**EXHIBIT 10.3**

 

**JONES APPAREL GROUP, INC.1999 STOCK INCENTIVE PLAN**

**(as amended on May 18, 2005)**

        1. Purpose of the 1999 StockIncentive Plan.  Jones Apparel Group, Inc. (the "Company") desires toattract and retain the best available talent and to encourage the highest levelof performance.  The 1999 StockIncentive Plan (the "Stock Incentive Plan") is intended to contributesignificantly to the attainment of these objectives by (i) providing long-termincentives and rewards to all key employees of the Company (including officersand directors who are key employees of the Company and also including keyemployees of any subsidiary of the Company which may include officers ordirectors of any subsidiary of the Company who are also key employees of saidsubsidiary), and those directors and officers, consultants, advisers, agents orindependent representatives of the Company or of any subsidiary (together,"Eligible Individuals"), who are contributing or in a position to contributeto the long-term success and growth of the Company or of any subsidiary, (ii)assisting the Company and any subsidiary in attracting and retaining EligibleIndividuals with experience and ability, and (iii) associating more closely theinterests of such Eligible Individuals with those of the Company'sstockholders.

        2. Scope and Duration of theStock Incentive Plan.  Under theStock Incentive Plan, options ("Options") to purchase shares of commonstock, par value $.01 per share ("Common Stock"), may be granted to EligibleIndividuals.  Options granted toemployees (including officers and directors who are employees) of the Company ora subsidiary corporation thereof, may, at the time of grant, be designated bythe Company's Board of Directors either as incentive stock options("ISOs"), with the attendant tax benefits as provided for under Sections 421and 422 of the Internal Revenue Code of 1986, as amended (the "Code") or asnonqualified stock options.  Stockappreciation rights (the "Rights") may be granted in association withOptions.  Shares of Common Stock subject to restrictions and grantedpursuant to Paragraph 7 of the Stock Incentive Plan ("Restricted Stock") mayalso be granted to Eligible Individuals hereunder.  The grant of any of an Option, a Right and/or RestrictedStock is sometimes referred to herein as an "Award." The aggregate number ofshares of Common Stock reserved for grant from time to time under the StockIncentive Plan is 20,500,000 shares of Common Stock, which shares of CommonStock may be authorized but unissued shares of Common Stock or shares of CommonStock, which shall have been or which may be reacquired by the Company, as theBoard of Directors of the Company shall from time to time determine. Restricted Stock issued pursuant to the Stock Incentive Plan, even whilesubject to restrictions, will be counted against the maximum number of sharesissuable hereunder.  Such aggregatenumbers shall be subject to adjustment as provided in Paragraph 11. If an Option shall expire or terminate for any reason without having beenexercised in full or surrendered in full in connection with the exercise of aRight, the shares of Common Stock represented by the portion of the Option notso exercised or surrendered shall (unless the Stock Incentive Plan shall havebeen terminated) become available for other Awards of Options under the StockIncentive Plan, except that up to 4,000,000 shares of Common Stock representedby Options granted from and after May 19, 2004 which are not so exercised orsurrendered shall (unless 

----

 the Stock Incentive Plan shall have been terminated)become available for other Awards of either Options or Restricted Stock underthe Stock Incentive Plan.  IfRestricted Stock is forfeited for any reason, the forfeited shares of RestrictedStock shall (unless the Stock Incentive Plan shall have been terminated) becomeavailable for other Awards of Restricted Stock or Options under the StockIncentive Plan.  Subject toParagraph 14, no Option, Right or Restricted Stock shall be granted under theStock Incentive Plan after May 19, 2009.

        3. Administration of the StockIncentive Plan.  

            (a) This Stock Incentive Plan will be administered by the Board ofDirectors of the Company (the "Board of Directors"). The Board of Directors,in its discretion, may designate a Compensation Committee (the "CompensationCommittee" or "Committee") composed of at least two members of the Boardof Directors to administer this Stock Incentive Plan. Members of the Compensation Committee shall meet such qualifications asthe Board of Directors may determine; provided, however, that each member shallqualify as a "Non-Employee Director" under Section 16 of the SecuritiesExchange Act of 1934, as amended (the "Exchange Act") and as an "OutsideDirector" as defined in Code Section 162(m) and any regulations promulgatedthereunder.  The Board, in itsdiscretion, may also designate a CEO Committee (the "CEO Committee"),composed of the director of the Company who is serving as the Company's chiefexecutive officer. 

            (b)  The Board of Directorsor the Committee (hereinafter, the terms "Compensation Committee" or"Committee", shall mean the Board of Directors whenever no such CompensationCommittee has been designated), shall have authority in its discretion, subjectto and not inconsistent with the express provisions of this Stock IncentivePlan, to direct the grant of Awards; to determine the purchase price of theCommon Stock covered by each Award; the Eligible Individuals to whom, and thetime or times at which, Awards shall be granted and subject to the maximum setforth in Paragraph 4 hereof, the number of shares of Common Stock to be coveredby each Award; to designate Options as ISOs; to direct the grant of Rights inconnection with any Option; to interpret the Stock Incentive Plan; to determinethe time or times at which Options may be exercised; to determine the terms andconditions of the restrictions relating to the Restricted Stock (whichrestrictions may vary among Awards as the Committee shall deem appropriate); toprescribe, amend and rescind rules and regulations relating to the StockIncentive Plan, including, without limitation, such rules and regulations as itshall deem advisable, so that transactions involving Awards may qualify forexemption under such rules and regulations as the Securities and ExchangeCommission may promulgate from time to time exempting transactions from Section16(b) of the Securities and Exchange Act of 1934 (the "Exchange Act"); todetermine the terms and provisions of and to cause the Company to enter intoagreements with Eligible Individuals in connection with Awards granted under theStock Incentive Plan (the "Agreements"), which Agreements may vary from oneanother as the Committee shall deem appropriate; and to make all otherdeterminations it may deem necessary or advisable for the administration of theStock Incentive Plan. Notwithstanding the foregoing, except as provided inSection 11, the Committee shall not have the authority to reduce the exerciseprice of any outstanding Option, to offer to grant any new Option in exchangefor the cancellation of an outstanding Option with a higher exercise price, toincrease the maximum number of shares of Common Stock reserved for issuanceunder the Stock Incentive Plan or to alter the classes of persons constitutingEligible Individuals.

2

----

        Members of the Committee shallserve at the pleasure of the Board of Directors. The Committee shall have and may exercise all of the powers of the Boardof Directors under the Stock Incentive Plan, other than the power to appoint adirector to Committee membership.  Amajority of the Committee shall constitute a quorum, and acts of a majority ofthe members present at any meeting at which a quorum is present shall be deemedthe acts of the Committee. The Committee may also act by instrument signed by amajority of the members of the Committee.

        Every action, decision,interpretation or determination by the Committee with respect to the applicationor administration of this Stock Incentive Plan shall be final and binding uponthe Company and each person holding any Award granted under this Stock IncentivePlan.

            (c)  Subject to the expressprovisions of this Plan, the Committee shall have the authority, in itsdiscretion, to delegate to the CEO Committee the authority to direct the grantof Awards to Eligible Individuals (as such term is defined in the Plan), solely inconnection with either the hiring or the promotion of such Eligible Individualsby the Company or by any subsidiary of the Company and, in connection with suchAwards, to determine the purchase price of the Common Stock covered by suchAwards, the number of shares of Common Stock to be covered by such Awards, todesignate any such Awards of Options as ISOs, to direct the grant of Rights inconnection with any such Options, to determine the time or times at which suchOptions may be exercised, and to determine the terms and conditions of therestrictions relating to such Awards of Restricted Stock; provided, however,that the CEO Committee shall have no authority to (i) grant Awards to the chiefexecutive officer of the Company or to any other Eligible Individual who at thetime of the Award is, or is reasonably expected to become, subject to theprovisions of Section 16 of the Exchange Act, pursuant to Rule 16a-2 under theExchange Act, (ii) during any calendar year, grant Options to purchase more than200,000 shares of Common Stock in the aggregate or grant more than 75,000 sharesof Restricted Stock in the aggregate, (iii) grant to any Eligible IndividualAwards of Options to purchase more than 25,000 shares of Common Stock in theaggregate and/or Awards of more than 10,000 shares of Restricted Stock in theaggregate or (iv) grant Awards that are inconsistent with the express provisionsof the Plan.

        4. Eligibility: Factors to be Considered in Granting Awards and Designating ISOs.

            (a) Awards may be granted onlyto (i) key employees (including officers and directors who are employees) of theCompany or any subsidiary corporation thereof on the date of grant (Options sogranted may be designated as ISOs), and (ii) directors or officers of theCompany or a subsidiary corporation thereof on the date of grant, without regardto whether they are employees, and (iii) consultants or advisers to or agents orindependent representatives of the Company or a subsidiary thereof. In determining the persons to whom Awards shall be granted and the numberof shares of Common Stock to be covered by each Award, the Committee, or, ifapplicable, the CEO Committee, shall take into account the nature of the dutiesof the respective persons, their present and potential contributions to theCompany's (including subsidiaries') successful operation and such otherfactors as the Board of Directors in its discretion shall deem relevant. Subject to the provisions of Paragraph 2 and clause (c) below, anEligible Individual may receive Awards on more than one occasion under the StockIncentive Plan.  No person shall 

3

----

 beeligible for an Award if he shall have filed with the Secretary of the Companyan instrument waiving such eligibility; provided that any such waiver may berevoked by filing with the Secretary of the Company an instrument of revocation,which revocation will be effective upon such filing.

            (b) In the case of each ISOgranted to an employee, the aggregate fair market value (determined at the timethe ISO is granted) of the Common Stock with respect to which the ISO isexercisable for the first time by such employee during any calendar year (underall plans of the Company and any subsidiary corporation thereof) may not exceed$100,000.

            (c) In no event shall anyEligible Individual be granted Options to purchase more than 3,000,000 shares ofCommon Stock or shares of Restricted Stock as Performance-Based Awards (asdefined in paragraph 12) in excess of 1,500,000 over the ten-year term of thisStock Incentive Plan.

        5. Awards of Options.

> 
(a) Options.

        (i) The purchase price per share of the Common Stock covered by each Option shall beestablished by the Committee, or, if applicable, the CEO Committee, but in noevent shall it be less than the fair market value of a share of the Common Stockon the date the Option is granted; provided, however, that if an Option isgranted prior to May 19, 2004 to a director of the Company for services solelyas a director, and such grant is approved by the Board of Directors, thepurchase price may be less than such fair market value. If, at the time an Option is granted, the Common Stock is publiclytraded, such fair market value shall be the closing price (or the mean of thelatest bid and asked prices) of a share of Common Stock on such date as reportedin The Wall Street Journal (or a publication or reporting service deemedequivalent to The Wall Street Journal for such purpose by the Board ofDirectors) for any national securities exchange or other securities market whichat the time is included in the stock price quotations of such publication. In the event that the Committee shall determine such stock pricequotation is not representative of fair market value by reason of the lack of asignificant number of recent transactions or otherwise, the Committee maydetermine fair market value in such a manner as it shall deem appropriate underthe circumstances.  If, at the timean Option is granted, the Common Stock is not publicly traded, the Committeeshall make a good faith attempt to determine such fair market value.

         (ii) In the case of an employee who at the time an ISO isgranted owns stock possessing more than 10% of the total combined voting powerof all classes of the stock of the employer corporation or of its parent or asubsidiary corporation thereof (a "10% Holder"), the purchase price of theCommon Stock covered by any ISO shall in no event be less than 110% of the fairmarket value of the Common Stock at the time the ISO is granted.

4

----

        (b) Term of Options. The term of each Option shall be fixed by the Committee, or, ifapplicable, the CEO Committee, but in no event shall it be exercisable more than10 years from the date of grant in the case of Options granted prior to May 28,2003, or more than seven years from the date of grant in the case of Optionsgranted from and after May 28, 2003, in each case, subject to earliertermination as provided in Paragraphs 9 and 10. An ISO granted to a 10% Holder shall not be exercisable more than fiveyears from the date of grant.

        (c) Exercise of Options.

> 
        (i) Subject to the provisions of the Stock Incentive Plan, an Option granted to an employeeunder the Stock Incentive Plan shall become fully exercisable at such time ortimes as the Committee or, if applicable, the CEO Committee, in its solediscretion shall determine at the time of the granting of the Option orthereafter, except that in no event shall any such Option be exercisable laterthan 10 years after its grant in the case of Options granted prior to May 28,2003, or more than seven years from the date of grant in the case of Optionsgranted from and after May 28, 2003.

        (ii) An Option may be exercised as to any or all full shares of Common Stock as to which theOption is then exercisable.

        (iii) The purchase price of the shares of Common Stock as to which an Option is exercisedshall be paid in full in cash at the time of exercise; provided, that thepurchase price may be paid (i) in whole or in part, by surrender or delivery tothe Company of previously-owned securities of the Company already beneficiallyowned by the Optionee for at least six months and having a fair market value onthe date of the exercise equal to the portion of the purchase price being sopaid, or (ii) in cash by a broker-dealer acceptable to the Company to whom theOptionee has submitted an irrevocable notice of exercise. Fair market value shall be determined as provided in Paragraph 5 for thedetermination of such value on the date of the grant.  In addition, the holder shall, upon notification of theamount due and prior to or concurrently with delivery to the holder of acertificate representing such shares of Common Stock, pay promptly any amountnecessary to satisfy applicable Federal, state or local tax requirements.

        (iv) Except as provided in Paragraphs 9 and 10, no Option may be exercised unless the originalgrantee thereof is then an Eligible Individual.

        (v) The Option holder shall have the rights of a stockholder with respect to shares of CommonStock covered by an Option only upon becoming the holder of record of suchshares of Common Stock.

        (vi) Notwithstanding any other provision of this Stock Incentive Plan, the Companyshall not be required to issue or deliver any share of stock upon the exerciseof an Option prior to the admission of such share to listing on any stock 

5

----

> 
exchange or automated quotation system on which the Company's Common Stock maythen be listed.

        6. Awards and Exercise of Rights.

            (a) A Right may be awarded bythe Committee, or, if applicable, the CEO Committee, in association with anyOption either at the time such Option is granted or at any time prior to theexercise, termination or expiration of such Option. Each such Right shall be subject to the same terms and conditions as therelated Option and shall be exercisable only to the extent such Option isexercisable, and the Right Value, as hereinafter defined, is a positive amount.

            (b) A Right shall entitle the holder to surrender to the Company unexercised the related Option (or anyportion or portions thereof which the holder from time to time shall determineto surrender for this purpose) and to receive in exchange therefor, subject tothe provisions of the Stock Incentive Plan and such rules and regulations asfrom time to time may be established by the Committee, a payment having anaggregate value equal to the product of (A) the "Right Value" of one shareof Common Stock, as hereinafter defined, and (B) the number of shares of CommonStock called for by the Option, or portion thereof, which is surrendered. For purposes of the Stock Incentive Plan, the Right Value of one share ofCommon Stock shall be the excess of: (i) the fair market value of one share ofCommon Stock on the date on which the Right is exercised, over (ii) the purchaseprice per share of the Common Stock covered by the surrendered Option.  The date on which the Committee shall receive notice from theholder of the exercise of a Right shall be considered the date on which theRight is exercised.

        Upon exercise of a Right, a holder shall indicate to the Committee what portion of the payment he desires toreceive in cash and what portion in shares of Common Stock of the Company;provided, that the Board of Directors shall have sole discretion to determine inany case or cases that payment will be made in the form of all cash, all sharesof Common Stock, or any combination thereof. If the holder is to receive a portion of such payment in shares of CommonStock, the number of shares of Common Stock shall be determined by dividing theamount of such portion by the fair market value of one share of Common Stock onthe date on which the Right is exercised.  Thenumber of shares of Common Stock which may be received pursuant to the exerciseof a Right may not exceed the number of shares of Common Stock covered by therelated Option, or portion thereof, which is surrendered. No fractional shares of Common Stock will be issued, but instead cashwill be paid for any such fractional share of Common Stock.

        No payment will be required fromthe holder upon exercise of a Right, except that the holder shall, uponnotification of the amount due and prior to or concurrently with delivery to theholder of cash or a certificate representing shares of Common Stock, paypromptly any amount necessary to satisfy applicable Federal, state or local taxrequirements, and the Company shall have the right to deduct from any paymentany taxes required by law to be withheld by the Company with respect to suchpayment.

6

----

            (c) The fair market value of oneshare of Common Stock for the date on which a Right is exercised shall bedetermined as provided in Paragraph 5 for the determination of such value on thedate of grant.

            (d) Upon exercise of a Right,the number of shares of Common Stock subject to exercise under the relatedOption shall automatically be reduced by the number of shares of Common Stockrepresented by the Option, or portion thereof, which is surrendered. Shares of Common Stock subject to Options, or portions thereof, which aresurrendered in connection with the exercise of Rights shall not beavailable for subsequent Option or Restricted Stock grants under the StockIncentive Plan.

            (e) Whether payments upon exercise of Rights are made in cash, shares of Common Stock or a combinationthereof, the Committee shall have the sole discretion as to the timing of thepayments, including whether payment shall be made in a lump sum or installments,but payments may not be deferred beyond the first business day of thetwenty-fifth calendar month next following the month of exercise of a Right. Deferred payments may bear interest at a rate determined by theCommittee, provided that such rate of interest shall not be less than the lowestrate which avoids imputation of interest at a higher rate under the Code. The Board of Directors may make such further provisions and adopt suchrules and regulations as it shall deem appropriate, not inconsistent with theStock Incentive Plan, related to the timing of the exercise of a Right and thedetermination of the form and timing of payment to the holder upon suchexercise.

        7. Awards of Restricted Stock.  TheCommittee, or, if applicable, the CEO Committee, may authorize the issuance ortransfer of shares of Restricted Stock to Eligible Individuals either alone orin addition to other Awards under the Stock Incentive Plan. The terms and conditions of the vesting of an Award of Restricted Stockshall be set forth in the Agreement with the recipient thereof, except thatAwards of Restricted Stock that will fully vest in fewer than three years fromthe date of grant may not exceed 5% of the total number of shares of CommonStock reserved for issuance under the Stock Incentive Plan. The Committee, or, if applicable, the CEO Committee, may condition thegrant of Restricted Stock upon the attainment of specified performance goalspursuant to Paragraph 12 hereof or such other factors as the Committee, or, ifapplicable, the CEO Committee, may determine, in its sole discretion. Awards of Restricted Stock shall also be subject to the followingprovisions:

            (a) The Restricted Stock may beissued at a purchase price less than the fair market value thereof or for noconsideration, as determined by the Committee, or, if applicable, the CEOCommittee.

            (b) Restricted Stock may besubject to: (i) restrictions on the sale or other disposition thereof, (ii)rights of repurchase or first refusal, and (iii) such other restrictions,conditions and terms as the Committee, or, if applicable, the CEO Committee,deems appropriate.

            (c) Each Award of RestrictedStock will constitute an immediate transfer of ownership of such shares,entitling the recipient to dividend, voting and other ownership rights.  

7

----

The holder of Restricted Stock shall not be required to return anydividends received thereon to the Company in the event of the forfeiture of suchshares.

            (d) The Committee shalldetermine whether shares of Restricted Stock are to be held in escrow by theCompany or by an escrow agent appointed by the Committee, or if such shares areto be delivered to the recipient of the Award with an appropriate legendreferring to the terms, conditions and restrictions applicable to the Award, insubstantially the following form:

> 
"The sale, transfer, alienation, attachment, assignment, pledge or encumbrance of theshares of stock represented hereby are subject to the terms and conditions(including forfeiture) of the Jones Apparel Group, Inc. 1999 Stock IncentivePlan and an Agreement entered into by the registered owner and the Company dated__________.  Copies of such Plan andAgreement are on file at the offices of the Company.  Any attempt to dispose of these shares in contravention ofthe applicable restrictions, including by way of sale, assignment, transfer,pledge, hypothecation or otherwise, shall be null and void and withouteffect."

If and when all restrictions on such shares have lapsed without a prior forfeiture of theshares, such legend shall be removed from the certificate representing theshares.

        8. Nontransferability of Awards.  NoAward granted under the Stock Incentive Plan shall be transferable, other thanby will or by the laws of descent and distribution, except that all or anyportion of an Option (other than Options which are ISOs) may be transferred toor for the benefit of (by trust) the spouse or lineal descendants of a holder ofsuch Option, subject to such restrictions on transfer which may be imposed byfederal and state securities laws, and if prior thereto the transferee agrees tobe bound by the terms of the Stock Incentive Plan and the Options, as the casemay be ("Permitted Transferee").  Optionswhich are ISOs may be exercised, during the lifetime of the holder, only by theholder, or by his guardian or legal representative.

        9. Termination of Relationship to the Company.

            (a) In the event that any original grantee of an Option or Right shall cease to bean Eligible Individual of the Company (or any subsidiary corporation thereof),except as set forth in Paragraph 10, such Award may (subject to the provisionsof the Stock Incentive Plan) be exercised (to the extent that the originalgrantee was entitled to exercise such Option or Right at the termination of hisemployment or service as a director, officer, consultant, adviser, agent orindependent representative, as the case may be) at any time within three monthsafter such termination (or for such other period following termination as thegrantee and the Company may have agreed to in writing), but not more than 10years (five years in the case of a 10% Holder) after the date on which suchAward was granted or the expiration of the Award, if earlier.  Notwithstanding the foregoing, except as provided inParagraph 10, if the position of an original grantee shall be terminated by theCompany or any subsidiary thereof for cause or if the original granteeterminates his employment or position voluntarily and without the writtenconsent of the 

8

----

 Company or any subsidiary corporation thereof, as the case maybe, the Options or Rights granted to such person, whether held by such person orby a Permitted Transferee shall, to the extent not theretofore exercised,forthwith terminate immediately upon such termination. Subject to suchexceptions as may be determined by the Committee, in the event any originalRestricted Stock grantee shall cease to be an Eligible Individual of the Company(or any subsidiary corporation thereof), except as set forth in Paragraph 10,all shares of Restricted Stock remaining subject to applicable restrictionsshall be forfeited by the recipient and be immediately transferred to, andreacquired by, the Company at no cost to the Company.

            (b)Other than as provided in Paragraph 10(a), Awards granted under the StockIncentive Plan shall not be affected by any change of duties or position so longas the holder remains an Eligible Individual.

            (c) Any Agreement may contain such provisions as the Committee shall approve withreference to the determination of the date employment terminates or the dateother positions or relationships terminate for purposes of the Stock IncentivePlan and the effect of leaves of absence, which provisions may vary from oneanother.

            (d) Nothing in the Stock Incentive Plan or in any Award pursuant to the StockIncentive Plan shall confer upon any Eligible Individual or other person anyright to continue in the employ of the Company or any subsidiary corporationthereof (or the right to be retained by, or have any continued relationshipwith, the Company or any subsidiary corporation thereof), or affect the right ofthe Company or any such subsidiary corporation thereof, as the case may be, toterminate his employment, retention or relationship at any time.  The grant of any Award pursuant to the Stock Incentive Plan shall beentirely in the discretion of the Committee, or, if applicable, the CEOCommittee, and nothing in the Stock Incentive Plan shall be construed to conferon any Eligible Individual any right to receive any Award under the StockIncentive Plan.

        10. Death, Disability or Retirement.

            (a) If a person to whom an Award has been granted under the Stock Incentive Planshall (i) die (and the conditions in sub-paragraph (b) below are met), or (ii)become permanently and totally disabled or enter retirement (as such terms aredefined below) while serving as an Eligible Individual, then the followingprovisions shall apply: (A) in the case of an Option or Stock AppreciationRight, the Award shall become immediately fully exercisable and the period forexercise provided in Paragraph 9 shall be extended to (i) one year after thedate of death of the original grantee, or (ii) in the case of the permanent andtotal disability of the original grantee, to one year after the date ofpermanent and total disability of the original grantee, or (iii) three years inthe case of a retirement (as defined below), but, in any case, not more than 10years (five years in the case of a 10% Holder) after the date such Award wasgranted, or the expiration of the Award, if earlier, as shall be prescribed inthe original grantee's Award Agreement, and (B) in the case of RestrictedStock, the period of restrictions applicable to all unvested shares shallterminate on the date of termination of employment by reason of retirement,disability or death.  An Award maybe exercised as set forth herein in the event of the original grantee's death,by a Permitted Transferee or the person or persons to whom the holder's rightsunder the Award pass by will or applicable law, or if no such person has theright, by his 

9

----

 executors or administrators; or in the event of the originalgrantee's permanent and total disability, by the holder or his guardian.

            (b) In the case of death of a person to whom an Award was originally granted, theprovisions of subparagraph (a) apply if such person dies (i) while in the employof the Company or a subsidiary corporation thereof or while serving as anEligible Individual of the Company or a subsidiary corporation thereof or (ii)within three months after the termination of such position other thantermination for cause, or voluntarily on the original grantee's part andwithout the consent of the Company or a subsidiary corporation thereof, or (iii)within three years following his retirement.

            (c) The term "permanent and total disability" as used above shall have themeaning set forth in Section 22(e)(3) of the Code.

            (d) The term "retirement" as used above shall mean voluntary termination ofemployment with the Company or a subsidiary corporation thereof by the EligibleIndividual, with the approval of the Company, with at least 10 years of serviceand (i) in the case of Awards granted to the Eligible Individual on or prior toDecember 31, 2005,  after attainingage 55 or (ii) in the case of Awards granted to the Eligible Individual from andafter January 1, 2006, after attaining age 60, or if the individual has notattained age 55 or age 60, as applicable, and/or has fewer than 10 years ofservice, the Company determines that circumstances exist that warrant thegranting of retirement status.

11. Adjustments upon Changes in Capitalization. Notwithstanding any other provision of the Stock Incentive Plan, in theevent of changes in the outstanding Common Stock of the Company by reason ofstock dividends, stock splits, reverse stock splits, recapitalizations, mergers,consolidations, combinations or exchanges of shares, spin-offs, reorganizations,liquidations and the like, the Committee may appropriately adjust the aggregatenumber and class of shares of Common Stock as to which Awards may be grantedunder the Stock Incentive Plan, the maximum number and class of shares that maybe awarded to any Eligible Individual, the number and class of shares subject tooutstanding Awards, and the Option or Restricted Stock price per share. In the event of (i) the dissolution or liquidation of the Company, or(ii) the disposition by the Company of substantially all of the assets or stockof a subsidiary of which the original grantee is then an employee, officer ordirector, consultant, adviser, agent or independent representative or if (iii) a"change in control" (as hereinafter defined) of the Company has occurred oris about to occur, then, if the Committee shall so determine: (A) with respectto Options, each Option under the Stock Incentive Plan, if such event shalloccur with respect to the Company, or each Option granted to an employee,officer, director, consultant, adviser, agent or independent representative of asubsidiary respecting which such event shall occur, shall (x) become immediatelyand fully exercisable or (y) terminate simultaneously with the happening of suchevent, and the Company shall pay the Optionee in lieu thereof an amount equal to(a) the excess of the fair market value over the exercise price of one share onthe date on which such event occurs, multiplied by (b) the number of sharessubject to the Option, without regard to whether the Option is then otherwiseexercisable, and (B) with respect to Restricted Stock, any Restricted Stock notforfeited prior to the change in control shall become immediately 
10

 and fullyvested, and the Committee shall have sole discretion to waive automaticforfeitures, if any, arising from the change in control. 

        12. Performance-Based Awards.  CertainAwards of Restricted Stock granted under the Stock Incentive Plan may begranted, in the sole discretion of the Committee, in a manner constituting"qualified performance-based compensation" within the meaning of Section162(m) of the Code.  Such Awards (the "Performance-Based Awards") shall bebased upon one or more of the following factors: stock price, earnings pershare, net earnings, operating earnings, return on assets, shareholder return,return on equity, growth in assets, sales, cash flow, market share, relativeperformance to a group of companies comparable to the Company, and strategicbusiness criteria consisting of one or more objectives based on the Company'smeeting specified goals relating to revenue, market penetration, businessexpansion, costs or acquisitions or divestitures.  With respect to Performance-Based Awards, (i) the Committee shallestablish in writing the objective performance-based goals applicable to a givenfiscal period no later than 90 days after the commencement of such fiscal period(but in no event after 25% of such period has elapsed) and (ii) noPerformance-Based Awards shall be payable to any recipient for a given fiscalperiod until the Committee certifies in writing that the objective performancegoals (and any other material terms) applicable to such period have beensatisfied.

        13. Effectiveness of the Stock Incentive Plan. Awards may be granted under the Stock Incentive Plan, subject to itsauthorization and adoption by stockholders of the Company, at any time or fromtime to time after its adoption by the Committee, but the amendment andrestatement of the Stock Incentive Plan shall not be effective unless it shallhave been authorized and adopted by a majority of the votes properly castthereon at a meeting of stockholders of the Company duly called and held afterthe date of adoption of the amended and restated Stock Incentive Plan by theBoard of Directors.  If so adopted,the amended and restated Stock Incentive Plan shall become effective as of thedate of its adoption by the Board of Directors. The exercise of Options shall also be expressly subject to the conditionthat at the time of exercise a registration statement under the Securities Actof 1933, as amended (the "Act") shall be effective, or other provisionssatisfactory to the Committee shall have been made to ensure that such exercisewill not result in a violation of such Act, and such other qualification underany state or Federal law, rule or regulation as the Company shall determine tobe necessary or advisable shall have been effected.  If the shares of Common Stock issuable upon exercise of an Option or ifshares of Restricted Stock are not registered under such Act, and if theCommittee shall deem it advisable, the recipient may be required to representand agree in writing (i) that any shares of Common Stock acquired pursuant tothe Stock Incentive Plan will not be sold except pursuant to an effectiveregistration statement under such Act or an exemption from the registrationprovisions of the Act and (ii) that such recipient will be acquiring such sharesof Common Stock for his own account and not with a view to the distributionthereof and (iii) that the holder accepts such restrictions on transfer of suchshares, including, without limitation, the affixing to any certificaterepresenting such shares of an appropriate legend restricting transfer as theCompany may reasonably impose.

        14. Termination and Amendment of the Stock Incentive Plan. The Board of Directors of the Company may amend, modify or terminate theStock Incentive Plan at any time prior to the termination of the Stock IncentivePlan, except that no amendment may be made without 

11

 shareholder approval (i) ifthe Board of Directors determines that such approval is necessary to comply withany tax or regulatory requirement, including any approval requirement which is aprerequisite for exemptive relief from Section 16 of the Exchange Act, for whichor with which the Board of Directors determines that it is desirable to qualifyor comply, or (ii) if such amendment grants the Committee the authority, exceptas provided for in Section 11, to (a) reduce the exercise price of anyoutstanding Option, (b) offer to grant any new Option in exchange for thecancellation of an outstanding Option with a higher exercise price, (c) increasethe maximum number of shares of Common Stock reserved for issuance under theStock Incentive Plan, (d) alter the classes of persons constituting EligibleIndividuals or (e) grant Awards of Restricted Stock that will fully vest infewer than three years from the date of grant in excess of 5% of the totalnumber of shares of Common Stock reserved for issuance under the Stock IncentivePlan.  No suspension, termination,modification or amendment of the Stock Incentive Plan may, without the expresswritten consent of the Eligible Individual (or his Permitted Transferee) to whoman Award shall theretofore have been granted, adversely affect the rights ofsuch Eligible Individual (or his Permitted Transferee) under such Award.

        15. Financing for Investment in Stock of the Company. The Board of Directors may cause the Company or any subsidiary to give orarrange for financing, including direct loans, secured or unsecured, orguaranties of loans by banks which loans may be secured in whole or in part byassets of the Company or any subsidiary, to any Eligible Individual under theStock Incentive Plan who shall have been so employed or so served for a periodof at least six months at the end of the fiscal year ended immediately prior toarranging such financing; but the Board of Directors may, in any specific case,authorize financing for an Eligible Individual who shall not have served forsuch a period.  Such financing shallbe for the purpose of providing funds for the purchase by the EligibleIndividual of shares of Common Stock pursuant to the exercise of an Option or anAward of Restricted Stock and/or for payment of taxes incurred in connectionwith such exercise or Award, and/or for the purpose of otherwise purchasing orcarrying a stock investment in the Company. The maximum amount of liability incurred by the Company and itssubsidiaries in connection with all such financing outstanding shall bedetermined from time to time in the discretion of the Board of Directors.  Each loan shall bear interest at a rate not less than thatprovided by the Code and other applicable law, rules, and regulations in orderto avoid the imputation of interest at a higher rate.  Each recipient of such financing shall be personally liablefor the full amount of all financing extended to him.  Such financing shall be based upon the judgment of the Boardof Directors that such financing may reasonably be expected to benefit theCompany, and that such financing as may be granted shall be consistent with theCertificate of Incorporation and By-Laws of the Company or such subsidiary, andapplicable laws.  If any suchfinancing is authorized by the Board of Directors, such financing shall beadministered by the Board of Directors.

        16. Severability.  In the eventthat any one or more provisions of the Stock Incentive Plan or any Agreement, orany action taken pursuant to the Stock Incentive Plan or such Agreement, should,for any reason, be unenforceable or invalid in any respect under the laws of theUnited States, any state of the United States or any other government, suchunenforceability or invalidity shall not affect any other provision of the StockIncentive Plan or of such or any other Agreement, but in such particularjurisdiction and instance the Stock Incentive Plan and the 

12

 affected Agreementshall be construed as if such unenforceable or invalid provision had not beencontained therein or if the action in question had not been taken thereunder.

        17. Applicable Law. The Stock Incentive Plan shall be governed andinterpreted, construed and applied in accordance with the laws of the State ofPennsylvania.

        18. Withholding.  A holder shall,upon notification of the amount due and prior to or concurrently with deliveryto such holder of a certificate representing such shares of Common Stock, paypromptly any amount necessary to satisfy applicable Federal, state, local orother tax requirements. 

        19. Miscellaneous.

            (a) The terms "parent," "subsidiary" and "subsidiary corporation" shallhave the meanings set forth in Sections 424(e) and (f) of the Code,respectively.

            (b) The term "terminated for cause" shall mean termination by the Company (or asubsidiary thereof) of the employment of or other relationship with, theoriginal grantee by reason of the grantee's (i) willful refusal to perform hisobligations to the Company (or a subsidiary thereof), (ii) willful misconduct,contrary to the interests of the Company (or a subsidiary thereof), or (iii)commission of a serious criminal act, whether denominated a felony, misdemeanoror otherwise.  In the event of any dispute regarding whether a terminationfor cause has occurred, the Board of Directors may by resolution resolve suchdispute, and such resolution shall be final and conclusive on all parties.

            (c) The term "change in control" shall mean an event or series of events thatresults in (i) a person, partnership, joint venture, corporation or otherentity, or two or more of any of the foregoing acting as a "person" withinthe meaning of Sections 13(d)(3) of the Exchange Act, other than the Company, amajority-owned subsidiary of the Company or an employee benefit plan of theCompany or such subsidiary (or such plan's related trust), become(s) the"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of 20%or more of the then outstanding voting stock of the Company; (ii) during anyperiod of two consecutive years, individuals who at the beginning of such periodconstitute the Company's Board of Directors (together with any new directorwhose election by the Company's Board or whose nomination for election by theCompany's shareholders, was approved by a vote of at least two-thirds of thedirectors then still in office who either were directors at the beginning ofsuch period or whose election or nomination for election was previously soapproved) cease for any reason to constitute a majority of the directors then inoffice; (iii) all or substantially all of the business of the Company isdisposed of pursuant to a merger, consolidation or other transaction in whichthe Company is not the surviving corporation or the Company combines withanother company and is the surviving corporation (unless the shareholders of theCompany immediately following such merger, consolidation, combination, or othertransaction beneficially own, directly or indirectly, more than 50% of theaggregate voting stock or other ownership interests of (x) the entity orentities, if any, that succeed to the business of the Company or (y) thecombined company).

13