STAGE II APPAREL CORP.

                        1998 INCENTIVE STOCK OPTION PLAN

      1. Purpose. The purpose of the 1998 Incentive Stock Option Plan (the
"Plan") is to provide an incentive to selected officers, directors and key
employees of Stage II Apparel Corp. (the "Company") and any directly or
indirectly owned subsidiary of the Company (a "Subsidiary") to acquire or
increase their proprietary interest in the Company, to continue their services
and increase their efforts on behalf of the Company.

      2. The Plan. The Plan provides for the grant of options ("Options") to
acquire shares of Common Stock, $.01 par value, of the Company (the "Stock").
Options granted under the Plan are intended to qualify as incentive stock
options ("ISOs") within the meaning of section 422 of the Internal Revenue Code
of 1986, as amended (the "Code") or, if so specified at the time of grant,
nonqualified stock options ("NSOs") within the meaning of section 422 of the
Code.

      3. Administration. (a) The Plan shall be administered by the Compensation
Committee (the "Committee") of the Board of Directors of the Company (the
"Board").

      (b) The Committee shall have plenary authority in its discretion, subject
only to the express provisions of the Plan and of Code section 422 to: (i)
select the eligible persons who shall be granted Options ("Grantees"), the
number of shares of Stock subject to each Option and terms of the Option granted
to each Grantee, provided that, in making its determination, the Committee shall
consider the position and responsibilities of the person, the nature and value
to the Company or a Subsidiary of his or her services and accomplishments, the
person's present and potential contribution to the success of the Company or a
Subsidiary and any other factors that the Committee may deem relevant; (ii)
determine the dates of Option grants; (iii) prescribe the form of the
instruments evidencing Options; (iv) adopt, amend and rescind rules and
regulations for the administration of the Plan and for its own acts and
proceedings; (v) decide all questions and settle all controversies and disputes
of general applicability that may arise in connection with the Plan; and (vi)
amend certain terms of the Plan as provided in Section 9.

      (c) All decisions, determinations and interpretations with respect to the
foregoing matters shall be made by the Committee and shall be final and binding
upon all persons.

      4. Effectiveness and Termination of Plan. The Plan shall become effective
as of December 30, 1998, the date of its adoption by the Board, provided that
the Plan is approved by the shareholders of the Company within one year of its
adoption. Any Option outstanding under the Plan at the time of termination of
the Plan shall remain in effect in accordance with its terms and conditions and
those of the Plan. The Plan shall terminate on the earliest of (a) December 30,
2008, (b) the date when all shares of Stock reserved for issuance under the Plan
shall have been acquired through exercise of Options granted under the Plan or
(c) such earlier date as the Board may determine.

      5. The Stock. The aggregate number of shares of Stock issuable under the
Plan shall be 1,000,000 or the number and kinds of shares of capital stock or
other securities substituted for the Stock as provided in Section 8. The
aggregate number of shares of Stock issuable under the Plan may be set aside out
of the authorized but unissued shares of Stock not reserved for any other
purpose or out of shares of Stock held in or acquired for the treasury of the
Company. All shares of Stock subject to an Option that
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terminates unexercised for any reason may thereafter be subjected to a new
Option under the Plan.

      6. Option Agreement. Each Grantee shall enter into a written agreement
with the Company setting forth the terms and conditions of the Option issued to
the Grantee, consistent with the Plan. The form of agreement to evidence Options
may be established at any time or from time to time by the Committee. No Grantee
shall have rights in any Option unless and until a written option agreement is
entered into with the Company.

      7. Grant, Terms and Conditions of Options. Options may be granted by the
Committee at any time and from time to time prior to the termination of the
Plan. Except as hereinafter provided, Options granted under the Plan shall be
subject to the following terms and conditions:

      (a) Grantees. The Grantees shall be those officers, directors and key
employees of the Company or its Subsidiaries selected by the Committee, provided
that only NSOs may be granted under the Plan to (i) any person owning Stock or
other capital stock of the Company possessing more than 10% of the total
combined voting power of all classes of capital stock of the Company or (ii) any
director who is not an officer.

      (b) Price. The exercise price of an Option shall be no less than the fair
market value of the Stock, without regard to any restriction, at the time the
Option is granted. The fair market value of the Stock at the time of the grant
shall be: (i) the closing price of the Stock on the trading day immediately
preceding the date of the grant (the "Valuation Date") if the Stock is listed on
a national securities exchange or the Nasdaq National Market ("NNM"); (ii) the
average of the closing bid and asked prices for the Stock on the Valuation Date
if the Stock is not listed on a national securities exchange or the NNM but is
traded over-the-counter; or (iii) such value as the Committee shall in good
faith determine if the Stock is neither listed on a national securities exchange
or the NNM nor traded in the over-the-counter market. If the Stock is listed on
a national exchange or the NNM or is traded over-the-counter but is not traded
on the Valuation Date, then the price shall be determined by the Committee by
applying the principles contained in applicable Treasury Regulations. The fair
market value of the Stock shall be determined by, and in accordance with,
procedures to be established by the Committee, whose determination shall be
final.

      (c) Payment for Stock. The exercise price of an Option shall be paid in
full at the time of exercise (i) in cash by check, (ii) with securities of the
Company already owned by, and in the possession of, the Grantee or (iii) any
combination of cash and securities of the Company. Securities of the Company
used to satisfy the exercise price of an Option shall be valued at their fair
market value determined in accordance with the rules set forth in Section 7(b).
The exercise price shall not be subject to adjustment, except as provided in
Section 8.

      (d) Limitation. Notwithstanding any provision of the Plan to the contrary,
an Option shall not be treated as an ISO under Code section 422 to the extent to
which the aggregate market value (determined as of the time an Option is
granted) of Stock for which Options (together with options granted under all
other plans of the Company) are exercisable for the first time by a Grantee
during any calendar year exceeds $100,000. The value of Stock for which NSOs may
be granted to a Grantee in a year may, however, exceed $100,000.

      (e) Duration and Exercise of Options. Options may be exercisable for terms
of up to but not exceeding ten years from the date of grant. Options shall be
exercisable at the times and in the amounts


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(up to the full amount thereof) determined by the Committee at the time of
grant. If an Option granted under the Plan is exercisable in subsequent
installments, the Committee shall determine what events, if any, will make it
subject to acceleration. Notwithstanding the foregoing, an unvested Option shall
automatically become 100% vested upon any Change of Control (as defined below)
or any action by the Board in contemplation of a transaction that would result
in a Change of Control. Change of Control shall mean an event or series of
events by which (i) any person (as used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934) is or becomes the beneficial owner (as defined
in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934), directly or
indirectly, of 30% or more of the total voting power of the outstanding voting
stock of the Company, (ii) the Company conveys, transfers, sells or leases all
or substantially all of its assets to any person other than to a wholly owned
subsidiary of the Company, (iii) the shareholders of the Company approve any
plan of liquidation or dissolution of the Company or (iv) during any period of
12 consecutive months, individuals who, at the beginning of that period,
constituted the Board (together with any new directors whose election by the
Board or whose nomination for election by the stockholders of the Company, as
applicable, was approved by a vote of not less than a majority of the directors
then still in office who were either directors at the beginning of that period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board then in office.

      (f) Termination of Employment. Upon the termination of a Grantee's
employment (or directorship) for any reason other than "Cause" (as defined
below), the Grantee may, within three months following termination, exercise the
Option with respect to all or any part of the shares subject thereto in which
the right to purchase Stock had accrued or vested at the time of termination of
employment. If the employment (or directorship) of a Grantee is terminated for
Cause, the Grantee's rights under any then outstanding Option shall terminate at
the time of termination. "Cause" shall mean the Grantee's malfeasance or
nonfeasance in the performances of his duties as a director, officer or employee
of the company.

      (g) Transferability of Option. No Option shall be transferable except by
will or the laws of descent and distribution. An Option shall be exercisable
during the Grantee's lifetime only by the Grantee.

      (h) Modification, Extension and Renewal of Options. Subject to the terms
and conditions and within the limitations of the Plan, the Committee may modify,
extend or renew outstanding Options granted under the Plan, or accept the
surrender of outstanding Options (to the extent not theretofore exercised) and
authorize the granting of new Options in substitution therefor. Notwithstanding
the foregoing, however, no modification of an Option shall, without the consent
of the Grantee, alter or impair any rights or obligations under any Option
theretofore granted under the Plan or adversely affect the status of an ISO as
an incentive stock option under Code section 422.

      (i) Other Terms and Conditions. Option agreements may contain any other
provisions not inconsistent with the Plan that the Committee deems appropriate.

      8. Adjustment for Changes in the Stock. (a) In the event the shares of
Stock, as presently constituted, shall be changed into or exchanged for a
different number or kind of shares of capital stock or other securities of the
Company or of another Company (whether by reason of merger, consolidation,
recapitalization, reclassification, split, reverse split, combination of shares
or otherwise), then there shall be substituted for or added to each share of
Stock theretofore or thereafter subject to an Option the number


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and kind of shares of capital stock or other securities into which each
outstanding share of Stock shall be so changed, or for which each such share
shall be exchanged, or to which each such share shall be entitled, as the case
may be. The price and other terms of outstanding Options shall also be
appropriately amended to reflect the foregoing events. In the event there shall
be any other change in the number or kind of outstanding shares of the Stock, or
of any capital stock or other securities into which the Stock shall have been
changed or for which it shall have been exchanged, if the Committee shall, in
its sole discretion, determine that the change equitably requires an adjustment
in any Option theretofore granted or which may be granted under the Plan, then
adjustments shall be made in accordance with its determination.

      (b) Fractional shares resulting from any adjustment in Options pursuant to
this Section 8 may be settled in cash or otherwise as the Committee shall
determine. Notice of any adjustment shall be given by the Company to each holder
of an Option that shall have been so adjusted, and the adjustment (whether or
not notice is given) shall be effective and binding for all purposes of the
Plan.

      (c) Notwithstanding Section 8(a), the Committee shall have the power, in
the event of the disposition of all or substantially all of the assets of the
Company, or the dissolution of the Company, or the merger or consolidation of
the Company with or into any other Company, or the merger or consolidation of
any other Company into the Company, or the making of a tender offer to purchase
all or a substantial portion of outstanding Stock of the Company, to amend all
outstanding Options (upon such conditions as it shall deem appropriate) to (i)
permit the exercise of Options prior to the effective date of the transaction
and to terminate all unexercised Options as of that date, or (ii) require the
forfeiture of all Options, provided the Company pays to each Grantee the excess
of the fair market value of the Stock subject to the Option, determined in
accordance with Section 7(b), over the exercise price of the Option, or (iii)
make any other provisions that the Committee deems equitable.

      9. Amendment of the Plan. The Committee may amend the Plan, may correct
any defect or supply any omission or reconcile any inconsistency in the Plan or
in any Option in the manner and to the extent deemed desirable to carry out the
Plan without action on the part of the stockholders of the Company; provided,
however, that, except as provided in Section 8 and this Section 9, unless the
stockholders of the Company shall have first approved thereof (a) the total
number of shares of Stock subject to the Plan shall not be increased, (b) no
Option shall be exercisable more than ten years after the date it is granted,
(c) the expiration date of the Plan shall not be extended and (d) no amendment
shall permit the exercise price of any Option to be less than the fair market
value of the Stock at the time of grant, increase the number of shares of Stock
to be received on exercise of an Option, materially increase the benefits
accruing to a Grantee under an Option or modify the eligibility requirements for
participation in the Plan.

      10. Interpretation and Construction. The interpretation and construction
of any provision of the Plan by the Committee shall be final, binding and
conclusive for all purposes.

      11. Application of Funds. The proceeds received by the Company from the
sale of Stock pursuant to this Plan will be used for general corporate purposes.

      12. No Obligation to Exercise Option. The granting of an Option shall
impose no obligation upon the Grantee to exercise an Option.


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      13. Plan Not a Contract of Employment. The Plan is not a contract of
employment, and the terms of employment of any Grantee shall not be affected in
any way by the Plan or related instruments except as specifically provided
therein. The establishment of the Plan shall not be construed as conferring any
legal rights upon any Grantee for a continuance of employment, nor shall it
interfere with the right of the Company or any Subsidiary to discharge any
Grantee.

      14. Expenses of the Plan. All of the expenses of administering the Plan
shall be paid by the Company.

      15. Compliance with Applicable Law. Notwithstanding anything herein to the
contrary, the Company shall not be obligated to cause to be issued or delivered
any certificates for shares of Stock issuable upon exercise of an Option unless
and until the Company is advised by its counsel that the issuance and delivery
of the certificates is in compliance with all applicable laws, regulations of
governmental authorities and the requirements of any exchange upon which shares
of Stock are traded. The Company shall in no event be obligated to register any
securities pursuant to the Securities Act of 1933 (as now in effect or as
hereafter amended) or to take any other action in order to cause the issuance
and delivery of certificates to comply with any of those laws, regulations or
requirements. The Committee may require, as a condition of the issuance and
delivery of certificates and in order to ensure compliance with those laws,
regulations and requirements, that the Grantee make such covenants, agreements
and representations as the Committee, in its sole discretion, deems necessary or
desirable. Each Option shall be subject to the further requirement that if at
any time the Committee shall determine in its discretion that the listing or
qualification of the shares of Stock subject to the Option, under any securities
exchange requirements or under any applicable law, or the consent or approval of
any regulatory body, is necessary in connection with the granting of the Option
or the issuance of Stock thereunder, the Option may not be exercised in whole or
in part unless the listing, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee.

      16. Governing Law. Except to the extent preempted by federal law, this
Plan shall be construed and enforced in accordance with, and governed by, the
laws of the State of New York.

Adopted as of December 30, 1998


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