Fiscal Year 2007 Restricted Share Grants.
               (i) Time-Based Restricted Share Grant.
                    (A) As soon as practicable after the effective date of this
Third Amendment, Employee shall receive under The Bon-Ton Stores, Inc. Amended
and Restated 2000 Stock Incentive and Performance-Based Award Plan (“Stock
Incentive Plan”) an additional grant of Restricted Shares with a value of One
Million Three Hundred Fifty Thousand Dollars ($1,350,000) determined as of the
effective date of this Third Amendment.
                    (B) Employee’s ownership of these Restricted Shares shall
vest as follows: fifteen percent (15%) of the shares on February 2, 2008
provided that Employee is continuously employed by the Company through that
date; an additional thirty-five percent (35%) of the shares on January 31, 2009
provided that Employee is continuously employed by the Company through that
date; and the remaining fifty percent (50%) on February 5, 2010 provided that
Employee is continuously employed by the Company through that date.
Notwithstanding the foregoing, these Restricted Shares shall vest immediately
upon Employee’s discharge without Cause as defined in Paragraph 12(e) of the
Agreement or resignation for Good Reason as defined in Paragraph 12(c) of the
Agreement as amended by Paragraph 7 of this Third Amendment, provided Employee
executes a general release of claims consistent with Paragraph 13(b) of the
Agreement.
                    (C) If the Board declares any dividends in respect of the
common stock, par value $0.01 per share, of the Company, then such dividends
shall be paid on these time-based Restricted Shares, provided that the
Restricted Shares have not been forfeited as of the record date for the
applicable dividend distribution.
                    (D) The material terms of this grant of Restricted Shares
are set forth in Exhibit A to this Third Amendment.
               (ii) Performance-Based Restricted Share Grant.
                    (A) As soon as practicable after the Effective Date of this
Third Amendment, Employee shall receive under the Stock Incentive Plan an
additional grant of Restricted Shares with a value of One Million Three Hundred
Fifty Thousand Dollars ($1,350,000) determined as of the Effective Date of this
Third Amendment as previously approved by the HRCC.
                    (B) One-half of these Restricted Shares (with a value of Six
Hundred Seventy-Five Thousand Dollars ($675,000)) (“2007 Grant of Restricted
Shares Based Upon Company Performance for Fiscal Year 2007”) shall become vested
based upon achievement of the performance goals set by the HRCC for Fiscal Year
2007, and the other one-half of these Restricted Shares (with a value of Six
Hundred Seventy-Five Thousand Dollars ($675,000)) (“2007 Grant of Restricted
Shares Based Upon Company Performance for Fiscal Year 2008”) shall become vested
based upon the achievement of the performance goals to be set by the HRCC for
Fiscal Year 2008.

 

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                    (C) With respect to the 2007 Grant of Restricted Shares
Based Upon Company Performance for Fiscal Year 2007, as previously established
by the HRCC:
                         I. One hundred percent (100%) shall become fully vested
in the event that the Company achieves the Net Income required for the target
bonus as specified on the CEO 2007 Bonus Metrics Table (Net Income for the
purposes of this Paragraph 6(a)(ii) of this Third Amendment shall be determined
in a manner consistent with the determination of Net Income applicable to
Employee’s bonus under Paragraph 5(a)(ii) of this Third Amendment.)
                         II. Eighty-seven and one-half percent (87.5%) shall
become fully vested in the event that the Company achieves ninety-five percent
(95%) of the Net Income required for the target bonus as specified on the CEO
2007 Bonus Metrics Table.
                         III. Seventy-five percent (75%) shall become fully
vested in the event that the Company achieves ninety percent (90%) of the Net
Income required for the target bonus as specified on the CEO 2007 Bonus Metrics
Table.
                         IV. Achievement of Net Income below the Net Income
required for the threshold bonus as specified on the CEO 2007 Bonus Metrics
Table shall result in forfeiture of the 2007 Grant of Restricted Shares Based
Upon Company Performance for Fiscal Year 2007.
                    (D) With respect to the 2007 Grant of Restricted Shares
Based Upon Company Performance for Company’s 2008 Fiscal Year, performance
metrics (among Net Income; GMROI Dollars ($); Total Sales; EBITDA) and numerical
values for the selected performance metrics will be in line with the respective
targets under the Company Plan for Fiscal Year 2008 as well as in line with the
respective targets for the cash bonus under the Cash Bonus Plan for Fiscal Year
2008, as determined by the HRCC in the normal course (i.e., in the first quarter
of Fiscal Year 2008).
                    (E) The performance based Restricted Shares granted pursuant
to this Paragraph 6(a)(ii) of this Third Amendment shall be forfeited to the
extent not vested based upon the performance of the Company in Fiscal Year 2007
or Fiscal Year 2008, as applicable, subject to Paragraph 6(a)(ii)(F) of this
Third Amendment.
                    (F) The performance based Restricted Shares granted pursuant
to this Paragraph 6(a)(ii) of this Third Amendment that are not earned and
vested on the effective date of Employee’s termination of employment for any
reason, whether initiated by Employee or by the Company shall be forfeited,
subject to the following:
                         I. In the event that Employee, prior to February 2,
2008, is discharged without Cause or resigns for Good Reason, the Restricted
Shares awarded pursuant to the 2007 Grant of Restricted Shares Based Upon
Company Performance for Fiscal Year 2007, which under their terms, are not
vested as of the date of such termination of employment, shall become vested to
the extent provided in the performance schedule established with respect to
these Restricted Shares as if Employee had remained employed with the Company
through the date that a determination of vesting of these Restricted Shares is
made,

 

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without regard to such prior discharge without Cause or resignation for Good
Reason, provided Employee executes a general release of claims consistent with
Paragraph 13(b) of the Agreement; and
                         II. In the event that Employee, on or after February 3,
2008 and prior to January 31, 2009, is discharged without Cause or resigns for
Good Reason, the Restricted Shares awarded pursuant to the 2007 Grant of
Restricted Shares Based Upon Company Performance for Fiscal Year 2008 which,
under their terms, are not vested as of the date of such termination of
employment, shall become vested to the extent provided in such performance
schedule as has been established with respect to these Restricted Shares as if
Employee had remained employed with the Company through the date that a
determination of vesting of these Restricted Shares is made, without regard to
such prior discharge without Cause or resignation for Good Reason, provided
Employee executes a general release of claims consistent with Paragraph 13(b) of
the Agreement.
                    (G) Dividends shall not accrue or be paid on the performance
based Restricted Shares granted pursuant to this Paragraph 6(a)(ii) of this
Third Amendment until the Restricted Shares vest. Future dividends will be paid
thereafter to the extent declared by the Board.
                    (H) This grant of performance-based Restricted Shares is to
be made pursuant to the performance-based award provisions of the Stock
Incentive Plan as amended and restated.
                    (I) The material terms of this grant of performance-based
Restricted Shares are set forth in Exhibit B to this Third Amendment.
                    (J) In the event of a Change of Control on or prior to
February 2, 2008, this grant of performance-based Restricted Shares shall vest
immediately. In the event of a Change of Control on or after February 3, 2008,
the provisions of Paragraph 8(b) of this Third Amendment shall be applicable in
lieu of the preceding sentence.
          (b) Fiscal Year 2008 Performance-Based Restricted Share Grant. On or
about February 4, 2008, assuming that Employee is employed at that time,
Employee shall receive under the Stock Incentive Plan an additional grant of
Restricted Shares with a value of Two Million Seven Hundred Thousand Dollars
($2,700,000) as of the date of the grant.
               (i) One half of these Restricted Shares (with a value of One
Million Three Hundred Fifty Thousand Dollars ($1,350,000)) (“2008 Grant of
Restricted Shares Based Upon Company Performance for Fiscal Year 2008”) shall
become vested based upon achievement of the performance goals set by the HRCC
for Fiscal Year 2008, and the other one-half of these Restricted Shares (with a
value of One Million Three Hundred Fifty Thousand Dollars ($1,350,000)) (“2008
Grant of Restricted Shares Based Upon Company Performance for Fiscal Year 2009”)
shall become vested based upon the achievement of the performance goals set by
the HRCC for Fiscal Year 2009.
               (ii) Performance metrics (among Net Income; GMROI Dollars ($);
Total Sales; EBITDA) and numerical values for the selected performance metrics
will be in line

 

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with the respective targets under the Company Plan for Fiscal Year 2008 and
Fiscal Year 2009, respectively, as well as in line with the respective targets
for the cash bonus under the Cash Bonus Plan for each such respective fiscal
year of the Company, as determined by the HRCC in the normal course (i.e., in
the first quarter of the applicable Fiscal Year).
               (iii) The Restricted Shares granted pursuant to this Paragraph
6(b) of this Third Amendment shall be forfeited to the extent not vested based
upon the performance of the Company in Fiscal Year 2008 or Fiscal Year 2009, as
applicable, subject to Paragraph 6(b)(iv) of this Third Amendment.
               (iv) The performance-based Restricted Shares granted pursuant to
this Paragraph 6(b) of this Third Amendment that are not earned and vested as of
the effective date of Employee’s termination of employment for any reason,
whether initiated by Employee or by the Company shall be forfeited, subject to
the following:
                    (A) In the event that Employee, on or after February 3, 2008
and prior to January 31, 2009, is discharged without Cause or resigns for Good
Reason, the Restricted Shares awarded pursuant to the 2008 Grant of Restricted
Shares Based Upon Company Performance for Fiscal Year 2008, which under their
terms, are not vested as of the date of such termination of employment, shall
become vested to the extent provided in such performance schedule established
with respect to these Restricted Shares as if Employee had remained employed
with the Company through the date that a determination of vesting of these
Restricted Shares is made, without regard to such prior discharge without Cause
or resignation for Good Reason, provided Employee executes a general release of
claims consistent with Paragraph 13(b) of the Agreement; and
                    (B) In the event that Employee, on or after February 1, 2009
and prior to January 30, 2010, is terminated by the Company without Cause from
the role described in Paragraph 1(a)(ii) of this Third Amendment or resigns for
Good Reason from that role, the Restricted Shares awarded pursuant to the 2008
Grant of Restricted Shares Based Upon Company Performance for Fiscal Year 2009,
which under their terms, are not vested as of the date that Employee is
terminated or resigns from that role, shall become vested to the extent provided
in such performance schedule established with respect to these Restricted Shares
as if Employee had continued to perform that role through the date that a
determination of vesting of these Restricted Shares is made, without regard to
such prior termination or resignation, provided Employee executes a general
release of claims consistent with Paragraph 13(b) of the Agreement.
               (v) Dividends shall not accrue or be paid on the
performance-based Restricted Shares granted pursuant to this Paragraph 6(b) of
this Third Amendment until the Restricted Shares vest. Future dividends will be
paid thereafter to the extent declared by the Board.
               (vi) This grant of Restricted Shares is to be made pursuant to
the performance-based award provisions of the Stock Incentive Plan as amended
and restated.

 

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               (vii) The material terms of this grant of performance-based
Restricted Shares are set forth in Exhibit C to this Third Amendment.
               (viii) In the event of a Change of Control on or after
February 3, 2008, the provisions of Paragraph 8 of this Third Amendment shall be
applicable.
          (c) Unvested Options. In the event that Employee is discharged without
Cause or resigns for Good Reason, any Options that are unvested at the time of
such discharge without Cause or resignation for Good Reason shall vest
immediately, provided Employee executes a general release of claims consistent
with Paragraph 13(b) of the Agreement.
     7. Termination of Employment. Amendment of Paragraph 12 of the Agreement.
          (a) Resignation for Good Reason. Amendment of Paragraph 12(c) of the
Agreement. The following shall be substituted for Paragraph 12(c) of the
Agreement:
“(c) Resignation for Good Reason. Employee may resign for “Good Reason,” defined
below, upon 30 days’ written notice by Employee to the Company except as set
forth in Paragraph 12(d) below. The Company may waive Employee’s obligation to
work during this 30 day notice period and terminate his employment immediately,
but if the Company takes this action in the absence of agreement by Employee,
Employee shall receive the salary which otherwise would be due through the end
of the notice period.
For purposes of this Agreement, “Good Reason” shall mean any of the following
violations of this Agreement by the Company:

  (i)   causing Employee to cease to be President and Chief Executive Officer
prior to January 31, 2009;     (ii)   a diminution in Employee’s
responsibilities, duties or authority prior to January 31, 2009 other than a
reassignment of such responsibilities, duties or authority in connection with
the Company’s succession planning (with good faith and cooperation between the
Board and Employee with respect to implementing a transition plan) in
anticipation that Employee shall cease to be President and Chief Executive
Officer on January 31, 2009;     (iii)   causing the Employee to cease reporting
to the Board as President and Chief Executive Officer prior to January 31, 2009,
or causing the Employee to cease reporting thereafter to the Board in an
important role prior to February 5, 2010;     (iv)   failing to nominate
Employee to continue to serve as a Director of the Company or removing Employee
from the Board prior to February 5, 2010;

 

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  (v)   any reduction, prior to February 5, 2010, in the Employee’s Base Salary
below the amount then in effect;     (vi)   any reduction, prior to January 31,
2009, in the Employee’s potential bonus-eligibility amount as specified in this
Agreement; or     (vii)   any substantial breach of any material provision of
this Agreement.

Notwithstanding the foregoing, the acts or omissions described above shall not
constitute “Good Reason” unless Employee provides the Company with written
notice detailing the matters he asserts to be “Good Reason” which the Company
does not cure within thirty (30) days of receiving the notice.”
          (b) Change of Control. Amendment of Paragraph 12(d) of the Agreement.
The following shall be substituted for Paragraph 12(d) of the Agreement for the
period commencing February 3, 2008:
“(d) Change of Control. In the event of a Change of Control, “Good Reason,” in
addition to the matters set forth in Paragraph 12(c), shall also mean:

  (i)   a successor or assign (whether direct or indirect, by purchase, merger,
consolidation, operation of law or otherwise) to all or substantially all of the
business and/or assets of the Company fails to assume all duties, obligations
and liabilities of the Company under the Agreement pursuant to Paragraph 21;    
(ii)   an adverse change in the nature or scope of authorities, powers,
functions, responsibilities or duties attendant to the position held by Employee
from those authorities, powers, functions, responsibilities or duties which
Employee held immediately prior to the Change of Control or would hold
thereafter pursuant to the terms of the Agreement in the absence of a Change of
Control; or     (iii)   the requirement that Employee’s principal location of
work change to any location that is in excess of 50 miles from the location
immediately prior to the Change of Control;

provided, however, the Employee shall be prohibited from resigning for Good
Reason for a period of three months following the Change of Control; provided
that during such three month period, Employee may satisfy the 30-day notice
period provided under Paragraph 12(c) by written notice to the Company of
Employee’s intention to resign for Good Reason after the expiration of such
three months.

 

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For purposes of this Agreement, a Change of Control shall be deemed to occur if:

  (i)   “any “person,” as such term is defined under Sections 3(a)(9) and 13(d)
of the Securities Exchange Act of 1934 (“the Exchange Act”), who is not an
Affiliate of Company as defined in the Exchange Act on the date hereof, becomes
a “beneficial owner,” as such term is used in Rule 13d-3 under the Exchange Act,
of a majority of the Company’s Voting Stock;     (ii)   the Company adopts any
plan of liquidation providing for the distribution of all or substantially all
of its assets;     (iii)   the Company is party to a merger, consolidation,
other form of business combination or a sale of all or substantially all of its
assets, unless the business of the Company is continued following any such
transaction by a resulting entity (which may be, but need not be, the Company)
and the shareholders of the Company immediately prior to such transaction hold,
directly or indirectly, a majority of the voting power of the resulting entity;
or     (iv)   if any one shareholder owns stock possessing a greater voting
power than held in the aggregate by M. Thomas Grumbacher, any member of his
family, any trust for the primary benefit of M. Thomas Grumbacher or any member
of his family, and any charitable foundation of which M. Thomas Grumbacher is a
founder or co-founder with his wife (collectively, the “Grumbacher Affiliates”),
or if the Grumbacher Affiliates control less than twenty percent (20%) of the
Voting Stock.”

          (c) In all other respects, Paragraph 12 of the Agreement shall remain
in effect.
     8. Payments and Rights Upon Termination. Amendment of Paragraph 13 of the
Agreement.
          (a) Discharge Without Cause or Resignation for Good Reason. Amendment
of Paragraph 13(a) of the Agreement. The following shall be substituted for
Paragraph 13(a) of the Agreement:

  “(a)   Discharge Without Cause or Resignation for Good Reason. If Employee is
discharged without Cause or resigns for Good Reason during the Term of the
Agreement, Employee shall be entitled to severance pay and other benefits as
follows:

 

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  (i)   Prompt payment of all accrued wages and accrued but unused vacation pay
through the date of termination of employment;     (ii)   If not following a
Change of Control:

  (A)   Severance pay in the amount of his Base Salary payable in installments
for a period of two (2) years from the date of termination;     (B)   Continued
participation in the Company’s group health benefit plan pursuant to COBRA;    
(C)   Reimbursement of Employee’s premiums paid in connection with such
participation for a period of eighteen (18) months;     (D)   As soon as
practicable thereafter, a payment equal to six (6) times the then applicable
monthly COBRA premium; and     (E)   If Employee has been employed for at least
three (3) months in the Company’s fiscal year in which the termination of his
employment occurs, Employee will receive a prorated portion (based on the number
of days employed in the fiscal year) of the bonus which would have been earned
by Employee under Paragraph 4(b) for said fiscal year based on the Company’s
full year performance. The bonus, if any, under this clause (E) will be paid at
the time that bonuses are paid to other Company senior executives for the fiscal
year in which the termination occurs.

          (b) Change of Control. Amendment of Paragraph 13(f) of the Agreement.
The following shall be substituted for Paragraph 13(f) of the Agreement with
respect to a Change of Control occurring on or after February 3, 2008:

  “(f)   Change of Control.

  (i)   Upon a Change of Control as defined in Paragraph 12(d) of the Agreement
as amended by this Third Amendment:

 

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  (A)   Grants Under Stock Incentive Plan:

I. Time-Based Restricted Shares and Options: Any time-based Restricted Shares
then held by Employee shall fully vest and any forfeiture restrictions with
respect thereto shall immediately lapse, and any outstanding options to purchase
shares of the Company’s Common Stock will become fully and immediately
exercisable to the extent not already exercisable on the terms provided in the
Company’s stock option plans.
II. Grants of Performance-Based Restricted Shares Granted in Fiscal Year 2007
and Fiscal Year 2008: The following provisions shall apply to performance-based
Restricted Shares granted in Fiscal Year 2007 and Fiscal Year 2008 pursuant to
this Third Amendment:
     (a) If the Change of Control occurs in Fiscal Year 2008:
          (i) The 2007 Grant of Restricted Shares Based Upon Company Performance
for Fiscal Year 2008, and the 2008 Grant of Restricted Shares Based Upon Company
Performance for Fiscal Year 2008 will vest, without regard to the performance of
the Company in Fiscal Year 2008 on the earlier of: (A) after the expiration of
three (3) months following a Change of Control provided Employee is employed by
the Company for three (3) months following the Change of Control; or
(B) immediately upon a discharge without Cause following a Change of Control.
          (ii) Fifty percent (50%) of the 2008 Grant of Restricted Shares Based
Upon Company Performance for Fiscal Year 2009 will vest, without regard to the
performance of the Company in Fiscal Year 2009 on the earlier of: (A) after
three (3) months following a Change of Control provided Employee is employed by
the Company for three (3) months following the Change of Control; or
(B) immediately upon a discharge without Cause following a Change of Control.

 

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Vesting of the remaining fifty percent (50%) of the 2008 Grant of Restricted
Shares Based Upon Company Performance for Fiscal Year 2009 shall be based upon
the performance metrics and numerical values for the performance metrics
selected by the HRCC or successor company’s compensation committee for the
Company’s Fiscal Year 2009 (or, if different, the applicable fiscal year
following the year in which the Change of Control occurs), provided Employee
remains employed by the Company or, if applicable, a successor company, through
the last day of the Company’s Fiscal Year 2009 (or, if different, such
applicable subsequent fiscal year). It is understood that Employee shall forfeit
this remaining fifty percent (50%), in the event that he resigns from the
Company or, if applicable, a successor company, whether with or without Good
Reason, prior to the end of the Company’s Fiscal Year 2009 (or, if different,
such applicable subsequent fiscal year of the successor company), or is
discharged by the Company or, if applicable, a successor company, with or
without Cause, prior to the end of the Company’s Fiscal Year 2009 (or, if
different, such applicable subsequent fiscal year).
     (b) If the Change of Control occurs in Fiscal Year 2009: the 2008 Grant of
Restricted Shares Based Upon Company Performance for Fiscal Year 2009 will vest
in full, without regard to the performance of the Company in Fiscal Year 2009 on
the earlier of: (A) after the expiration of three (3) months following a Change
of Control, provided Employee is employed by the Company for three (3) months
following the Change of Control; or (B) immediately upon a discharge without
Cause following a Change of Control.

 

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  (B)   Change of Control Payment:

  (I)   Employee shall receive a “Change of Control Payment,” in the event that
Employee: (i) is discharged without Cause during the Term of this Agreement
following a Change of Control; or (ii) resigns from the Company with or without
Good Reason during the Term of this Agreement after the expiration of three
(3) months following a Change of Control (unrelated to a discharge with Cause).
    (II)   This Change of Control Payment shall be equal to the lesser of 2.99
times: (x) the sum of his Base Salary (at the salary level immediately preceding
the Change of Control) plus his average bonus for the three (3) immediately
preceding fiscal years of the Company; or, if applicable, (y) the “280G
Permitted Payment” as described in Paragraph 13(f)(ii) below.

  (C)   Medical Insurance Premiums. Employee shall be entitled to the following
in the event that Employee (i) is discharged without Cause during the Term of
this Agreement following a Change of Control; or (ii) resigns for Good Reason
during the Term of this Agreement after the expiration of three (3) months
following a Change of Control (unrelated to a discharge with Cause):

(I) Continued participation in the Company’s group health plan pursuant to
COBRA;
(II) Reimbursement of Employee’s premiums paid in connection with such
participation for a period of eighteen (18) months; and
(III) As soon as practicable thereafter, a payment equal to eighteen (18) times
the then applicable monthly COBRA premium.

  (D)   Restrictive Covenants. In the event of a Change of Control and, if prior
to the end of the Term, Employee terminates his relationship for any reason or
his relationship with the Company is terminated

 

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      without Cause, the covenant of Paragraph 15(a)(ii) shall be inapplicable
to Employee.

  (ii)   Notwithstanding any other provision of this Agreement, if the aggregate
present value of the “parachute payments” to the Employee, determined under
Section 280G(b) of the Internal Revenue Code of 1986, as amended (the “Code”),
would be at least three times the “base amount” determined under Code
Section 280G, then the “280G Permitted Payment” shall be the maximum amount that
may be paid as a Change of Control Payment under this Paragraph 13(f) such that
the aggregate present value of such “parachute payments” to the Employee is less
than three times his “base amount.” In addition, in the event the aggregate
present value of the parachute payments to the Employee would be at least three
times his base amount even after a reduction of the Change of Control Payment to
$0 (all as determined for purposes of Code Section 280G), compensation otherwise
payable upon a Change of Control under this Agreement or upon a Change of
Control under any severance plan, program, policy or obligation of the Company
or any affiliate thereof shall be reduced so that the aggregate present value of
such parachute payments to the Employee, as determined under Code Section
280G(b) is less than three times his base amount. Any decisions regarding the
requirement or implementation of such reductions shall be made by independent
tax counsel selected by mutual agreement of the Company and Employee, the costs
of which counsel shall be borne by the Company.”

          (c) In all other respects , Paragraph 13 of the Agreement shall remain
in effect.
     9. Legal Fees. The Company agrees to pay Employee’s reasonable legal fees,
costs and expenses in connection with the negotiation of this Third Amendment up
to Five Thousand Dollars ($5,000).
     10. Controlling Law. This Third Amendment and all questions relating to its
validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the Commonwealth of Pennsylvania,
notwithstanding any conflict-of-laws doctrines of such state or any other
jurisdiction to the contrary, and without the aid of any canon, custom or rule
of law requiring construction against the draftsman.
     11. Execution in Counterparts. This Third Amendment may be executed in any
number of counterparts, each of which shall be deemed to be an original against
any party whose

 

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signature appears thereon, and all of which shall together constitute one and
the same instrument. This Third Amendment shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties hereto.
     12. Effect of Amendment. Except as may be affected by this Third Amendment,
all of the provisions of the Agreement, the First Amendment and the Second
Amendment, as amended hereby, shall continue in full force and effect. The
provisions of this Third Amendment shall not constitute a waiver or modification
of any terms or conditions of the Agreement as modified by the First Amendment
and the Second Amendment other than as expressly set forth herein.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have duly
executed and delivered, in Pennsylvania, this Agreement as of the date first
above written.
THE BON-TON STORES, INC.

             
By:
  /s/ Tim Grumbacher
 
Tim Grumbacher
Executive Chairman of the Board        July 19, 2007 
Date
 
           
 
  /s/ Byron L. Bergren
 
Byron L. Bergren       July 19, 2007 
Date