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                          MERCER INSURANCE GROUP, INC.

                         2003 STOCK-BASED INCENTIVE PLAN

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                          MERCER INSURANCE GROUP, INC.
                         2003 STOCK-BASED INCENTIVE PLAN

                                TABLE OF CONTENTS

<TABLE>
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ARTICLE                                                                     PAGE
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<S>                                                                         <C>
Article 1.    PURPOSE OF THE PLAN; TYPES OF AWARDS                            1

Article 2.    DEFINITIONS                                                     1

Article 3.    ADMINISTRATION                                                  5

Article 4.    COMMON STOCK SUBJECT TO THE PLAN                                6

Article 5.    ELIGIBILITY                                                     7

Article 6.    STOCK OPTIONS IN GENERAL                                        7

Article 7.    TERM, VESTING AND EXERCISE OF OPTIONS                           9

Article 8.    EXERCISE OF OPTIONS FOLLOWING TERMINATION OF EMPLOYMENT        10

Article 9.    RESTRICTED STOCK                                               12

Article 10.   STOCK APPRECIATION RIGHTS                                      13

Article 11.   ADJUSTMENT PROVISIONS                                          13

Article 12.   SPECIAL PROVISIONS RELATING TO DIRECTOR AWARDS                 15

Article 13.   GENERAL PROVISIONS                                             15
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                 ARTICLE 1. PURPOSE OF THE PLAN; TYPES OF AWARDS

         1.1      Purpose. The Mercer Insurance Group, Inc. 2003 Stock-Based
Incentive Plan is intended to provide selected Employees and Directors of Mercer
Insurance Group, Inc. and its Subsidiaries with an opportunity to acquire Common
Stock of the Corporation. The Plan is designed to help the Corporation and its
Subsidiaries attract, retain and motivate selected persons to make substantial
contributions to the success of the Corporation's business and the businesses of
its Subsidiaries. Awards will be granted under the Plan based, among other
things, on the Participant's level of responsibility and performance within the
Corporation and its Subsidiaries.

         1.2      Authorized Plan Awards. Incentive Stock Options, Nonqualified
Stock Options, Restricted Stock and SARs (including Tandem SARs) may be awarded
within the limitations of the Plan herein described; provided, however, that
Incentive Stock Options (including Tandem SARs coupled with Incentive Stock
Options) may not be granted to Directors.

                             ARTICLE 2. DEFINITIONS

         2.1      "Agreement". A written instrument evidencing the grant of an
Award. A Participant may be issued one or more Agreements from time to time,
reflecting one or more Awards.

         2.2      "Award". The grant of an Option, Restricted Stock or an SAR
(including a Tandem SAR).

         2.3      "Board". The Board of Directors of the Corporation.

         2.4      "Change in Control". Except as otherwise provided in an
Agreement, the first to occur of any of the following events:

                  (a)      any "Person" (as such term is used in Sections 13(d)
         and 14(d) of the Exchange Act), except for any of the Corporation's or
         a Subsidiary's employee benefit plans, or any entity holding the
         Corporation's voting securities for, or pursuant to, the terms of any
         such plan (or any trust forming a part thereof) (the "Benefit
         Plan(s)"), is or becomes the beneficial owner, directly or indirectly,
         of the Corporation's securities representing 19.9% or more of the
         combined voting power of the Corporation's then outstanding securities
         other than pursuant to a transaction excepted in Clause (c) or (d);

                  (b)      there occurs a contested proxy solicitation of the
         Corporation's shareholders that results in the contesting party
         obtaining the ability to vote securities representing 19.9% or more of
         the combined voting power of the Corporation's then outstanding
         securities;

                  (c)      a binding written agreement is executed (and, if
         legally required, approved by the Corporation's shareholders) providing
         for a sale, exchange, transfer or other disposition of all or
         substantially all of the assets of the Corporation to another entity,

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         except to an entity controlled directly or indirectly by the
         Corporation;

                  (d)      the shareholders of the Corporation approve a merger,
         consolidation, or other reorganization of the Corporation, unless:

                           (i)      under the terms of the agreement approved by
                  the Corporation's shareholders providing for such merger,
                  consolidation or reorganization, the shareholders of the
                  Corporation immediately before such merger, consolidation or
                  reorganization, will own, directly or indirectly immediately
                  following such merger, consolidation or reorganization, at
                  least 51% of the combined voting power of the outstanding
                  voting securities of the Corporation resulting from such
                  merger, consolidation or reorganization (the "Surviving
                  Corporation") in substantially the same proportion as their
                  ownership of the voting securities immediately before such
                  merger, consolidation or reorganization;

                           (ii)     under the terms of the agreement approved by
                  the Corporation's shareholders providing for such merger,
                  consolidation or reorganization, the individuals who were
                  members of the Board immediately prior to the execution of
                  such agreement will constitute at least 51% of the members of
                  the board of directors of the Surviving Corporation after such
                  merger, consolidation or reorganization; and

                           (iii)    based on the terms of the agreement approved
                  by the Corporation's shareholders providing for such merger,
                  consolidation or reorganization, no Person (other than (A) the
                  Corporation or any Subsidiary of the Corporation, (B) any
                  Benefit Plan, (C) the Surviving Corporation or any Subsidiary
                  of the Surviving Corporation, or (D) any Person who,
                  immediately prior to such merger, consolidation or
                  reorganization had beneficial ownership of 19.9% or more of
                  the then outstanding voting securities) will have beneficial
                  ownership of 19.9% or more of the combined voting power of the
                  Surviving Corporation's then outstanding voting securities;

                  (e)      a plan of liquidation or dissolution of the
         Corporation, other than pursuant to bankruptcy or insolvency laws, is
         adopted; or

                  (f)      during any period of two consecutive years,
         individuals, who at the beginning of such period, constituted the Board
         cease for any reason to constitute at least a majority of the Board
         unless the election, or the nomination for election by the
         Corporation's shareholders, of each new director was approved by a vote
         of at least two-thirds of the directors then still in office who were
         directors at the beginning of the period.

         Notwithstanding Clause (a), a Change in Control shall not be deemed to
have occurred if a Person becomes the beneficial owner, directly or indirectly,
of the Corporation's securities representing 19.9% or more of the combined
voting power of the Corporation's then outstanding securities solely as a result
of an acquisition by the Corporation of its voting securities which, by

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reducing the number of shares outstanding, increases the proportionate number of
shares beneficially owned by such Person to 19.9% or more of the combined voting
power of the Corporation's then outstanding securities; provided, however, that
if a Person becomes a beneficial owner of 19.9% or more of the combined voting
power of the Corporation's then outstanding securities by reason of share
purchases by the Corporation and shall, after such share purchases by the
Corporation, become the beneficial owner, directly or indirectly, of any
additional voting securities of the Corporation (other than as a result of a
stock split, stock dividend or similar transaction), then a Change in Control of
the Corporation shall be deemed to have occurred with respect to such Person
under Clause (a). In no event shall a Change in Control of the Corporation be
deemed to occur under Clause (a) with respect to Benefit Plans.

         2.5      "Code". The Internal Revenue Code of 1986, as amended.

         2.6      "Committee". The Compensation Committee of the Board, or any
successor to such committee.

         2.7      "Common Stock". The common stock of the Corporation (no par
value) as described in the Corporation's Articles of Incorporation, or such
other stock as shall be substituted therefor.

         2.8      "Corporation". Mercer Insurance Group, Inc., a Pennsylvania
corporation.

         2.9      "Director". A non-employee director of the Corporation or a
Subsidiary.

         2.10     "Disability". Permanent and total disability, within the
meaning of such term in Code Section 22(e)(3).

         2.11     "Effective Date". The effective date of the Plan as provided
in Section 13.1.

         2.12     "Employee". Any common law employee of the Corporation or a
Subsidiary.

         2.13     "Exchange Act". The Securities Exchange Act of 1934, as
amended.

         2.14     "Fair Market Value". The amount determined as such with
respect to a share of Common Stock pursuant to the provisions of Section 6.3.

         2.15     "Incentive Stock Option". A Stock Option intended to satisfy
the requirements of Code Section 422(b).

         2.16     "Initial Public Offering". The initial public offering of
Common Stock that occurs on [INSERT THE DATE OF CONVERSION], 2003.

         2.17     "Nonqualified Stock Option". A Stock Option other than an
Incentive Stock Option.

         2.18     "Optionee". A Participant who is awarded a Stock Option
pursuant to the

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provisions of the Plan.

         2.19     "Participant". An Employee or Director to whom an Award has
been granted and remains outstanding.

         2.20     "Performance Criteria". Any objective test based on one or
more of the following areas of performance of the Corporation, a Subsidiary, or
any division, department or group of either: (a) earnings, (b) cash flow, (c)
revenue, (d) financial ratios, (e) market performance, (f) shareholder return,
(g) operating profits (including earnings before interest, taxes, depreciation
and amortization), (h) earnings per share, (i) return on assets, (j) return on
equity, (k) return on investment, (l) stock price and (m) expense reduction.
Performance Criteria shall be derived from the financial statements of the
Corporation and its Subsidiaries prepared in accordance with generally accepted
accounting principles consistently applied, or, for Performance Criteria that
cannot be so derived, under a methodology established by the Committee prior to
the issuance of a Performance Grant that is consistently applied.

         2.21.    "Performance Goal". A goal established by the Committee, with
respect to an Award intended to constitute a Performance Grant, that relates to
one or more Performance Criteria. A Performance Goal shall relate to such period
of time, not less than one year (unless coupled with a vesting schedule of at
least one year) or more than three years, as may be specified by the Committee
at the time of the awarding of a Performance Grant.

         2.22.    "Performance Grant". An Award, the vesting or receipt without
restriction of which, is conditioned on the satisfaction of one or more
Performance Goals.

         2.23     "Plan". The Mercer Insurance Group, Inc. 2003 Stock-Based
Incentive Plan.

         2.24     "Reference Value". The dollar amount fixed as such at the date
of the grant of an SAR, which amount shall not be less than the Fair Market
Value of the Common Stock on such date.

         2.25     "Restricted Stock". A grant of Common Stock pursuant to the
provisions of the Plan, which grant is subject to such restrictions and other
conditions as may be specified by the Committee at the time of such grant.

         2.26     "Retirement". The termination of a Participant's employment
following attainment of age 65.

         2.27     "SAR". A stock appreciation right, which represents the
potential right to receive the increase (if any) in the Fair Market Value of a
share of Common Stock on the date of the exercise of such right over the
Reference Value of such share on the date the right is granted.

         2.28     "Securities Act". The Securities Act of 1933, as amended.

         2.29     "Stock Option" or "Option". A grant of a right to purchase
Common Stock pursuant to the provisions of the Plan.

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         2.30     "Subsidiary". A subsidiary corporation, as defined in Code
Section 424(f), that is a subsidiary of a relevant corporation.

         2.31     "Tandem SAR". An SAR granted in connection with the concurrent
grant of an Option, which SAR shall expire to the extent the related Option is
exercised and vice versa.

                            ARTICLE 3. ADMINISTRATION

         3.1      The Committee. The Plan shall be administered by the
Compensation Committee of the Board or any successor committee. The Committee
shall be composed of three or more members of the Board, all of whom are (a)
"non-employee directors" as such term is defined under the rules and regulations
adopted from time to time by the Securities and Exchange Commission pursuant to
Section 16(b) of the Exchange Act, (b) "outside directors" within the meaning of
Code Section 162(m), and (iii) "independent" within the meaning of any
applicable Nasdaq Stock Market listing requirement or the requirement of any
other market or exchange on which the Common Stock is listed. The Board may from
time to time remove members from, or add members to, the Committee. Vacancies on
the Committee, howsoever caused, shall be filled by the Board.

         3.2      Powers of the Committee.

                  (a)      The Committee shall be vested with full authority to
         make such rules and regulations as it deems necessary or desirable to
         administer the Plan and to interpret the provisions of the Plan, unless
         otherwise determined by a majority of the disinterested members of the
         Board. 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 any person claiming under or through a Participant,
         unless otherwise determined by a majority of the disinterested members
         of the Board.

                  (b)      Subject to the terms, provisions and conditions of
         the Plan and subject to review and approval by a majority of the
         disinterested members of the Board, the Committee shall have exclusive
         jurisdiction to:

                           (i)      determine and select the Employees to be
                  granted Awards (it being understood that more than one Award
                  may be granted to the same person);

                           (ii)     determine the number of shares subject to
                  each Award;

                           (iii)    determine the date or dates when the Awards
                  will be granted;

                           (iv)     determine the exercise price of shares
                  subject to Options in accordance with Article 6;

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                           (v)      determine the date or dates when an Option
                  may be exercised within the term of the Option specified
                  pursuant to Article 7;

                           (vi)     determine whether an Option constitutes an
                  Incentive Stock Option or a Nonqualified Stock Option;

                           (vii)    determine the Reference Value applicable to
                  SARs (including Tandem SARs) granted under the Plan;

                           (viii)   prescribe the form, which shall be
                  consistent with the Plan document, of the Agreement evidencing
                  any Awards granted under the Plan; and

                           (ix)     prescribe such administrative forms as are
                  deemed necessary for the proper operation of the Plan,
                  including, if deemed appropriate, a beneficiary designation
                  form.

         3.3      Liability. No member of the Board or the Committee shall be
liable for any action or determination made in good faith by the Board or the
Committee with respect to this Plan or any Awards granted under this Plan.

         3.4      Establishment and Certification of Performance Goals. The
Committee shall establish, prior to grant, Performance Goals with respect to
each Award intended to constitute a Performance Grant. Notwithstanding anything
herein to the contrary, no Option or SAR (including a Tandem SAR) that is
intended to constitute a Performance Grant may be exercised until the
Performance Goal or Goals applicable thereto is or are certified as having been
satisfied by the Committee, nor shall any share of Restricted Stock that is
intended to constitute a Performance Grant be released to a Participant until
such certification is made.

         3.5      Performance Grants Not Mandatory. Nothing herein shall be
construed as requiring that any Award be made a Performance Grant.

                   ARTICLE 4. COMMON STOCK SUBJECT TO THE PLAN

         4.1      Common Stock Authorized. The aggregate number of shares of
Common Stock with respect to which Awards may be granted under this Plan shall
not exceed 14% of the shares of Common Stock offered and sold in the Initial
Public Offering; provided, however, that Restricted Stock Awards made under this
Plan shall not exceed 4% of the shares of Common Stock so offered and sold. The
limitation established by the preceding sentence shall be subject to adjustment
as provided in Article 11.

         4.2      Shares Available. The Common Stock to be issued under the Plan
shall be the Corporation's Common Stock which shall be made available at the
discretion of the Board, either from authorized but unissued Common Stock or
from Common Stock acquired by the Corporation, including shares purchased in the
open market.

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         4.3      Use and Replenishment of Authorized Shares. All Awards shall
be charged, on a share-for-share basis, against the shares authorized under
Section 4.1; provided, however, that shares subject to a Tandem SAR shall be
charged against the authorized shares only once for the overall number of shares
subject thereto and not for both the number of shares subject to the SAR portion
of the Award and the number of shares subject to the Option portion of the
Award. The provisions of the preceding sentence shall apply whether an exercised
SAR is settled in cash or stock, or partly in both. In the event that any
outstanding Award under the Plan for any reason expires, terminates or is
forfeited, the shares of Common Stock allocable to such expiration, termination
or forfeiture may thereafter again be made subject to an Award under the Plan;
provided, however, shares subject to a Tandem SAR shall be replenished only once
for the overall number of shares subject thereto and not for both the number of
shares subject to the SAR portion of the Award and the number of shares subject
to the Option portion of the Award.

                             ARTICLE 5. ELIGIBILITY

         5.1      Participation. Except as otherwise provided herein, Awards
shall be granted by the Committee only to persons who are Employees and shall be
ratified by a majority of the disinterested members of the Board.

         5.2      Incentive Stock Option Eligibility. Notwithstanding any other
provision of the Plan to the contrary, an individual who owns more than ten
percent of the total combined voting power of all classes of outstanding stock
of the Corporation shall not be eligible for the grant of an Incentive Stock
Option, unless the special requirements set forth in Sections 6.1 and 7.1 are
satisfied. For purposes of this section, in determining stock ownership, an
individual shall be considered as owning the stock owned, directly or
indirectly, by or for his brothers and sisters (whether by the whole or half
blood), spouse, ancestors and lineal descendants. Stock owned, directly or
indirectly, by or for a corporation, partnership, estate or trust shall be
considered as being owned proportionately by or for its shareholders, partners
or beneficiaries. "Outstanding stock" shall include all stock actually issued
and outstanding immediately before the grant of the Option. "Outstanding stock"
shall not include shares authorized for issue under outstanding options held by
an Optionee or by any other person.

                      ARTICLE 6. STOCK OPTIONS IN GENERAL

         6.1      Exercise Price. The exercise price of an Option to purchase a
share of Common Stock shall be, in the case of an Incentive Stock Option, not
less than 100% of the Fair Market Value of a share of Common Stock on the date
the Option is granted, except that the exercise price shall be not less than
110% of such Fair Market Value in the case of an Incentive Stock Option granted
to any individual described in Section 5.2. The exercise price of an Option to
purchase a share of Common Stock shall be, in the case of a Nonqualified Stock
Option, not less than 100% percent of the Fair Market Value of a share of Common
Stock on the date the Option is granted. The exercise price shall be subject to
adjustment as provided in Article 11.

         6.2      Limitation on Incentive Stock Options. The aggregate Fair
Market Value

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(determined as of the date an Option is granted) of the Common Stock with
respect to which Incentive Stock Options are exercisable for the first time by
any individual in any calendar year (under the Plan and all other plans
maintained by the Corporation and Subsidiaries) shall not exceed $100,000.

         6.3      Determination of Fair Market Value.

                  (a)      During such time as the Common Stock is not listed on
         an established stock exchange or exchanges but is quoted on the NASDAQ
         National Market System, the Fair Market Value per share of the Common
         Stock shall be the closing sale price for such a share on the relevant
         day. If no sale of Common Stock has occurred on that day, the Fair
         Market Value shall be determined by reference to such price for the
         next preceding day on which a sale occurred.

                  (b)      During such time as the Common Stock is not listed on
         an established stock exchange or quoted on the NASDAQ National Market
         System, the Fair Market Value per share of the Common Stock shall be
         the mean between the closing "bid" and "asked" prices for such a share
         on the relevant day. If no closing "bid" and "asked" prices are quoted
         for that day, the Fair Market Value shall be determined by reference to
         such prices for the next preceding day on which such closing prices
         were quoted.

                  (c)      If the Common Stock is listed on an established stock
         exchange or exchanges, the Fair Market Value per share of the Common
         Stock shall be the composite closing sale price for such a share on the
         relevant day. If no sale of Common Stock has occurred on that day, the
         Fair Market Value shall be determined by reference to such price for
         the next preceding day on which a sale occurred.

                  (d)      In the event that the Common Stock is not traded on
         an established stock exchange or quoted on the NASDAQ National Market
         System, and no closing "bid" and "asked" prices are available on a
         relevant day, then the Fair Market Value per share of Common Stock will
         be the price established by the Committee in good faith.

         In connection with determining the Fair Market Value of a share of
Common Stock on any relevant day, the Committee may use any source deemed
reliable; and its determination shall be final and binding on all affected
persons, absent clear error.

         6.4      Limitation on Option Awards. Commencing on the Effective Date,
grants under this Plan (and any plan of the Corporation or a Subsidiary
providing for stock option awards) to an Employee described in Code Section
162(m)(3) shall not exceed, in the aggregate, Options to acquire 125,000 shares
of Common Stock during any period of 12 consecutive months. Such limitation
shall be subject to adjustment in the manner described in Article 11. The
limitation in this section shall not include Options that are granted as part of
Tandem SARs.

         6.5      Transferability of Options.

                  (a)      Except as provided in Subsection (b), an Option
         granted hereunder shall

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         not be transferable other than by will or the laws of descent and
         distribution, and such Option shall be exercisable, during the
         Optionee's lifetime, only by him or her.

                  (b)      An Optionee may, with the prior approval of the
         Committee, transfer a Nonqualified Stock Option (but not a Nonqualified
         Stock Option that is part of a Tandem SAR) for no consideration to or
         for the benefit of one or more members of the Optionee's "immediate
         family" (including a trust, partnership or limited liability company
         for the benefit of one or more of such members), subject to such limits
         as the Committee may impose, and the transferee shall remain subject to
         all terms and conditions applicable to the Option prior to its
         transfer. The term "immediate family" shall mean an Optionee's spouse,
         parents, children, stepchildren, adoptive relationships, sisters,
         brothers and grandchildren (and, for this purpose, shall also include
         the Optionee).

                ARTICLE 7. TERM, VESTING AND EXERCISE OF OPTIONS

         7.1      Term and Vesting. Each Option granted under the Plan shall
terminate on the date determined by the Committee and approved by a majority of
the disinterested members of the Board, and specified in the Agreement;
provided, however, that (i) each intended Incentive Stock Option granted to an
individual described in Section 5.2 shall terminate not later than five years
after the date of grant, (ii) each other intended Incentive Stock Option shall
terminate not later than ten years after the date of grant, and (iii) each
Option granted under the Plan which is intended to be a Nonqualified Stock
Option shall terminate not later than ten years and one month after the date of
grant. Each Option granted under the Plan shall be exercisable (i.e., become
vested) only after the earlier of the date on which (i) the Optionee has
completed one year of continuous employment with the Corporation or a Subsidiary
immediately following the date of the grant of the Option (or such later date as
may be specified in an Agreement, including a date that may be tied to the
satisfaction of one or more Performance Goals) or (ii) unless otherwise provided
in an Agreement, a Change in Control occurs. Notwithstanding the preceding
sentence, any Option Agreement may provide that vesting will be accelerated in
the event of death or Disability. An Option may be exercised only during the
continuance of the Optionee's employment, except as provided in Article 8.

         7.2      Exercise.

                  (a)      A person electing to exercise an Option shall give
         written notice to the Corporation of such election and of the number of
         shares he or she has elected to purchase, in such form as the Committee
         shall have prescribed or approved, and shall at the time of exercise
         tender the full exercise price of the shares he or she has elected to
         purchase. The exercise price shall be paid in full, in cash, upon the
         exercise of the Option; provided, however, that in lieu of cash, with
         the approval of the Committee at or prior to exercise, an Optionee may
         exercise an Option by tendering to the Corporation shares of Common
         Stock owned by him or her and having a Fair Market Value equal to the
         cash exercise price applicable to the Option (with the Fair Market
         Value of such stock to be determined in the manner provided in Section
         6.3) or by delivering such combination of cash and such shares as the
         Committee in its sole discretion may approve.

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         Notwithstanding the foregoing, Common Stock may not be tendered as
         payment unless it has been held, beneficially and of record, for at
         least six months (or such longer time as may be required by applicable
         securities law or accounting principles to avoid adverse consequences
         to the Corporation or a Participant).

                  (b)      A person holding more than one Option at any relevant
         time may, in accordance with the provisions of the Plan, elect to
         exercise such Options in any order.

                  (c)      At the request of the Participant and to the extent
         permitted by applicable law, the Committee may, in its sole discretion,
         selectively approve arrangements whereby the Participant irrevocably
         authorizes a third party to sell shares of Common Stock (or a
         sufficient portion of the shares) acquired upon the exercise of an
         Option and to remit to the Corporation a sufficient portion of the
         sales proceeds to pay the entire exercise price and any tax withholding
         required as a result of such exercise.

                  (d)      In the case of the death of a Participant, any vested
         Award shall be exercisable by his or her estate (or the person to whom
         the Option is lawfully distributed by the estate) in accordance with
         the conditions and limitations of the Plan, unless a valid beneficiary
         designation form providing otherwise is on file with the Corporation.

                                   ARTICLE 8.
            EXERCISE OF OPTIONS FOLLOWING TERMINATION OF EMPLOYMENT

         8.1      Retirement. In the event of an Optionee's termination of
employment due to Retirement, the vested portion of his or her Option shall
lapse at the earlier of the expiration of the term of the Option or:

                  (a)      in the case of an Incentive Stock Option, three
         months from the date of Retirement; and

                  (b)      in the case of a Nonqualified Stock Option, up to 24
         months from the date of Retirement (as specified in the relevant
         Agreement).

         8.2      Death or Disability. In the event of termination of an
Optionee's employment due to his or her death or Disability, the vested portion
of his or her Option shall lapse at the earlier of (a) the expiration of the
term of the Option, or (b) one year after termination due to such a cause.

         8.3      Termination For Cause. In the event of an Optionee's
termination of employment "for cause," the vested portion of his or her Option
shall lapse on the date of such termination. Termination "for cause" shall mean
the Optionee was terminated after:

                  (a)      any government regulatory agency recommends or orders
         in writing that the Corporation or a Subsidiary terminate the
         employment of the Optionee or relieve him or her of his or her duties;

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                  (b)      the Optionee is convicted of or enters a plea of
         guilty or nolo contendere to a felony, a crime of falsehood, or a crime
         involving fraud or moral turpitude, or the actual incarceration of the
         Optionee for a period of 45 consecutive days; or

                  (c)      the Optionee willfully fails to follow the lawful
         instructions of the Board (or the board of directors of a Subsidiary)
         after receipt of written notice of such instructions, other than a
         failure resulting from the Optionee's incapacity because of physical or
         mental illness.

         8.4      Special Termination Provisions.

                  (a)      Notwithstanding anything herein to the contrary, in
         the case of a corporate downsizing, the Retirement of an Optionee or
         other circumstances where it is deemed equitable to do so, the
         Committee may, in its discretion and subject to the approval of a
         majority of the disinterested members of the Board, waive the one-year
         (or other) continuous service requirement for vesting specified in an
         Agreement pursuant to Section 7.1 and permit the exercise of an Option
         held by an Optionee prior to the satisfaction of such requirement. Any
         such waiver may be made with retroactive effect, provided it is made
         within 60 days following the Optionee's termination of employment.

                  (b)      In the event the Committee waives the continuous
         service requirement with respect to an Option and the circumstance of
         an Optionee's termination of employment is described in Section 8.1 or
         8.2, the affected Option will lapse as otherwise provided in the
         relevant section.

                  (c)      Notwithstanding anything herein to the contrary, in
         the case of a corporate downsizing or other circumstances where it is
         deemed equitable to do so, the Committee may, in its discretion and
         subject to the approval of a majority of the disinterested members of
         the Board, waive the otherwise applicable lapse provision of the Option
         of a Participant and permit its exercise until a date which is the
         earlier of the expiration of the term of the Option or:

                           (i)      in the case of an Incentive Stock Option,
                  three months from the date of termination of employment; and

                           (ii)     in the case of a Nonqualified Stock Option,
                  up to 24 months from the date of termination of employment (as
                  specified in the relevant resolution).

                  (d)      No exercise of discretion under this section with
         respect to an event or person shall create an obligation to exercise
         such discretion in any similar or same circumstance.

         8.5      Other Termination By the Corporation or Optionee. Except as
otherwise provided elsewhere in this article, (a) in the event of an Optionee's
termination of employment at the election of the Corporation or a Subsidiary,
his or her Option shall lapse at the earlier of (i)

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the expiration of the term of the Option, or (ii) three months after such
termination; and (b) in the event of termination of employment at the election
of an Optionee, his or her Option shall lapse on the date of such termination.

                          ARTICLE 9. RESTRICTED STOCK

         9.1      In General. Restricted Stock Awards shall be subject to such
terms and conditions as may be specified in the Agreement issued to a
Participant to evidence the grant of such Award. Among other things, a
Restricted Stock Award shall be subject to a vesting schedule or Performance
Goals, or both.

         9.2      Minimum Vesting Period for Certain Awards. In the case of a
Restricted Stock Award that is not intended to constitute a Performance Grant,
such Award shall not fully vest over a period of less than three years;
provided, however, that this minimum vesting period shall not be construed as
precluding terms in an Agreement that may accelerate vesting of an Award by
reason of death, Disability or the occurrence of a Change in Control.

         9.3      Limitation on Restricted Stock Awards. Commencing on the
Effective Date, grants under this Plan (and any other plan of the Corporation or
a Subsidiary providing for restricted stock awards) to any Employee described in
Code Section 162(m)(3) shall not exceed, in the aggregate, Restricted Stock
Awards for 60,000 shares of Common Stock during any period of 12 consecutive
months. Such limitation shall be subject to adjustment in the manner described
in Article 11.

         9.4      Issuance and Retention of Share Certificates By Corporation.
One or more share certificates shall be issued upon the grant of a Restricted
Stock Award; but until such time as the Restricted Stock shall vest or otherwise
become distributable by reason of satisfaction of one or more Performance Goals,
the Corporation shall retain such share certificates.

         9.5      Stock Powers. At the time of the grant of a Restricted Stock
Award, the Participant to whom the grant is made shall deliver such stock
powers, endorsed in blank, as may be requested by the Corporation.

         9.6      Release of Shares. Within 30 days following the date on which
a Participant becomes entitled under an Agreement to receive shares of
previously Restricted Stock, the Corporation shall deliver to him or her a
certificate evidencing the ownership of such shares, together with an amount of
cash (without interest) equal to the dividends that have been paid on such
shares with respect to record dates occurring on and after the date of the
related Award.

         9.7      Forfeiture of Restricted Stock Awards. In the event of the
forfeiture of a Restricted Stock Award, by reason of the termination of
employment prior to vesting, the failure to achieve a Performance Goal or
otherwise, the Corporation shall take such steps as may be necessary to cancel
the affected shares and return the same to its treasury.

         9.8      Assignment, Transfer, Etc. of Restricted Stock Rights. The
potential rights of a

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<PAGE>

Participant to shares of Restricted Stock may not be assigned, transferred,
sold, pledged, hypothecated or otherwise encumbered or disposed of until such
time as unrestricted certificates for such shares are received by him or her;
provided, however, that the Committee may permit a transfer of a type described
in Section 6.5(b).

                      ARTICLE 10. STOCK APPRECIATION RIGHTS

         10.1     In General. SARs and Tandem SARs shall be subject to such
terms and conditions as may be specified in the Agreement issued to the
Participant to evidence the grant of such an Award. Among other things, SARs and
Tandem SARs shall be subject to a vesting schedule or Performance Goals, or
both.

         10.2     Term, Vesting and Exercise Following Termination. SARs shall
be subject to the Plan's term and vesting rules, and the rules for exercise
following termination of service, applicable to Nonqualified Stock Options;
provided, however, that in the case of a Tandem SAR, such SAR shall be subject
to the same term and vesting rules, and the rules for exercise following
termination of service, applicable to its related Option.

         10.3     Exercise Procedures and Payment. SARs and Tandem SARs shall be
subject to such exercise procedures as may be established by the Committee in
the relevant Agreement. Payment required upon the exercise of a SAR or Tandem
SAR shall be made within 30 days of exercise and may be made in cash, stock or
partly in both, as specified by the Committee in the relevant Agreement or
otherwise.

         10.4     Limitation on SAR Awards. Commencing on the Effective Date,
grants under this Plan (and any other plan of the Corporation or a Subsidiary
providing for SAR awards) to any Employee described in Code Section 162(m)(3)
shall not exceed, in the aggregate, SAR Awards for 125,000 shares of Common
Stock during any period of 12 consecutive months. Such limitation shall be
subject to adjustment in the manner described in Article 11. The limitation in
this section shall also include SARs granted in the form of Tandem SARs.

         10.5     Certain Additional Provisions and Conditions. The Agreement
evidencing the grant of any Tandem SAR under the Plan shall contain such
additional provisions and conditions as may be necessary to comply with any
applicable securities law and exchange-related requirements and, in the case of
a Tandem SAR that includes an intended Incentive Stock Option, such provisions
and conditions as may be necessary to qualify the Option as such.

         10.6     Assignment, Transfer, Etc. of SARs. The rights of a
Participant under a SAR (including a Tandem SAR) shall not be transferable other
than by will or the laws of descent and distribution and such SAR (or Tandem
SAR) shall be exercisable, during the Participant's lifetime, only by him or
her.

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<PAGE>

                       ARTICLE 11. ADJUSTMENT PROVISIONS

         11.1     Share Adjustments.

                  (a)      In the event that the shares of Common Stock of the
         Corporation, as presently constituted, shall be changed into or
         exchanged for a different number or kind of shares of stock or other
         securities of the Corporation, or if the number of such shares of
         Common Stock shall be changed through the payment of a stock dividend,
         stock split or reverse stock split, then (i) the shares of Common Stock
         authorized hereunder to be made the subject of Awards, (ii) the shares
         of Common Stock then subject to outstanding Awards and the exercise
         price or Reference Value thereof (where relevant), (iii) the maximum
         number of Awards that may be granted within a 12-month period and (iv)
         the nature and terms of the shares of stock or securities subject to
         Awards hereunder shall be increased, decreased or otherwise changed to
         such extent and in such manner as may be necessary or appropriate to
         reflect any of the foregoing events.

                  (b)      If there shall be any other change in the number or
         kind of the outstanding shares of the Common Stock of the Corporation,
         or of any stock or other securities into which such Common Stock shall
         have been changed, or for which it shall have been exchanged, and if a
         majority of the disinterested members of the Board shall, in its sole
         discretion, determine that such change equitably requires an adjustment
         in any Award which was theretofore granted or which may thereafter be
         granted under the Plan, then such adjustment shall be made in
         accordance with such determination.

                  (c)      The grant of an Award pursuant to the Plan shall not
         affect in any way the right or power of the Corporation to make
         adjustments, reclassifications, reorganizations or changes of its
         capital or business structure, to merge, to consolidate, to dissolve,
         to liquidate or to sell or transfer all or any part of its business or
         assets.

         11.2     Corporate Changes. A liquidation or dissolution of the
Corporation, a merger or consolidation in which the Corporation is not the
surviving Corporation or a sale of all or substantially all of the Corporation's
assets, shall cause each outstanding Award to terminate, except to the extent
that another corporation may and does, in the transaction, assume and continue
the Award or substitute its own awards and/or otherwise provides for the payment
of value therefor. In the case of an event described in the preceding sentence,
vested and nonvested Awards may be treated differently.

         11.3     Fractional Shares. Fractional shares resulting from any
adjustment in Awards pursuant to this article may be settled as a majority of
the disinterested members of the Board shall determine.

         11.4     Binding Determination. To the extent that the foregoing
adjustments relate to stock or securities of the Corporation, such adjustments
shall be made by a majority of the disinterested members of the Board, whose
determination in that respect shall be final, binding and conclusive. Notice of
any adjustment shall be given by the Corporation to each holder of an Award
which shall have been so adjusted.

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<PAGE>

           ARTICLE 12. SPECIAL PROVISIONS RELATING TO DIRECTOR AWARDS

         12.1     In General. Subject to Section 12.2, Awards granted to
Directors shall be subject to the same terms and conditions as are applicable to
Awards granted to Employees, except for any term or condition that is clearly
not applicable or otherwise should be construed differently under the
circumstances.

         12.2     Special Provisions. The following provisions shall, with
respect to Director Awards, supersede any contrary provision in this Plan
document.

                  (a)      Termination of Service In General. References herein
         to an individual's employment or termination of employment shall be
         deemed references to a Director's service or termination of service as
         a member of the Board or the board of directors of a Subsidiary.

                  (b)      Special Termination Provision. The provisions of
         Section 8.5(a) shall apply in the case of a termination described in
         Section 8.5(b).

                  (c)      Grant of Awards. The Board, acting as a whole, shall
         grant all Awards to Directors and specify the conditions and
         limitations applicable to such Awards.

                  (d)      Limitation on Awards. Commencing on the Effective
         Date, grants under this Plan to any Director shall not exceed 50% of
         the relevant limitation applicable to Employees.

                  (e)      Retirement of Director. Notwithstanding Section 2.26,
         in the case of a Director, the term "Retirement" shall mean his or her
         termination of service as such following the attainment of age 70.

                         ARTICLE 13. GENERAL PROVISIONS

         13.1     Effective Date; Issuance of Awards. The Plan shall be deemed
adopted and its Effective Date shall be the date of the Initial Public Offering;
provided, however, that the Plan shall be subject to approval by the
shareholders of the Corporation no earlier than 6 nor later than 12 months after
the Initial Public Offering. Until such time as the shareholders approve the
Plan, no Awards shall be granted hereunder.

         13.2     Termination of the Plan. Unless previously terminated by the
Board, the Plan shall terminate on, and no Award shall be granted after, the day
immediately preceding the tenth anniversary of the Effective Date.

         13.3     Limitation on Termination, Amendment or Modification.

                  (a)      The Board may at any time terminate, amend, modify or
         suspend the Plan, provided that, without the approval of the
         shareholders of the Corporation, no amendment

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<PAGE>

         or modification shall be made solely by the Board which:

                           (i)      increases the maximum number of shares of
                  Common Stock as to which Awards may be granted under the Plan;

                           (ii)     changes the class of eligible Participants;
                  or

                           (iii)    otherwise requires the approval of
                  shareholders under applicable state law or under applicable
                  federal law to avoid potential liability or adverse
                  consequences to the Corporation or a Participant.

                  (b)      No amendment, modification, suspension or termination
         of the Plan shall in any manner affect any Award theretofore granted
         under the Plan without the consent of the Participant or any person
         validly claiming under or through the Participant.

         13.4     No Right to Grant of Award or Continued Employment. Nothing
contained in this Plan or otherwise shall be construed to (a) require the grant
of an Award to an individual who qualifies as an Employee, or (b) confer upon a
Participant any right to continue in the employ of the Corporation or any
Subsidiary or limit in any respect the right of the Corporation or of any
Subsidiary to terminate the Participant's employment at any time and for any
reason.

         13.5     Certain Rules of Interpretation. Without limiting the power of
the Committee to interpret the provisions of the Plan, the following rules shall
apply in connection with the administration of the Plan:

                  (a)      Except as otherwise provided herein, nonvested Awards
         shall be forfeited immediately upon a Participant's termination of
         employment.

                  (b)      The transfer of a Participant's employment between
         and among the Corporation and a Subsidiary shall not constitute
         termination of employment.

                  (c)      A Participant, who is employed by a Subsidiary, shall
         be deemed to have terminated employment in the event and on the day
         such entity ceases to qualify as a Subsidiary.

         13.6     Withholding Taxes.

                  (a)      Subject to the provisions of Subsection (b), the
         Corporation will require, where sufficient funds are not otherwise
         available, that a Participant pay or reimburse to it any withholding
         taxes at such time as withholding is required by law.

                  (b)      With the permission of the Committee, a Participant
         may satisfy the withholding obligation described in Subsection (a), in
         whole or in part, by electing to have the Corporation withhold shares
         of Common Stock (otherwise issuable to him or her) having a Fair Market
         Value equal to the amount required to be withheld. An election by a
         Participant to have shares withheld for this purpose shall be subject
         to such

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<PAGE>

         conditions as may then be imposed thereon by any applicable tax or
         securities law.

         13.7     Listing and Registration of Shares.

                  (a)      No Option or SAR granted pursuant to the Plan shall
         be exercisable in whole or in part, and no share certificate shall be
         delivered with respect to an Award, if at any relevant time a majority
         of the disinterested members of the Board shall determine in its
         discretion that the listing, registration or qualification of the
         shares of Common Stock subject to an Award on any securities exchange
         or under any applicable law, or the consent or approval of any
         governmental regulatory body, is necessary or desirable as a condition
         of, or in connection with, such Award, until such listing,
         registration, qualification, consent or approval shall have been
         effected or obtained free of any conditions not acceptable to a
         majority of the disinterested members of the Board.

                  (b)      If a registration statement under the Securities Act
         with respect to the shares issuable under the Plan is not in effect at
         any relevant time, as a condition of the issuance of the shares, a
         Participant (or any person claiming through a Participant) shall give
         the Committee a written statement, satisfactory in form and substance
         to the Committee, that he or she is acquiring the shares for his or her
         own account for investment and not with a view to their distribution.
         The Corporation may place upon any stock certificate for shares issued
         under the Plan the following legend or such other legend as the
         Committee may prescribe to prevent disposition of the shares in
         violation of the Securities Act or other applicable law:

                  'THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
                  REGISTERED UNDER THE SECURITIES ACT OF 1933 ("ACT") AND MAY
                  NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR
                  OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
                  STATEMENT WITH RESPECT TO THEM UNDER THE ACT OR A WRITTEN
                  OPINION OF COUNSEL FOR THE CORPORATION THAT REGISTRATION IS
                  NOT REQUIRED.'

         13.8     Disinterested Director. For purposes of this Plan, a director
shall be deemed "disinterested" if such person could qualify as a member of the
Committee under Section 3.1.

         13.9     Gender; Number. Words of one gender, wherever used herein,
shall be construed to include each other gender, as the context requires. Words
used herein in the singular form shall include the plural form, as the context
requires, and vice versa.

         13.10    Applicable Law. Except to the extent preempted by federal law,
this Plan document, and the Agreements issued pursuant hereto, shall be
construed, administered and enforced in accordance with the domestic internal
law of the Commonwealth of Pennsylvania.

         13.11    Headings. The headings of the several articles and sections of
this Plan document have been inserted for convenience of reference only and
shall not be used in the construction of the same.

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