Document:

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EXHIBIT 4.1

EXECUTION COPY

AMENDMENT NO. 1 TO THE CREDIT AGREEMENT

Dated as of April 1, 2005

          AMENDMENT NO. 1 TO THE CREDIT AGREEMENT among PHELPS DODGE CORPORATION, a New York corporation
(the “Borrower”), the banks, financial institutions and other institutional lenders parties to the
Credit Agreement referred to below (collectively, the “Lenders”) and CITIBANK, N.A., as agent (the
“Agent”) for the Lenders, hereby agree as follows:

PRELIMINARY STATEMENTS

          (1) The Borrower, the Lenders and the Agent have entered into a Credit Agreement dated as of
April 20, 2004 (the “Credit Agreement”). Capitalized terms not otherwise defined in this Amendment
shall have the same meanings as specified in the Credit Agreement.

          (2) The Borrower and the Lenders have agreed to amend the Credit Agreement as hereinafter set
forth herein.

          SECTION 1. Amendments to the Credit Agreement. The Credit Agreement is, effective as of the
date of this Amendment and subject to the satisfaction of the conditions precedent set forth in
Section 2, hereby amended as follows:

          (a) Section 1.01 is amended by deleting the definitions of “Applicable Margin”, “Applicable
Percentage”, “Applicable Utilization Fee”, “Principal Domestic Subsidiary” and “Termination Date”
set forth therein and replacing them, respectively, with the following new definitions thereof:

     “Applicable Margin” means as of any date, a percentage per annum determined by
reference to the Public Debt Rating in effect on such date as set forth below:

	 	 	 	 	 	 	 	 	 
	 
	 	Public Debt Rating	 	 	Applicable Margin for	 	 	Applicable Margin for	 
	 	S&P/Moody’s	 	 	Base Rate Advances	 	 	Eurodollar Rate Advances	 
	 	Level 1

A- or A3 or above
	 	 	0.000%	 	 	0.270%	 
	 	Level 2

BBB+ or Baa1
	 	 	0.000%	 	 	0.400%	 
	 	Level 3

BBB or Baa2
	 	 	0.000%	 	 	0.500%	 
	 	Level 4

BBB- or Baa3
	 	 	0.000%	 	 	0.600%	 
	 	Level 5

Lower than Level 4
	 	 	0.000%	 	 	0.800%	 
	 

 

 

     “Applicable Percentage” means, as of any date a percentage per annum determined by reference
to the Public Debt Rating in effect on such date as set forth below:

	 	 	 	 	 	 
	 
	 	Public Debt Rating	 	 	Applicable	 
	 	S&P/Moody’s	 	 	Percentage	 
	 	Level 1

A- or A3 or above
	 	 	0.080%	 
	 	Level 2

BBB+ or Baa1
	 	 	0.100%	 
	 	Level 3

BBB or Baa2
	 	 	0.125%	 
	 	Level 4

BBB- or Baa3
	 	 	0.150%	 
	 	Level 5

Lower than Level 4
	 	 	0.200%	 
	 

     “Applicable Utilization Fee” means, as of any date that the sum of the aggregate principal
amount of the Advances plus the Available Amount of all Letters of Credit exceeds 33% of the
aggregate Commitments, a percentage per annum determined by reference to the Public Debt Rating in
effect on such date as set forth below:

	 	 	 	 	 	 
	 
	 	Public Debt Rating	 	 	Applicable	 
	 	S&P/Moody’s	 	 	Utilization Fee	 
	 	Level 1

A- or A3 or above
	 	 	0.100%	 
	 	Level 2

BBB+ or Baa1
	 	 	0.125%	 
	 	Level 3

BBB or Baa2
	 	 	0.125%	 
	 	Level 4

BBB- or Baa3
	 	 	0.125%	 
	 	Level 5

Lower than Level 4
	 	 	0.250%	 
	 

     “Principal Domestic Subsidiary” means each of the Subsidiaries designated as a “Principal
Domestic Subsidiary” on Schedule II attached hereto for so long as such Person is a Subsidiary of
the Borrower.

     “Termination Date” means the earlier of (a) April 20, 2010 and (b) the date of
termination in whole of the Commitments pursuant to Section 2.06 or 6.01.

            (b) Section 4.01(b) is amended by deleting the date “December 31, 2003” and substituting
therefor the date “December 31, 2004”.

            (c) Schedule IV to the Credit Agreement is deleted in its entirety and replaced with Schedule
I to this Amendment.

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            SECTION 2. Conditions of Effectiveness. This Amendment shall become effective as of the
date first above written (the “Amendment Effective Date”) when and only if:

     (a) The Agent shall have received counterparts of this Amendment executed
by the Borrower and all of the Lenders or, as to any of the Lenders, advice
satisfactory to the Agent that such Lender has executed this Amendment.

     (b) The Agent shall have received on or before the Amendment Effective Date the
following, each dated such date and (unless otherwise specified below) in form and
substance satisfactory to the Agent:

     (i) Certified copies of the resolutions of the Board of Directors of the Borrower (or
an authorized committee thereof) approving the substance of this Amendment, and of all
documents evidencing other necessary corporate action and governmental approvals, if any,
with respect to this Amendment.

     (ii) A certificate of the Secretary or an Assistant Secretary of the Borrower
certifying the names and true signatures of the officers of the Borrower authorized to
sign this Amendment.

     (iii) Favorable opinions of (A) Assistant General Counsel and Secretary to the
Borrower substantially in the form of Exhibit D-1 to the Credit Agreement but with such
modifications as are required to address the Credit Agreement, as amended hereby and (B)
Debevoise and Plimpton LLP, counsel to the Borrower, substantially in the form of Exhibit
D-2 to the Credit Agreement but with such modifications as are required to address the
Credit Agreement, as amended hereby, and as to such other matters as any Lender through
the Agent may reasonably request.

       (c) On the Amendment Effective Date, the following statements shall be true and the Agent
shall have received for the account of each Lender a certificate signed by a duly authorized
officer of the Borrower, dated the Amendment Effective Date, stating that:

     (i) The representations and warranties contained in Section 4.01 of the Credit
Agreement, as amended hereby, are correct on and as of the Amendment Effective
Date, and

     (ii) No event has occurred and is continuing that constitutes a Default.

            SECTION 3. Reference to and Effect on the Credit Agreement and the Notes. (a) On and after the
effectiveness of this Amendment, each reference in the Credit Agreement to “this Agreement”,
“hereunder”, “hereof” or words of like import referring to the Credit Agreement, and each reference
in the Notes to “the Credit Agreement”, “thereunder”, “thereof” or words of like import referring
to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended by this
Amendment.

            (b) The Credit Agreement and the Notes, as specifically amended by this Amendment, are and
shall continue to be in full force and effect and are hereby in all respects ratified and
confirmed.

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          (c) The execution, delivery and effectiveness of this Amendment shall not, except as
expressly provided herein, operate as a waiver or any right, power or remedy of any Lender or the
Agent under the Credit Agreement, nor constitute a waiver of any provision of the Credit Agreement.

          SECTION 4. Costs and Expenses. The Borrower agrees to pay on demand all reasonable
out-of-pocket costs and expenses of the Agent in connection with the preparation, execution,
delivery and administration, modification and amendment of this Amendment and the other documents
to be delivered hereunder (including, without limitation, the reasonable and documented fees and
expenses of counsel for the Agent with respect hereto and thereto) in accordance with the terms of
Section 8.04 of the Credit Agreement.

          SECTION 5. Execution in Counterparts. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall constitute one and
the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by
telecopier shall be effective as delivery of a manually executed counterpart of this Amendment.

          SECTION 6. Governing Law. This Amendment shall be governed by, and construed in accordance
with, the laws of the State of New York.

          IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their
respective officers thereunto duly authorized, as of the date first above written.

THE BORROWER

	 	 	 	 	 
	 	 	PHELPS DODGE CORPORATION
	 
	 	 	 	 
	

	 	By
	 	     / s / Ramiro G. Peru
	

	 	 	 	 
	

	 	 	 	Title: Executive Vice President and
	

	 	 	 	     Chief Financial Officer
	 
	 	 	 	 
	 	 	CITIBANK, N.A.,
	

	 	 
	 	 as Agent and as a Lender
	 
	 	 	 	 
	

	 	By
	 	     / s / Wajeeh Faheem
	

	 	 	 	 
	

	 	 	 	Title: Vice President
	 
	 	 	 	 
	 	 	THE BANK OF TOKYO-MITSUBISHI TRUST COMPANY
	 
	 	 	 	 
	

	 	By
	 	     / s / P. Shah
	

	 	 	 	 
	

	 	 	 	Title: Vice President
	 
	 	 	 	 
	 	 	JPMORGAN CHASE BANK, N.A.
	 
	 	 	 	 
	

	 	By
	 	     / s / Peter S. Predun
	

	 	 	 	 
	

	 	 	 	Title: Vice President

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	 	 	THE BANK OF NOVA SCOTIA
	 
	 	 	 	 
	

	 	By
	 	     / s / Mark Sparrow
	

	 	 	 	 
	

	 	 	 	Title: Director
	 
	 	 	 	 
	 	 	WACHOVIA BANK, NATIONAL ASSOCIATION
	 
	 	 	 	 
	

	 	By
	 	     / s / David L. Driggers
	

	 	 	 	 
	

	 	 	 	Title: Managing Director
	 
	 	 	 	 
	 	 	THE ROYAL BANK OF SCOTLAND PLC
	 
	 	 	 	 
	

	 	By
	 	     / s / D. W. Williams
	

	 	 	 	 
	

	 	 	 	Title: Senior Director
	 
	 	 	 	 
	 	 	ABN AMRO BANK, N.V.
	 
	 	 	 	 
	

	 	By
	 	     / s / James L. Moyes
	

	 	 	 	 
	

	 	 	 	Title: Managing Director
	 
	 	 	 	 
	

	 	By
	 	     / s / John D. Reed
	

	 	 	 	 
	

	 	 	 	Title: Director
	 
	 	 	 	 
	 	 	MORGAN STANLEY BANK
	 
	 	 	 	 
	

	 	By
	 	     / s / Daniel Twenge
	

	 	 	 	 
	

	 	 	 	Title: Vice President
	 
	 	 	 	 
	 	 	AUSTRALIA AND NEW ZEALAND BANKING

GROUP LIMITED
	 
	 	 	 	 
	

	 	By
	 	     / s / John W. Wade
	

	 	 	 	 
	

	 	 	 	Title: Director
	 
	 	 	 	 
	 	 	KBC BANK, N.V.
	 
	 	 	 	 
	

	 	By
	 	     / s / Eric Raskin
	

	 	 	 	 
	

	 	 	 	Title: Vice President
	 
	 	 	 	 
	

	 	By
	 	     / s / Robert Snauffer
	

	 	 	 	 
	

	 	 	 	Title: First Vice President
	 
	 	 	 	 
	 	 	ROYAL BANK OF CANADA
	 
	 	 	 	 
	

	 	By
	 	     / s / Dustin Craven
	

	 	 	 	 
	

	 	 	 	Title: Attorney-in-Fact

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	 	 	WELLS FARGO BANK NATIONAL ASSOCIATION
	 
	 	 	 	 
	

	 	By
	 	     / s / Ling Li
	

	 	 	 	 
	

	 	 	 	Title: Vice President
	 
	 	 	 	 
	 	 	BANK OF AMERICA, N.A.
	 
	 	 	 	 
	

	 	By
	 	     / s / David McCauley
	

	 	 	 	 
	

	 	 	 	Title: Vice President
	 
	 	 	 	 
	 	 	CALYON NEW YORK BRANCH
	 
	 	 	 	 
	

	 	By
	 	     / s / Samuel Sherman
	

	 	 	 	 
	

	 	 	 	Title: Director
	 
	 	 	 	 
	

	 	By
	 	     / s / James Guidera
	

	 	 	 	 
	

	 	 	 	Title: Managing Director
	 
	 	 	 	 
	 	 	MIZUHO CORPORATE BANK, LTD.
	 
	 	 	 	 
	

	 	By
	 	     / s / Raymond Ventura
	

	 	 	 	 
	

	 	 	 	Title: Senior Vice President
	 
	 	 	 	 
	 	 	THE NORTHERN TRUST COMPANY
	 
	 	 	 	 
	

	 	By
	 	     / s / John Brazzale
	

	 	 	 	 
	

	 	 	 	Title: Vice President

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Schedule IV - Litigation

     I. We are a member of several trade associations that, from time to time, initiate legal
proceedings challenging administrative regulations or court decisions that the membership considers
to be improper and potentially adverse to their business interests. These legal proceedings are
conducted in the name of the trade associations, and the members of the trade association are not
parties, named or otherwise.

     II. Arizona water regulations, water rights adjudications and other related water cases.

     A. General
Background. Arizona surface water law is based on the doctrine of
prior appropriation (first in time, first in right). Surface water rights in Arizona are
usufructuary rights, and as such the water right holder is granted only the right to use public
waters for a statutorily defined beneficial use, at a designated location. Groundwater in Arizona
is governed by the doctrine of reasonable use. Arizona has initiated two water rights adjudications
in order to quantify and prioritize all of the surface water rights and water right claims to two
of the state’s river systems and sources. Groundwater is not subject to the adjudication; however,
wells may be adjudicated to the extent that they are found to produce or impact appropriable
surface water. The two adjudication cases that could potentially impact Phelps Dodge’s surface
water rights and claims (including some wells) are entitled In Re The General Adjudication of
All Rights to Use Water in the Little Colorado Water System and Source, Arizona Superior Court,
Apache County, Cause No. 6417 filed on or about February 17,1978 and In Re The General
Adjudication of All Rights to Use Water in the Gila River System and Source, Arizona Superior
Court, Maricopa County, Cause Nos. W-l (Salt), W-2 (Verde), W-3 (Upper Gila), W-4 (San Pedro),
(consolidated) filed on February 17,1978. The major parties in addition to Phelps Dodge in the Gila
River adjudication are: Gila Valley Irrigation District, the San Carlos Irrigation and Drainage
District, the state of Arizona, the San Carlos Apache Tribe, the Gila River Indian Community, and
the United States on behalf of those Tribes, on its own behalf, and on the behalf of the White
Mountain Apache Tribe, Ft. McDowell Mohave-Apache Indian Community, Salt River Pima-Maricopa Indian
Community and the Payson Community of Yavapai Apache Indians. The major parties in addition to
Phelps Dodge in the Little Colorado adjudication are: the state of Arizona, the Salt River Project,
Arizona Public Service Company, the Navajo Nation, the Hopi Indian Tribe, the San Juan Southern
Paiute Tribe and the United States on behalf of those Indian Tribes, on its own behalf, and on
behalf of the White Mountain Apache Tribe.

     Phelps Dodge has four active mining operations in Arizona: Morenci, Miami, Sierrita and
Bagdad. Each operation requires water for mining and all related support facilities. With the
exception of Bagdad, each operation is located in a watershed within an ongoing surface water
adjudication. Each operation has sufficient water claims to cover its operational demands. In many
instances, the water supply may come from a variety of possible sources. The potential impact of
the surface water adjudications on each active operation is discussed below.

 

 

     B. Operations.

     Morenci. The Morenci operation is located in eastern Arizona. Morenci water is
supplied by a combination of sources, including decreed surface water rights in the San
Francisco River, Chase Creek and Eagle Creek drainages, groundwater from the Upper Eagle
Creek wellfield, and Central Arizona Project (CAP) water leased from the San Carlos Apache
Tribe and delivered to Morenci via exchange through the Black River Pump Station. Phelps
Dodge has filed Statements of Claimants in the adjudication for each of its water sources
for Morenci except the CAP water.

     Phelps Dodge’s decreed water rights are subject to the Gila River adjudication and
potentially could be impacted. Although the purpose of the adjudication is to determine only
surface water rights, wells such as those in the Upper Eagle Creek wellfield may be subject
to the Gila River adjudication, but only to the extent those wells may be determined to
capture or impact appropriable surface water. The CAP water provided via exchange is not
subject to any state adjudication process. The CAP lease became effective as of January
1,1999, and has a 50-year term.

     Miami. The Miami operation obtains water from a number of sources in the Salt
River watershed. Statements of Claimants have been filed in connection with these water
sources, each of which is subject to the adjudication and could be potentially impacted.
Miami currently holds a CAP subcontract, although CAP water is not currently used at the
operation. CAP water is not subject to adjudication; however, an exchange agreement has been
executed to allow the delivery of this water to the Miami operation.

     Sierrita. The Sierrita operation is located in the Santa Cruz River watershed.
The water for the operation is groundwater. The wells that supply the water may be subject
to the Gila River adjudication only to the extent that such wells are determined to be
pumping or impacting appropriable surface water. Phelps Dodge has filed Statements of
Claimants in the adjudication for these water sources in case any are later determined to
produce or impact appropriable surface water. In 1980, the Arizona legislature enacted the
Arizona Groundwater Code. The Code established Active Management Areas (AMA’s) in several
groundwater basins, including the Santa Cruz Groundwater Basin. The groundwater at this
operation is subject to regulation under the Tucson AMA.

     Bagdad. The Bagdad operation is located in the Bill Williams River watershed.
The water supply includes claims to both surface water and groundwater. There is not an
active adjudication proceeding in this watershed; however, the legal precedent set in the
active adjudications regarding the determination of whether water pumped from wells is
treated as surface water or groundwater may impact the use of water from some wells.

     C. Other Arizona Mining Properties. The potential impact of the ongoing
adjudication on other mining properties is discussed below.

     Safford. Water for the planned future operation at Safford may come from a
combination of sources. Wells that supply groundwater may be used and those wells will be
subject to the adjudication only to the extent that such wells are determined to be pumping
or impacting appropriable surface water. CAP water may also be considered for use at the
operation some time in the future. CAP water is not subject to adjudication;

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however, an exchange agreement will need to be negotiated in order to deliver the water. The
implementation of such an exchange will require approval of the Globe Equity Court as well as
environmental reviews and related agency approvals.

     Ajo. The potential water supply for Ajo is groundwater. The wells that supply the
water may be subject to the Gila River adjudication to the extent that such wells are determined to
be pumping or impacting appropriable surface water. Phelps Dodge has filed a Statement of Claimant
in the adjudication for these water sources in case any are later determined to produce or impact
appropriable surface water.

     Bisbee. The potential water supply for Bisbee is groundwater. The wells that supply
the water may be subject to the Gila River adjudication to the extent that such wells are
determined to be pumping or impacting appropriable surface water. Phelps Dodge has filed a
Statement of Claimant in the adjudication for these water sources in case any are later determined
to produce or impact appropriable surface water.

     D. Water Settlements.

     1. Gila River Indian Community Water Settlement.

     On May 4, 1998, Phelps Dodge executed a settlement agreement with the Gila River Indian
Community (the Community) that resolves the issues between Phelps Dodge and the Community pertinent
to the Gila River adjudication. Since that time, comprehensive settlement negotiations with users
all along the Gila River have been initiated. Phelps Dodge’s settlement with the Community is now
included in the comprehensive settlement. Federal legislation authorizing the settlement was passed
in December 2004. The final enforceability date, however, will not occur until certain provisions
in the associated agreements are met. The parties have until December 31, 2007, to meet their
obligations for the settlement to become enforceable.

     2. San Carlos Apache Tribe.

     In 1997, issues of dispute arose between Phelps Dodge and the San Carlos Apache Tribe (the
Tribe) regarding Phelps Dodge’s use and occupancy of the Black River Pump Station, which delivers
water to the Morenci operation. In May 1997, Phelps Dodge reached an agreement with the Tribe, and
subsequently federal legislation (Pub. L. No. 105-18, 5003, 111 stat. 158,181-87) was adopted. The
legislation prescribes arrangements intended to ensure a future supply of water for the Morenci
mining complex in exchange for certain payments by Phelps Dodge. The legislation does not address
any potential claims by the Tribe relating to Phelps Dodge’s historical occupancy and operation of
Phelps Dodge facilities on the Tribe’s Reservation, but does require that any such claims be
brought, if at all, exclusively in federal district court. As of this writing, no such claims have
been filed.

     The 1997 legislation required that the Company and the Tribe enter a lease for the delivery of
CAP water through the Black River Pump Station to Morenci on or
before December 31, 1998. In the
event a lease was not signed, the legislation expressly

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provided that
the legislation would become the lease. On January 24, 2002, a lease
between the San Carlos Apache Tribe, Phelps Dodge and the United States was executed
(effective as of January 1,1999) in accordance with that legislation. On the same date, and
in accordance with the legislation, an Exchange Agreement between the San Carlos Apache
Tribe, the United States and the Salt River Project Water User’s Association was executed
and subsequently approved by Phelps Dodge. Since that date, CAP water has been delivered to
Morenci. Phelps Dodge has not reached a settlement with the Tribe on general water issues
and Phelps Dodge water claims within the Gila River adjudication are still subject to
litigation with the Tribe and other parties.

     E. Other Related Cases. The following proceedings involving water
rights adjudications are pending in the U.S. District Court of Arizona:

     (i) On June 29,1988, the Gila River Indian Community filed a
complaint-in-intervention in United States v. Gila Valley Irrigation District,
et al., and Globe Equity No. 59 (D. Ariz.). The underlying action was
initiated by the United States in 1925 to determine conflicting claims to water
rights in certain portions of the Gila River watershed. Although Phelps Dodge was
named and served as a defendant in that action, Phelps Dodge was dismissed without
prejudice as a defendant in March 1935. In June 1935, the Court entered a decree
setting forth the water rights of numerous parties, but not Phelps Dodge’s. The
Court retained, and still has, jurisdiction of the case. The
complaint-in-intervention does not name Phelps Dodge as a defendant, however, it
does name the Gila Valley Irrigation District as a defendant. Therefore, the
complaint-in-intervention could affect the approximately 3,000 acre-feet of water
that Phelps Dodge has the right to divert annually from Eagle Creek, Chase Creek or
the San Francisco River pursuant to Phelps Dodge’s decreed rights and an agreement
between Phelps Dodge and the Gila Valley Irrigation District.

     During 1997 and 1998, Phelps Dodge purchased farmlands with associated water
rights that are the subject of this litigation. As a result, Phelps Dodge has been
named and served as a party in this case. The lands and associated water rights are
not currently used in connection with any Phelps Dodge mining operation.

     Phelps Dodge’s Miami operation (formerly named Cyprus Miami Mining Corporation)
was named and served as a defendant in this action in 1989. These proceedings may
affect water rights associated with former Cyprus Miami lands in the Gila River
watershed.

     (ii) Prior to January 1,1983, various Indian tribes filed several suits in
the U.S. District Court for the District of Arizona claiming prior and paramount
rights to use waters, which at present are being used by many water users, including
Phelps Dodge, and claiming damages for prior use in derogation of their allegedly
paramount rights. These federal proceedings have been stayed pending state court
adjudication.

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     (iii) Cyprus Sierrita Corporation’s predecessor in interest was a defendant
in United States, et al. v. City of Tucson, et al., No. CIV 75-39 (D.
Ariz.). This is a consolidation of several actions seeking a declaration of the
rights of the United States, the Papago Indian Tribe (now known as the Tohono
O’odham Nation), and individual allottees of the Tohono O’odham Nation, to surface
water and groundwater in the Santa Cruz River watershed; damages from the
defendants’ use of surface water and groundwater from the watershed in derogation of
those rights; and injunctive relief. Congress in 1982 enacted the Southern Arizona
Water Rights Settlement Act, which was intended to resolve the water right claims of
the Tohono O’odham Nation and its member allottees relating to the San Xavier
Reservation and the Schuk Toak District of the Sells Papago Reservation. The
allottees contested the validity of the Act and contended that the Court could not
dismiss the litigation without their consent. This prompted additional litigation,
and eventually culminated in settlement negotiations. The Court suspended most
aspects of the litigation to enable the parties to negotiate a settlement with the
allottees. The Court’s recent attention has been devoted to the composition of
appropriate classes of allottees and identification of class representatives, so
that any settlement that is reached would bind the allottees. It is anticipated that
a settlement and authorizing legislation would conclude all litigation on behalf of
the Tohono O’odham Nation, its allottee members, and the United States as Trustee
for the nation and its allottee members, relating to water rights. Federal
legislation has been passed authorizing a settlement. The parties have until
December 31, 2007, to finalize the agreements and meet certain obligations for the
settlement to become enforceable. The outcome of this dispute could impact water
right claims associated with the acquired Cyprus operations at Sierrita, and
miscellaneous former Cyprus land holdings in the Santa Cruz River watershed.

     III.
On October 1, 1997, the U.S. Environmental Protection Agency (EPA) issued a Notice of
Violation (NOV) to Cyprus Amax’s (now the Company’s) Sierrita operations in southeastern Arizona.
The NOV alleged certain emission standards and permitting violations associated with the molybdenum
roasting facility at Sierrita. On September 6, 2000, EPA also issued an NOV to Phelps Dodge Sierrita
for alleged violations of Prevention of Significant Deterioration permitting requirements, and New
Source Performance Standards under the federal Clean Air Act. The Company and the EPA reached a
settlement of the issues raised in the NOVs. The settlement agreement was embodied in a consent
decree, which, along with a formal complaint, was lodged with the United States District Court for
the District of Arizona on June 21, 2004, United States and State of Arizona v. Phelps Dodge
Sierrita, Inc., No. CIV 04-312 TUC FRZ, and entered by the
Court on August 12, 2004. The state
of Arizona joined in the complaint and consent decree, although it did not join in most of the
allegations made by EPA. Without admitting any of the allegations, the Company agreed to pay a
civil penalty totaling $1.4 million to be divided between the United States and the state of
Arizona. The Company also agreed to undertake certain monitoring and permitting actions, including
continuous emissions monitoring at the molybdenum roasting facility.

     IV. The Pinal Creek site was listed under the Arizona Department of Environmental Quality’s
Water Quality Assurance Revolving Fund program in 1989 for contamination in the

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shallow alluvial aquifers
within the Pinal Creek drainage near Miami, Arizona. Since that time,
environmental remediation has been performed by members of the Pinal Creek Group (PCG), comprising
Phelps Dodge Miami, Inc. (a wholly owned subsidiary of the Company) and two other companies. In
1998, the District Court approved a Consent Decree between the PCG members and the state of Arizona
resolving all matters related to an enforcement action contemplated by the state of Arizona against
the PCG members with respect to the groundwater matter. The Consent Decree committed Phelps Dodge
Miami, Inc. and the other PCG members to complete the remediation work outlined in the Consent
Decree. That work continues at this time pursuant to the Consent Decree and consistent with state
law and the National Contingency Plan prepared by EPA under the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA).

          Phelps Dodge Miami, Inc. and the other members of the PCG are pursuing contribution litigation
against three other parties involved with the site. At least two of the three defendants now have
admitted direct liability as responsible parties. The first phase of the case has been assigned a
trial date in June 2005. Phelps Dodge Miami, Inc. also asserted claims against certain past
insurance carriers. As of November 2002, all of the carriers have settled or had their liability
adjudicated. One carrier unsuccessfully appealed the judgment against it and then settled in
October 2004.

          In addition, a dispute between one dissenting PCG member and Phelps Dodge Miami, Inc. and the
other PCG member was filed in Superior Court in 2002. The settlement of that litigation in
September 2004 included an amendment of the PCG agreement.

          Approximately $111 million remained in the Company’s Pinal Creek remediation reserve at
December 31, 2004. While significant recoveries may be achieved in the contribution litigation, the
Company cannot reasonably estimate the amount and, therefore, has not taken potential recoveries
into consideration in the recorded reserve.

     V. The Company’s wholly owned subsidiary, Cyprus Amax Minerals Company (Cyprus), was the
plaintiff in an action entitled Cyprus Amax Minerals Company v. Asarco Incorporated. No. 99
CIV 11198 (LMM), which was filed on November 9, 1999, in the U.S. District Court for the Southern
District of New York. The action arose out of the merger agreement between Cyprus and Asarco dated
as of July 15, 1999 (the merger agreement). The complaint alleged, among other things, that Asarco
breached the merger agreement and a subsequent agreement by soliciting an alternative takeover
proposal for Asarco from another company. Cyprus sought, among other things, compensatory damages
of not less than $90 million.

          Asarco moved for summary judgment on all of Cyprus’ claims on November 10, 2003. That motion
was granted on October 14, 2004, in favor of Asarco.

     VI. On
October 18, 2002, the Mining and Minerals Division (MMD) of the New Mexico Energy,
Minerals and Natural Resources Department issued NOVs under the New Mexico Mining Act Rules (NMMAR)
to Chino Mines Company (Chino), Phelps Dodge Tyrone, Inc. (Tyrone) and Cobre Mining Company
(Cobre). The NOVs allege that Chino, Tyrone and Cobre failed to obtain approval of closeout plans
as required by NMMAR by October 1, 2002. A

6

 

closeout plan under NMMAR consists of a plan for reclamation of a mining operation following
cessation of operations and financial assurance sufficient for MMD to complete the closeout plan if
the operator defaults. The NOVs would have established schedules requiring that the alleged
violations be abated by April 20, 2003, for Chino, June 30, 2003, for Cobre and September 30, 2003,
for Tyrone. The NOVs did not assess civil penalties, but reserved the right to assess penalties in
the future in accordance with the penalty assessment procedures in NMMAR. The NOVs further stated
that if the alleged violations were not abated by the dates set in the NOVs, MMD would issue
“cessation orders” in accordance with NMMAR requiring that mining operations cease until the
alleged violation is abated. On November 1, 2002, Chino, Tyrone and Cobre each filed Petitions for
Review of the NOVs with the New Mexico Mining Commission (Commission). The Petitions for Review
contended that closeout plan approval was not possible by
October 1, 2002, because of delays by the
New Mexico Environment Department (NMED) in issuing discharge permits for closure and issuing
determinations that the closeout plans for Chino, Tyrone and Cobre are expected to achieve
compliance with environmental standards, including compliance with water quality standards. The
Petitions requested that the NOVs be vacated or, in the alternative, that different dates be set
for abatement of the alleged violations that allow a reasonable period of time after NMED issues
its discharge permits to obtain approval of the closeout plans. The Commission held a public
hearing on December 13-14, 2002, on the Petitions for Review. The Commission upheld the NOVs but
modified the period for abatement for each mine to run from the dates when NMED issues the
discharge permits for closure for the mines. Under the modified NOVs, Chino, Cobre and Tyrone will
have seven, nine and 12 months, respectively, after NMED issues their closure permits to obtain
approval of their closeout plans.

     NMED
issued Chino’s closure permit on February 24, 2003. Since the closure permit was issued,
Chino has engaged in discussions to resolve the amount and form of financial assurance required by
NMED and MMD and the details of the closeout plan approval by MMD. To allow additional time to
finalize applicable documentation and to hold a public hearing as required under the Mining Act,
MMD issued orders extending the deadline for Chino’s closeout
plan approval to December 19, 2003.
MMD approved Chino’s closeout plan on December 18, 2003. Chino’s closure permit has been appealed
by third parties to the Water Quality Control Commission (WQCC). Chino filed a motion to dismiss
the appeal due to the failure to follow required procedures, which was granted by the WQCC. The
WQCC’s decision has been appealed to the New Mexico Court of Appeals.

     NMED
issued Tyrone’s closure permit on April 8, 2003, and Tyrone’s closeout plan was approved
by MMD on April 12, 2004. On July 12, 2004, Tyrone filed an appeal of a decision by the WQCC
affirming the conditions of Tyrone’s closure permit to the New Mexico Court of Appeals. Tyrone is
complying with the requirements of the closure permit pending the outcome of the appeal.

     NMED
issued Cobre’s closure permit on December 10, 2004. MMD held a public hearing on February
3, 2005, and is expected to take action on the plan in the first quarter of 2005.

7

 

     VII. Since approximately 1990, Phelps Dodge or its subsidiaries have been named as a defendant
in a number of product liability or premises lawsuits brought by electricians and other skilled
tradesmen or contractors claiming injury from exposure to asbestos found in limited lines of
electrical wire products produced or marketed many years ago, or from asbestos at certain Phelps
Dodge properties. Phelps Dodge presently believes its liability, if any, in these matters will not
have a material adverse effect, either individually or in the aggregate, upon its business,
financial condition, liquidity, results of operations or cash flow. There can be no assurance;
however, that future developments will not alter this conclusion.

     VIII. On September 30, 2002, Columbian Chemicals Company, a subsidiary of the Company,
received an administrative complaint from EPA for alleged violations of the Clean Air Act at its El
Dorado, Arkansas, carbon black plant. On April 19, 2004, Columbian signed a Consent Agreement and
First Order (Consent) resolving this matter. The Consent requires Columbian to pay a civil penalty
of $39,300 and fund a Supplement Environmental Project in the amount of $75,700 for a total
settlement amount of $115,000.

     IX. On November 7, 2002, the United Kingdom Environment Agency (Agency) issued an
enforcement notice to Columbian Chemicals Company’s Sevalco plant in the United Kingdom. This
notice followed Sevalco’s disclosure to the Agency in October 2002 that Sevalco had discovered
irregularities in its effluent discharge reports, and requires the plant to implement procedures to
ensure that discharges satisfy permit limits and are properly reported. At a hearing in
Magistrates’ Court in Bristol, England, on November 15, 2004, Sevalco pled guilty to six charges
concerning the alleged submission of incorrect data to the Agency and operation of a process not in
accordance with its operating permit. The magistrates referred the case to Crown’s Court for
sentencing. At the hearing in Crown’s Court on December 8, 2004, the Court imposed a fine of 40,000
pounds per offense plus Agency’s costs of 70,000 pounds for a total fine of 310,000 pounds
(approximately U.S. $598,000), which Sevalco has paid.

     X. In November 2002, Columbian Chemicals Company was contacted by U.S. and European
antitrust authorities regarding a joint investigation they initiated into alleged price fixing in
the carbon black industry. European antitrust authorities reviewed documents at three of Columbian
Chemicals’ facilities in Europe, and U.S. authorities contacted Columbian Chemicals’ headquarters
in Marietta, Georgia, but have not requested documents or other information.

     XI. The Company and Columbian Chemicals Company, together with several other companies,
were named as defendants in an action entitled Technical Industries, Inc. v. Cabot Corporation,
et al., No. CIV 03-10191 WGY, filed on January 30, 2003, in the U.S. District Court in Boston,
Massachusetts, and 14 other actions filed in four U.S. district courts, on behalf of a purported
class of all individuals or entities who purchased carbon black directly from the defendants since
January 1999. The Judicial Panel on Multidistrict Litigation consolidated all of these actions in
the U.S. District Court for the District of Massachusetts under the caption In Re Carbon Black
Antitrust Litigation. The consolidated amended complaint filed in these actions does not name
the Company as a defendant. The consolidated amended complaint, which alleges that the defendants
fixed the prices of carbon black and engaged in other unlawful activities in violation of the U.S.
antitrust laws, seeks treble damages in an unspecified amount

8

 

and attorneys’ fees. Columbian Chemicals Company and other defendants filed a motion to dismiss the
consolidated amended complaint for failure to state a claim. The plaintiffs have filed a motion for
class certification. The court has denied the motion to dismiss and has certified a class that
includes all direct purchasers of carbon black in the United States from January 30, 1999 through
January 18, 2005. Discovery is ongoing.

     Similar class actions have been filed in state courts in California, North Carolina, Florida,
Kansas, New Jersey, South Dakota and Tennessee on behalf of indirect purchasers of carbon black in
those and 17 other states and the District of Columbia alleging violations of state antitrust and
deceptive trade practices laws. Columbian has also received a demand for relief on behalf of
indirect purchasers in Massachusetts, but no lawsuit has been filed in state court. In the class
action filed in state court in North Carolina, the court granted the defendants’ motion to dismiss
and the plaintiff dropped his appeal of the decision, so that case has been dismissed. The court in
the New Jersey action denied a motion to dismiss; the defendants have filed a motion for leave to
take an interlocutory appeal.

     The Company believes the claims are without merit and intends to defend the lawsuits
vigorously.

     XII. In November 2002, EPA issued a unilateral administrative order (UAO) under CERCLA to
the Company’s wholly owned subsidiary, Western Nuclear, Inc., and two other companies, Kerr McGee
Corporation and Fremont Lumber Company (collectively, the PRPs) requiring the companies to perform
certain remedial design (RD) and remedial action (RA) work at the White King/Lucky Lass Uranium
Mines site near Lakeview, Oregon. The PRPs do not believe the UAO was lawfully issued because EPA
failed to recognize the joint responsibility of the U.S. government under applicable laws and to
perform non-discretionary duties to ensure federal government responsibility for remediating the
site prior to issuance of the UAO. The PRPs notified the EPA of their intent to sue and obtain,
among other things, a judicial determination of the illegality of the UAO.

          The PRPs voluntarily commenced and undertook the RD work (but not RA work) required by the
UAO, and advised the EPA of their position and progress. From January 2003 through July 2003, the
PRPs and EPA exchanged letters expressing their respective positions concerning the validity of the
UAO. On July 31, 2003, the EPA rejected the PRPs’ position, notifying them that penalties are
accruing for the alleged violations of the UAO and that the purported penalties through the end of
July 2003 total approximately $5.2 million.

     On September 19, 2003, the PRPs served a complaint on the Acting Administrator of the EPA,
which seeks to have the federal district court of Oregon declare the UAO unlawful for failure to
comply with the requirement under CERCLA to ensure federal government participation in remedying
the site. Fremont Lumber Company, et al. v. Horinko, No. 03-CV-1073-AS (D. Ore.). On
December 15, 2003, EPA answered the complaint and denied the PRPs’ allegations of non-compliance
with CERCLA. On January 12, 2004, EPA filed a complaint against the PRPs seeking to enforce the
PRPs’ compliance with the UAO and to recover administrative penalties and response costs
incurred at the site. The cases have been consolidated and the litigation has been stayed until
March 2005. The PRPs and EPA have commenced discussions in an effort to settle all outstanding
issues.

9Exhibit 10.1

EXHIBIT
10.1

NATIONAL
PENN BANCSHARES, INC.

LONG-TERM
INCENTIVE COMPENSATION PLAN

(As
adopted October 27, 2004,

subject
to shareholder approval)

ARTICLE
1. ESTABLISHMENT, PURPOSE, AND DURATION

1.1
Establishment
of the Plan.

On
October 27, 2004, the Board of Directors of National Penn Bancshares, Inc. (the
“Company”) adopted, subject to the approval of shareholders, this incentive
compensation plan known as the “National Penn Bancshares, Inc. Long-Term
Incentive Compensation Plan” (the “Plan”) which permits the grant of long-term
incentive and other stock and cash awards. If approved by shareholders, the Plan
would replace the National Penn Bancshares, Inc. Officers' and Key Employees'
Stock Compensation Plan and no further awards would be made under that plan. The
Plan would also replace the National Penn Bancshares, Inc. Non-Employee
Directors' Stock Option Plan which expired in January 2004.

1.2
Purpose
of the Plan.

The
purpose of the Plan is to promote the success of the Company and its
Subsidiaries by providing incentives to Employees and Directors of the Company
and its Subsidiaries that will link their personal interests to the financial
success of the Company and its Subsidiaries and to growth in shareholder value.
The Plan is designed to provide flexibility to the Company and its Subsidiaries
in their ability to attract, motivate and retain the services of Employees and
Directors upon whose judgment, interest, and special effort the successful
conduct of business operations is largely dependent.

1.3
Duration
of the Plan.

The
Plan shall be effective as of December 1, 2004 (the “Effective Date”) if it is
approved by the Company's shareholders at the annual meeting of shareholders to
be held in 2005, and shall remain in effect, subject to the right of the Board
of Directors to terminate the Plan at any time, until all Awards granted under
the Plan shall have been paid or otherwise disposed of in accordance with the
provisions of the Plan. In no event may an Award be granted under the Plan on or
after December 1, 2014.

ARTICLE
2. DEFINITIONS AND CONSTRUCTION

2.1
Definitions.

Whenever
used in the Plan, the following capitalized terms shall have the meanings set
forth in this Section 2.1:

(a)
“Award” means and includes, without limitation, Options, Stock Appreciation
Rights, Restricted Stock, Restricted Stock Units, Performance Shares,
Performance Units, Dividend or Dividend Equivalent Rights, Stock Awards, Cash
Awards or Other Incentive Awards, whether granted on a stand-alone, combination
or tandem basis, as described in or granted under the Plan.

(b)
“Award Agreement” means the agreement or other writing (which may be framed as a
plan or program) that sets forth the terms and conditions of an Award, including
any amendment or modification of an Award Agreement.

(c)
“Beneficial Ownership” shall be determined as provided in Rule 13d-3 under
the Exchange Act or any successor rule.

(d)
“Board” or “Board of Directors” means the Board of Directors of the
Company.

(e)
“Cash Award” has the meaning specified in Section 10.1(d).

(f)
“Cause” means any of the following:

(i) An
Employee's conviction of, or plea of guilty or nolo contendere to, a felony or a
crime of falsehood or involving moral turpitude; or

(ii)
The willful failure by an Employee to substantially perform his or her duties to
the Company or any Subsidiary which is his or her employer at any particular
time, other than a failure resulting from the Employee's incapacity as a result
of Disability, which willful failure results in demonstrable material injury and
damage to the Company or the Subsidiary employer. Notwithstanding the foregoing,
an Employee's employment shall not be deemed to have been terminated for Cause
if such termination took place as a result of:

(x)
Questionable judgment on the part of the Employee;

(y) Any
act or omission believed by the Employee in good faith to have been in or not
opposed to the best interests of the Company or Subsidiary which is his or her
employer at the time; or

(z) Any
act or omission in respect of which a determination could properly be made that
the Employee met the applicable standard of conduct prescribed for
indemnification or reimbursement or payment of expenses under the By-laws of the
Company or the laws of the Commonwealth of Pennsylvania, or the directors and
officers' liability insurance of the Company or any Subsidiary which is the
Employee's employer at the time of such act or omission, in each case as in
effect at the time of such act or omission.

(g)
“Change in Control” means any of the following events:

(i) An
acquisition by any Person of Beneficial Ownership of securities of the Company
representing 24.99% or more of the combined voting power of the Company's
securities then outstanding;

(ii) A
merger, consolidation or other reorganization of the Company's principal banking
subsidiary, National Penn Bank, except where the resulting entity is controlled,
directly or indirectly, by the Company;

(iii) A
merger, consolidation or other reorganization of the Company, except where
shareholders of the Company immediately prior to consummation of any such
transaction continue to hold at least a majority of the voting power of the
outstanding voting securities of the legal entity resulting from or existing
after any transaction and a
majority of the members of the Board of Directors of the legal entity resulting
from or existing after any such transaction are former members of the Company's
Board of Directors;

(iv) A
sale, exchange, transfer or other disposition of substantially all of the assets
of the Company or any other corporation which is included in a “controlled group
of corporations” including the Company (as determined under Code Section 1563)
to another entity, except to an entity controlled, directly or indirectly, by
the Company;

(v) A
sale, exchange, transfer or other disposition of substantially all of the assets
of the Company to another entity, or a corporate division involving the Company;
or

(vi) A
contested proxy solicitation of the shareholders of the Company that results in
the contesting party obtaining the ability to cast 25% or more of the votes
entitled to be cast in an election of directors of the Company.

(h)
“Code” means the Internal Revenue Code of 1986, as amended from time to
time.

(i)
“Committee” means the Compensation Committee of the Board of Directors (or any
successor committee designated by the Board of Directors to administer the
Plan). The Committee shall be appointed by the Board, shall consist of three or
more outside, independent members of the Board, and in the judgment of the
Board, shall be qualified to administer the Plan:

(i) As
“non-employee directors” under Rule 16b-3(b)(3) under the Exchange Act (or any
successor rule);

(ii) As
“outside directors” under Section 162(m) of the Code and the regulations
thereunder (or any successor Section and regulations); and

(iii)
Under all applicable rules and regulations of Nasdaq or any stock exchange on
which the Stock may be traded.

The
Board may, at any time and in its complete discretion, remove any member of the
Committee and may fill any vacancy in the Committee.

(j)
“Company” means National Penn Bancshares, Inc., a Pennsylvania corporation, or
any successor thereto as provided in Article 17.

(k)
“Covered Employee” means any Participant who is or may be a “covered employee”
within the meaning of Section 162(m)(3) of the Code in the year in which an
Award becomes taxable to such Participant.

(l)
“Director” means a director of the Company or a Subsidiary.

(m)
“Disability” means a permanent and total disability as defined in Section
22(e)(3) of the Code (or any successor Section).

(n)
“Dividend or Dividend Equivalent Right” has the meaning specified in Section
10.1(a).

(o)
“Effective Date” means December 1, 2004 if the Plan is approved by the Company's
shareholders at the 2005 annual meeting of shareholders.

(p)
“Employee” means an employee of the Company or any of its Subsidiaries,
including an employee who is an officer or a Director.

(q)
“Exchange Act” means the Securities Exchange Act of 1934, as amended from time
to time.

(r)
“Fair Market Value” on or as of any date shall be determined as follows, unless
a different method of calculation is required by applicable
law:

(i)
Based on the closing sale price of a share of Stock on the given date, as
reported on Nasdaq (or on such other stock exchange on which the Stock may be
listed);

(ii) If
no closing sale price is reported on the given date, then based on the closing
sale price of a share of Stock on the next preceding date on which there was a
sale, as reported on Nasdaq (or on such other stock exchange on which the Stock
may be listed); or

(iii)
If the Stock is not listed on Nasdaq or on a stock exchange, by the Committee in
its sole discretion.

(s)
“Incentive Stock Option” or “ISO” means an option to purchase shares of Stock,
granted under Article 6, which is designated as an incentive stock option
and is intended to meet the requirements of Section 422 of the Code (or any
successor Section).

(t)
“Nasdaq” means the National Market tier of The Nasdaq Stock Market operated by
the National Association of Securities Dealers, Inc.

(u)
“Nonqualified Stock Option” or “NQSO” means an option to purchase Stock, granted
under Article 6, which is not intended to be an Incentive Stock
Option.

(v)
“Option” means an Incentive Stock Option or a Nonqualified Stock
Option.

(w)
“Other Incentive Award” has the meaning specified in Section 10.1.

(x)
“Participant” means an Employee or a Director who has been granted an Award
under the Plan.

(y)
“Performance Goal” has the meaning specified in Section 9.8.

(z)
“Performance Period” means a period of time, not less than two years, determined
in advance by the Committee in which performance will be measured against
Performance Goals. Performance Periods may vary or overlap in duration.

(aa)
“Performance Share” means an Award representing the right to receive a payment
equal to the value of a performance share, granted to a Participant pursuant to
Article 9.

(bb)
“Performance Unit” means an Award representing the right to receive a payment
based on the value of a performance unit, granted to a Participant pursuant to
Article 9.

(cc)
“Permitted Transferee” means, with respect to a Participant, any of the
following:

(i) Any
child, stepchild, grandchild, parent, step-parent, grandparent, spouse, former
spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law or sister-in-law, including adoptive
relationships;

(ii) A
trust in which these persons and/or the Participant (collectively at the time of
the transfer) have more than 50% of the beneficial interests (taking into
account both current and remainder interests);

(iii) A
foundation in which these persons and/or the Participant (collectively at the
time of the transfer) control the management of assets; and

(iv)
Any other entity in which these persons and/or the Participant (collectively at
the time of the transfer) own more than 50% of the voting
interests.

(dd)
“Person” has the meaning given to that term in Sections 13(d)
and 14(d) of the Exchange Act, including a “group” as defined in
Section 13(d).

(ee)
“Plan” means this National Penn Bancshares, Inc. Long-Term Incentive
Compensation Plan, as it may from time to time be amended.

(ff)
“Predecessor Plan” means the National Penn Bancshares, Inc. Officers' and Key
Employees' Stock Compensation Plan, as from time to time amended.

(gg)
“Previously-Acquired Shares” means shares of Stock acquired by the Participant
or any beneficiary of a Participant, which shares have been held for a period of
not less than six months or such longer or shorter period as the Committee may
require or permit.

(hh)
“Restricted Period” means a period of time during which the transfer of shares
of Restricted Stock or receipt of shares attributable to a Restricted Stock Unit
is restricted, during which period the Participant is subject to a substantial
risk of forfeiture, pursuant to Article 8.

(ii)
“Restricted Stock” means an Award of Stock granted to a Participant pursuant to
Article 8.

(jj)
“Restricted Stock Unit” means an award representing a right to receive a payment
equal to the value of a Share, granted to a Participant pursuant to Article
8.

(kk)
“Retirement” means, except to the extent otherwise provided by the Committee in
the an Award Agreement or any amendment or modification of an Award
Agreement:

(i) In
the case of an Employee, termination of employment for any reason (other than by
the Company or a Subsidiary for Cause) on or after attaining age 55 and having
been employed by the Company and/or a Subsidiary for ten or more years or
otherwise after becoming a “pension benefit eligible retiree” as defined in the
Company's defined benefit pension plan; and

(ii) In
the case of a Director, termination of service as a Director; provided, however,
that if a Company Director resigns prior to reaching the age for mandatory
retirement under the bylaws of the Company or a Subsidiary Director resigns
prior to reaching the age for mandatory retirement under the bylaws of such
Subsidiary, such resignation shall not constitute “Retirement”.

(ll)
“Rule 16b-3” means Rule 16b-3 under the Exchange Act (or any successor
rule).

(mm)
“Stock” means the common stock without par value of the Company.

(nn)
“Stock Appreciation Right” or “SAR” means an Award, granted to a Participant
pursuant to Article 7.

(oo)
“Stock Award” has the meaning specified in Section 10.1(b).

(pp)
“Subsidiary” means any corporation that is a subsidiary corporation of the
Company, as that term is defined in Section 424(f) of the Code (or any successor
Section).

2.2
Gender
and Number.

Except
where otherwise indicated by the context, any masculine term used also shall
include the feminine, the plural shall include the singular, and vice
versa.

2.3
Severability.

If any
provision of the Plan shall be held illegal or invalid for any reason, the
illegality or invalidity shall not affect the remaining parts of the Plan, and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.

ARTICLE
3. ADMINISTRATION

3.1
Authority
of the Committee.

The
Plan shall be administered by the Committee. Subject to the provisions of the
Plan, the Committee shall have all powers vested in it by the term of the Plan,
such powers to include the authority to:

(a)
Select the persons to be granted Awards under the Plan;

(b)
Determine the terms, conditions, type and amount of Awards to be made to each
person selected;

(c)
Determine the time when Awards are to be made and any conditions which must be
satisfied before an Award is made;

(d)
Establish objectives and conditions for earning Awards;

(e)
Determine the terms of each Award Agreement and any amendment or modification of
any Award Agreement (which shall not be inconsistent with the
Plan);

(f)
Determine whether the conditions for earning an Award have been met and whether
an Award will be paid at the end of a Performance Period;

(g)
Determine if and when an Award may be deferred;

(h)
Determine whether the amount or payment of an Award should be reduced or
eliminated; and

(i)
Determine the guidelines and/or procedures for the payment or exercise of
Awards.

Notwithstanding
the foregoing, no action of the Committee (other than pursuant to Section 4.2 or
Section 9.4) may, without the consent of the person or persons entitled to
exercise any outstanding Option or Stock Appreciation Right or to receive
payment of any other outstanding Award, adversely affect the rights of such
person or persons with respect to such Awards.

3.2
Decisions
Binding.

The
Committee shall have full power and authority to administer and interpret the
Plan and to adopt or establish such rules, regulations, agreements, guidelines,
procedures and instruments, which are not contrary to the terms of the Plan and
which, in its opinion, may be necessary or advisable for the administration and
operation of the Plan. All determinations and decisions made by the Committee
pursuant to the provisions of the Plan and all related orders or resolutions of
the Board of Directors shall be final, conclusive and binding on all persons,
including the Company and its Subsidiaries, its shareholders, employees, and
Participants and their estates and beneficiaries, and such determinations and
decisions shall not be reviewable.

3.3
Delegation
of Certain Responsibilities.

The
Committee may, subject to the terms of the Plan and applicable law, appoint such
agents as it deems necessary or advisable for the proper administration of the
Plan under this Article 3; provided, however, that the Committee may not
delegate its authority to grant Awards under the Plan or to correct errors,
omissions or inconsistencies in the Plan except as set forth in this Section
3.3. The Committee may delegate to the Company's Chief Executive Officer or to
other officers of the Company its authority under this Article 3, provided that
such delegation shall not extend to the grant of Awards or the exercise of
discretion with respect to Awards to Employees who, at the time of such action,
are (a) Covered Employees or (b) officers of the Company or its Subsidiaries who
are subject to the reporting requirements of Section 16(a) of the Exchange Act.
All authority delegated by the Committee under this Section 3.3 shall be
exercised in accordance with the provisions of the Plan and any guidelines for
the exercise of such authority that may be established by the Committee from
time to time.

3.4
Procedures
of the Committee.

Except
as may otherwise be provided in the charter or similar governing document
applicable to the Committee:

(a) All
determinations of the Committee shall be made by not less than a majority of its
members present at the meeting (in person or otherwise) at which a quorum is
present;

(b) A
majority of the entire Committee shall constitute a quorum for the transaction
of business; and

(c) Any
action required or permitted to be taken at a meeting of the Committee may be
taken without a meeting if a unanimous written consent, which sets forth the
action, is signed by each member of the Committee and filed with the minutes for
proceedings of the Committee.

Service
on the Committee shall constitute service as a Director of the Company so that
members of the Committee shall be entitled to indemnification, limitation of
liability and reimbursement of expenses with respect to their services as
members of the Committee to the same extent that they are entitled under the
Company's Articles of Incorporation and Bylaws, as amended from time to time,
and Pennsylvania law for their services as Directors of the
Company.

3.5
Award
Agreements.

Each
Award under the Plan shall be evidenced by an Award Agreement which shall be
signed by an authorized officer of the Company and, if required, by the
Participant, and shall contain such terms and conditions as may be authorized or
approved by the Committee. Such terms and conditions need not be the same in all
cases.

3.6
Rule
16b-3 Requirements.

Notwithstanding
any other provision of the Plan, the Committee may impose such conditions on any
Award (including, without limitation, the right of the Board or the Committee to
limit the time of exercise to specified periods) as may be required to satisfy
the requirements of Rule 16b-3.

ARTICLE
4. STOCK SUBJECT TO THE PLAN

4.1
Number
of Shares.

(a)
Subject to adjustment as provided in Section 4.2, the total number of shares of
Stock subject to Awards under the Plan shall be four million (4,000,000) shares.
Shares remaining available for awards under the Predecessor Plan as of the
Effective Date shall not be awarded or increase the total number of shares
authorized for delivery under the Plan. Stock delivered under the Plan may
consist, in whole or in part, of authorized and unissued shares or treasury
shares. 

(b) To
the extent that shares of Stock subject to an outstanding Award are not issued
by reason of:

(i) The
forfeiture, termination, surrender, cancellation or expiration while unexercised
of such award;

(ii)
The tendering (by either actual delivery or by attestation if permitted by the
Committee) or withholding of shares of Stock to pay all or a portion of the
purchase price or to satisfy all or a portion of the tax withholding obligations
relating to an Award;

(iii)
The settlement in cash in lieu of Stock or settlement in a manner such that some
or all of the shares of Stock covered by the Award are not issued to a
Participant; or

(iv) An
exchange for a grant under the Plan that does not involve
Stock;

Such
shares of Stock shall immediately again be available for Awards under the Plan.
The Committee may from time to time adopt and observe such procedures concerning
the counting of shares against the Plan maximum, as it may deem
appropriate.

(c)
Shares of Stock issued in connection with awards that are assumed, converted or
substituted for pursuant to a merger, acquisition or similar transaction entered
into by the Company or any of its Subsidiaries shall not reduce the number of
shares available for Awards under the Plan.

(d)
Subject to adjustment as provided in Section 4.2, the following limitations
shall apply to Awards under the Plan:

(i) All
shares of Stock that may be issued under the Plan may be issued pursuant to SARS
or Options, and all Options may be ISOs.

(ii)
With respect to Awards other than SARs and Options, not more than 30 percent of
the total number of shares of Stock that may be issued under the Plan may be
issued pursuant to such other Awards.

(iii)
The maximum number of shares of Stock that may be covered by Awards granted
under the Plan to any single Participant shall be 250,000 shares during any one
calendar year. For purposes of applying the limitations set forth in this
paragraph (iii), if an Award, including without limitation Options, SARs,
Restricted Stock, Restricted Stock Units and Performance Shares, is denominated
in shares of Stock or the amount of the payment to be made thereunder shall be
determined by reference to the value of shares of Stock, then such Award shall
be counted in the year the Award is granted as covering the number of shares set
forth in the Award. If an Award is granted in tandem with a SAR so that the
exercise of the Award right or SAR with respect to a share of Stock cancels the
tandem SAR or Award right, respectively, with respect to such share, the tandem
Award right and SAR with respect to each share of Stock shall be counted as
covering but one share of Stock for purposes of applying the limitations of this
paragraph (iii).

4.2 Adjustments
in Authorized Shares.

If any
merger, reorganization, consolidation, recapitalization, separation,
liquidation, Stock dividend, split-up, share combination, or other change in the
corporate structure of the Company affecting the Stock shall occur, such
adjustment shall be made in the number of shares of Stock set forth in Section
4.1(a), in the number of shares of Stock set forth in Section 4.1(d)(iii), and
in the number and class of and/or price of shares subject to outstanding Awards
granted under the Plan, as may be determined to be appropriate and equitable by
the Committee, in its sole discretion, to prevent dilution or enlargement of
rights, and provided that the number of shares subject to any Award shall always
be a whole number. Any adjustment of an Incentive

Stock
Option under this Section shall be made in such a manner so as not to constitute
a modification within the meaning of Section 424(h)(3) of the Code.

ARTICLE
5. ELIGIBILITY AND PARTICIPATION

5.1
Eligibility.

Persons
eligible to participate in the Plan include all Employees and
Directors.

5.2
Actual
Participation.

Subject
to the provisions of the Plan, the Committee may from time to time select those
Employees and Directors to whom Awards shall be granted and determine the nature
and amount of each Award.

ARTICLE
6. OPTIONS

6.1
Grant
of Options.

Subject
to the terms and conditions of the Plan, the Committee, at any time and from
time to time, may grant Options to such Employees and/or Directors in such
amounts and on such terms and conditions as it shall determine. The Committee
shall have the sole discretion, subject to the requirements of the Plan, to
determine the actual number of shares of Stock subject to Options granted to any
Participant. The Committee may grant any type of Option to purchase Stock that
is permitted by law at the time of grant including, without limitation, ISOs and
NQSOs. Only Employees may receive an Award of ISOs.

6.2
Option
Award Agreement.

Each
Option grant shall be evidenced by an Award Agreement that shall specify the
type of Option granted, the Option price, the duration of the Option, the number
of shares of Stock covered by the Option, the vesting schedule by which the
Option becomes exercisable, and such other provisions as the Committee shall
determine. Unless the Option Agreement shall specify that the Option is intended
to be an Incentive Stock Option, the Option shall be a Nonqualified Stock
Option.

6.3
Option
Price.

The
exercise price per share of Stock covered by an Option shall be determined by
the Committee but shall not be less than 100% of Fair Market Value on the date
the Option is granted. Notwithstanding the authority granted to the Committee
pursuant to Section 3.1 of the Plan, once an Option is granted, the Committee
shall have no authority to reduce the Option exercise price, nor may any Option
be surrendered to the Company as consideration for the grant of a new Option
with a lower exercise price without the approval of the Company's shareholders,
except under Section 4.2 of the Plan.

 

6.4
Duration
of Options.

Each
Option shall expire at such time as the Committee shall determine in the Award
Agreement; provided, however, no ISO shall be exercisable later than ten years
after the date of its grant, and no NQSO shall be exercisable later than ten
years and one month after the date of its grant.

6.5
Exercise
of Options.

Options
shall vest and be exercisable at such times and be subject to such restrictions
and conditions as provided in the Award Agreement, which need not be the same
for all Participants; provided, however, that no Option shall vest in whole or
in part before one year from the date of grant or later than five years from the
date of grant.

6.6
Payment.

Options
shall be exercised by the delivery of a written notice to the Company setting
forth the number of shares of Stock with respect to which the Option is being
exercised, accompanied by full payment of the Option exercise price for such
shares. Full payment shall be made:

(a) In
cash or its equivalent, including, without limitation, delivery of a properly
completed exercise notice, together with irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale proceeds from the sale of the
shares subject to the Option exercise or to deliver loan proceeds from such
broker to pay the Option exercise price and any withholding taxes
due;

(b) By
delivery (or deemed delivery through attestation if permitted by the Committee)
of Previously-Acquired Shares having a Fair Market Value at the time of exercise
equal to the total Option exercise price;

(c) By
having the Company withhold from delivery shares of Stock having a Fair Market
Value on the date the Option is exercised equal to the total Option exercise
price, if permitted by the Committee;

(d) By
such other methods as the Committee deems appropriate; or

(e) By
a combination of (a), (b), (c) or (d).

As soon
as practicable after receipt of written notification and payment, the Company
shall deliver to the Participant certificates representing the shares of Stock
purchased by the Option exercise, issued in the Participant's name (unless the
Participant shall elect to have such shares registered as book-entry
shares).

 

6.7
Restrictions
on Stock Transferability.

The
Committee may impose such restrictions on any shares of Stock acquired pursuant
to the exercise of an Option as it may deem advisable, including, without
limitation, restrictions under applicable Federal or state securities laws,
under the requirements of Nasdaq or any stock exchange upon which the Stock is
then listed, or such restrictions as are referred to in Section
13.7.

6.8
Special
Provisions Applicable to ISOs.

To the
extent provided or required under Section 422 of the Code or regulations
thereunder (or any successor Section or regulations), an Award of Incentive
Stock Options shall be subject to the following:

(a) If
the total Fair Market Value of the shares of Stock (determined at the time the
Options are exercised) subject to ISOs held by a Participant that first become
exercisable during any calendar year exceeds $100,000 (or such other amount as
shall then be the maximum allowable under the Code for ISO treatment of such
Options), then the portion of such ISOs equal to such excess shall be
NQSOs.

(b) An
Incentive Stock Option granted to an Employee who, at the time of grant, owns
(within the meaning of Section 424(d) of the Code) shares of Stock possessing
more than 10% of the total combined voting power of all classes of stock of the
Company, shall have an exercise price which is at least 110% of Fair Market
Value.

(c) No
ISO granted to an Employee who, at the time of grant, owns (within the meaning
of Section 424(d) of the Code) shares of Stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company, shall be
exercisable later than five years after the date of its grant.

6.9
Termination
of Employment or Service.

The
disposition of Options held by a Participant at the time of termination of
employment or termination of service as a Director shall be determined in
accordance with Article 11.

 

    6.10
Transferability
of Options.

(a)
Except as provided in this Section 6.10 or as the Committee may permit, no
Option granted under the Plan may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by Will or by the laws of
descent and distribution. All Options granted to a Participant shall be
exercisable during the Participant's lifetime only by the
Participant.

(b)
Notwithstanding the foregoing, a Participant may transfer and assign the
Participant's rights and interests in a NQSO to a Permitted Transferee,
including the right to exercise such Option, provided that:

(i) The
transfer does not result in the reacquisition of such Option by the Company or
any Subsidiary, other than in a fiduciary capacity;

(ii)
The transfer is for no value or other consideration except as is permitted by
General Instruction 1(a)(5) of SEC Form S-8;

(iii)
The transferred Option covers at least 1,000 shares of Stock;

(iv)
The Participant concurrently pays to the Company such administrative fee with
respect to the transfer as the Committee shall then require to be paid; and

(v) All
other terms and conditions of such Option, including those conditions related to
the Participant's employment, remain in effect.

(c) Any
such transfer shall only be effective upon receipt by the Committee, or its
delegate, of an acceptable written notice of transfer in such form as the
Committee may require. The Committee may impose such additional restrictions and
requirements on transferability as it may deem appropriate, necessary or
advisable, including without limitation requiring satisfactory written
undertakings from the Participant with regard to payment of required tax
withholdings at the time of exercise of the transferred Option. The Committee
may also establish such operational procedures regarding transferability, as it
may deem appropriate, necessary, or advisable.

ARTICLE
7. STOCK APPRECIATION RIGHTS

7.1
Grant
of Stock Appreciation Rights.

Subject
to the terms and conditions of the Plan, the Committee, at any time and from
time to time, may grant Stock Appreciation Rights to such Employees and/or
Directors in such amounts and on such terms and conditions as it shall
determine. The Committee shall have the sole discretion, subject to the
requirements of the Plan, to determine the actual number of shares of Stock
subject to SARs granted to any Participant.

7.2
Exercise
of SARs.

SARs
may be exercised upon whatever terms and conditions the Committee, in its sole
discretion, imposes upon the SARs, which may include, but are not limited to, a
corresponding proportional reduction in Options or other Awards granted in
tandem with such SARs.

7.3
Payment
of SAR Amount.

Upon
exercise of a SAR, the holder shall be entitled to receive payment of an amount
determined by multiplying:

(a) The
difference between the Fair Market Value of a share of Stock on the date of
exercise and the price fixed by the Committee at the date of grant (which price
shall not be less than 100% of the Fair Market Value of a share of Stock on the
date of grant); by

(b) The
number of shares of Stock with respect to which the SAR is
exercised.

7.4
Form
of Payment.

Payment
to a Participant of the amount due upon exercise of a SAR will be made in shares
of Stock having a Fair Market Value as of the date of exercise equal to the
amount determined under Section 7.3, unless the Committee otherwise provides for
payment in cash in the applicable Award Agreement or any amendment or
modification of the Award Agreement.

7.5
Duration
of SAR.

Each
SAR shall expire at such time as the Committee shall determine in the Award
Agreement; provided, however, that no SAR shall be exercisable later than the
ten years after the date of its grant.

7.6
Termination
of Employment or Service.

The
disposition of SARs held by a Participant at the time of termination of
employment or service as a Director shall be determined in accordance with
Article 11.

7.7
Non-Transferability
of SARs.

Except
as may be permitted by the Committee in the Award Agreement or any amendment or
modification of such Award Agreement, no SAR granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by Will or by the laws of descent and distribution. All SARs granted to a
Participant under the Plan shall be exercisable during the Participant's
lifetime only by the Participant.

ARTICLE
8. RESTRICTED STOCK AND RESTRICTED STOCK UNITS

8.1
Grant
of Restricted Stock and Restricted Stock Units.

Subject
to the terms and conditions of the Plan, the Committee, at any time and from
time to time, may grant shares of Restricted Stock and Restricted Stock Units to
such Employees and/or Directors in such amounts and on such terms and conditions
as it shall determine.

8.2
Restrictions
on Transfer.

Except
as otherwise provided in this Article 8, shares of Restricted Stock and
Restricted Stock Units may not be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated until the termination of the applicable
Restricted Period or for such period of time as shall be established by the
Committee and as shall be specified in the Award Agreement, or upon earlier
satisfaction of other conditions (which may include the attainment of
Performance Goals) as specified by the Committee in its sole discretion and set
forth in the Award Agreement. All rights with respect to Restricted Stock or
Restricted Stock Units granted to a Participant shall be exercisable during the
Participant's lifetime only by the Participant.

8.3
Other
Restrictions.

The
Committee may impose such other restrictions on any shares of Restricted Stock
or Restricted Stock Units as it may deem advisable. The Committee may place
restrictive legends on certificates representing shares of Restricted Stock
and/or record stop transfer orders with respect to such shares to give
appropriate notice of such restrictions.

8.4
End
of Restricted Period.

Except
as otherwise provided in this Article 8, after the last day of a Restricted
Period, shares of Restricted Stock covered by such Restricted Period shall
become freely transferable by the Participant, and the Participant shall be
entitled to receive one share of Stock with respect to each Restricted Stock
Unit covered by such Restricted Period. Once the shares are released from the
restrictions, the Participant shall be entitled to have any restrictive legend
removed from the certificates and any stop transfer order regarding such shares
cancelled. If delivery of the shares is to be made on a deferred basis pursuant
to Section 13.6, the Committee shall provide for the crediting or payment of
Dividend Equivalents during the deferral period.

8.5
Voting
Rights.

During
the Restricted Period, Participants holding shares of Restricted Stock may
exercise full voting rights with respect to those shares, unless otherwise
specified in the applicable Award Agreement.

8.6
Dividends
and Other Distributions.

During
the Restricted Period, Participants holding shares of Restricted Stock or
Restricted Stock Units shall be entitled to receive all dividends and other
distributions paid with respect to those shares while they are so held, unless
otherwise specified by the Committee in the applicable Award Agreement. If any
such dividends or distributions are paid in shares of Stock, the shares or, if
applicable, Restricted Stock Units equal to the number of such shares, shall be
subject to the same restrictions on transfer as the shares of Restricted Stock
or Restricted Stock Units with respect to which they were paid.

8.7
Termination
of Employment or Service.

The
disposition of shares of Restricted Stock and/or Restricted Stock Units held by
a Participant at the time of termination of employment or termination of service
as a Director shall be determined in accordance with Article 11.

ARTICLE
9. PERFORMANCE UNITS AND PERFORMANCE SHARES

9.1
Grant
of Performance Units or Performance Shares.

Subject
to the terms and conditions of the Plan, the Committee, at any time and from
time to time, may grant Performance Units or Performance Shares to such
Employees and/or Directors in such amounts and on such terms and conditions as
it shall determine. The Committee shall have complete discretion in determining
the number of Performance Units or Performance Shares granted to each
Participant and the terms and conditions of such Awards, except that the maximum
dollar amount of Performance Units that may be granted to any single Participant
shall be $500,000 during any one calendar year.

9.2
Value
of Performance Units and Performance Shares.

The
Committee shall set Performance Goals over Performance Periods determined in
advance by the Committee. Prior to each grant of Performance Units or
Performance Shares, the Committee shall establish an initial value for each
Performance Unit and an initial number of shares of Stock for each Performance
Share granted to each Participant for that Performance Period. Prior to each
grant of Performance Units or Performance Shares, the Committee also shall set
the 

Performance
Goals that will be used to determine the extent to which the Participant
receives a payment of the value of the Performance Units or number of shares of
Stock for the Performance Shares awarded for such Performance Period. These
goals will be based on the attainment, by the Company or its Subsidiaries, of
one or more certain performance criteria and objectives described in Section
9.8. With respect to each such performance measure utilized during a Performance
Period, the Committee shall assign percentages to various levels of performance,
which shall be applied to determine the extent to which the Participant shall
receive a payout of the values of Performance Units and number of Performance
Shares awarded.

9.3
Payment
of Performance Units and Performance Shares.

After a
Performance Period has ended, the holder of a Performance Unit or Performance
Share shall be entitled to receive its value as determined by the Committee. The
Committee shall make this determination by first determining the extent to which
the Performance Goals set pursuant to Section 9.2 have been met. It will then
determine the applicable percentage to be applied to, and will apply such
percentage to, the value of Performance Units or number of Performance Shares to
determine the payout to be received by the Participant. In addition, with
respect to Performance Units and Performance Shares granted to any Covered
Employee, no payout shall be made except upon written certification by the
Committee that the applicable performance Goal or Goals have been satisfied to a
particular extent.

9.4
Committee
Discretion to Adjust Awards.

Subject
to limitations applicable to payments to Covered Employees, the Committee shall
have the authority to modify, amend or adjust the terms and conditions of any
Award of Performance Units or Performance Shares, at any time or from time to
time, including, without limitation, the Performance Goals.

9.5
Form
and Timing of Payment.

The
payment described in Section 9.3 shall be made in cash, Stock, or a combination
of cash and Stock as determined by the Committee. Payment may be made in a lump
sum or installments as prescribed by the Committee. If any payment is to be made
on a deferred basis pursuant to Section 13.6, the Committee shall provide for
the crediting or payment of Dividend Equivalents or interest during the deferral
period.

9.6
Termination
of Employment or Service.

The
disposition of Performance Shares and Performance Units held by a Participant at
the time of termination of such Participant's employment or termination of
service as a Director shall be determined in accordance with Article
11.

9.7
Non-Transferability.

Performance
Units and Performance Shares may not be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by Will or by the laws of
descent and distribution until termination of the applicable Performance Period.
All rights with respect to Performance Units and Performance Shares granted to a
Participant under the Plan shall be exercisable during the Participant's
lifetime only by the Participant.

9.8
Performance
Goals.

(a) For
purposes of the Plan, including, without limitation, Awards of Performance
Shares and Performance Units and other performance-based Awards, “Performance
Goals” means the criteria and objectives, determined by the Committee, which
shall be satisfied or met during the applicable Restricted Period or Performance
Period, as the case may be, as a condition to the Participant's receipt of
shares of Stock, Restricted Stock Units, or cash with respect to such
Award.

(b) The
criteria or objectives for an Award shall be determined by the Committee in
writing; shall be measured for achievement or satisfaction during the Restricted
Period or Performance Period which the Committee established for such
Participant to satisfy or achieve such criteria and objectives; may be absolute
in their terms or measured against or in relationship to other companies
comparably, similarly or otherwise situated or other external or internal
measure; and may be based on or adjusted for any other objective goals, events,
or occurrences established by the Committee; provided, however, that such
criteria and objectives relate to one or more of the following:

	
      
	
      total
      shareholder return, earnings, earnings per share, net income, revenues,
      expenses, market share, customer satisfaction measures, customer
      profitability measures, charge-offs, loan loss reserves, non-performing
      assets, return on assets, return on equity, return on tangible equity, one
      or more operating ratios, assets, deposits, loans, asset quality levels,
      interest-sensitivity gap levels, Fair Market Value, value of assets,
      investments, regulatory compliance, satisfactory internal or external
      audits, achievement of balance sheet or income statement objectives, or
      achievement of mergers, acquisitions or similar business
      transactions.

(c)
Performance criteria and objectives may include or exclude extraordinary
charges, losses from discontinued operations, restatements and accounting
changes and other unplanned special charges such as restructuring expenses,
acquisitions, acquisition expenses, including expenses related to goodwill and
other intangible assets, stock offerings, stock repurchases and loan loss
provisions. Such performance criteria and objectives may be particular to a
business or operating segment, line of business, Subsidiary or other unit or the
Company generally, and may, but need not be, based upon a change or an increase
or positive result.

 

(d) In
interpreting Plan provisions applicable to performance criteria and objectives
and to performance-based Awards to Participants who are Covered Employees, it is
the intent of the Plan to conform with the standards of Section 162(m) of
the Code and the regulations thereunder. The Committee in establishing
performance criteria and objectives applicable to such performance-based Awards,
and in interpreting the Plan, shall be guided by such standards, including,
without limitation, providing that the performance-based Award shall be paid,
vested or otherwise delivered solely as a function of attainment of objective
performance criteria and objectives based on one or more of the specific
criteria and objectives set forth in this Section 9.8 established by the
Committee not later than 90 days after the Performance Period or Restricted
Period applicable to the Award has commenced (or, if such period of service is
less than one year, not later than the date on which 25% of such period has
elapsed). Prior to the payment of any compensation based on achievement of
performance criteria and objectives to any such Covered Employee, the Committee
must certify in writing the extent to which the applicable performance criteria
and objectives were, in fact, achieved and the amounts to be paid, vested or
delivered as a result of such achievement, provided the Committee may reduce,
but not increase, such amount.

ARTICLE
10. OTHER INCENTIVE AWARDS

10.1
Grant
of Other Incentive Awards.

Subject
to the terms and conditions of the Plan, the Committee may, at any time and from
time to time, grant Other Incentive Awards to such Employees and/or Directors in
such amounts and on such terms and conditions as it shall determine. Other
Incentive Awards include without limitation:

(a)
Dividend
or Dividend Equivalent Right. A
right to receive dividends or their equivalent in value in shares of Stock, cash
or in a combination of both, with respect to any new or previously existing
Award.

(b)
Stock
Award. An
unrestricted transfer of ownership of shares of Stock.

(c)
Cash
Award. An
award denominated in cash, subject to the achievement of Performance Goals
during a Performance Period, or that may be earned under a Company or Subsidiary
bonus or incentive plan or program.

(d)
Other
Incentive Awards. Other
Incentive Awards that are related to or serve a similar function to those Awards
set forth in this Section 10.1.

10.2
Terms
of Other Incentive Awards.

Other
Incentive Awards may be made in tandem with, in replacement of, or as
alternatives to, Awards under Articles 6, 7, 8 or 9 of the Plan or of any other
incentive or employee benefit plan of the Company or any of its subsidiaries. An
Other Incentive Award may provide for payment in cash or in shares of Stock or a
combination thereof.

10.3
Limitations.

The
number of shares of Stock covered by any Other Incentive Awards granted to a
Participant during a calendar year shall be taken into account for purposes of
the annual limitation set forth in Section 4.1(d)(iii). The dollar amount
covered by any Cash Award or Other Incentive Award granted to a Participant
during a calendar year shall be taken into account for purposes of the annual
limitation set forth in Section 9.1.

10.4
Termination
of Employment or Service.

The
disposition of Other Incentive Awards held by a Participant at the time of
termination of employment or termination of service as a Director shall be
determined in accordance with Article 11.

ARTICLE
11. TERMINATION OF EMPLOYMENT OR SERVICES

11.1
Voluntary
Termination, Termination for Cause, or Other Termination Not Due to Death,
Disability or Retirement.

Subject
to Section 11.3, if a Participant voluntarily terminates employment not
qualifying as Retirement, or if the Company or a Subsidiary terminates a
Participant's employment for Cause, or if a Participant's service as a Director
terminates for any reason other than death, Disability or
Retirement:

(a)
Each SAR and Option may be exercised on or before the earlier of the expiration
date of the SAR or Option or three months following the date of termination,
except that any SAR and/or Option held by an Employee who is terminated for
Cause shall immediately lapse and be cancelled;

(b) Any
shares of Restricted Stock or Restricted Stock Unit, still subject to
restrictions as of the date of such termination, shall automatically be
forfeited and returned to the Company or cancelled, as applicable;

(c) All
Performance Units and Performance Shares shall be forfeited and no payment shall
be made with respect thereto; and

(d) No
amounts shall be earned or payable under any Other Incentive Award, except as
may be otherwise determined by the Committee.

11.2
Involuntary
Termination Not for Cause or Termination Due to Death, Disability or
Retirement.

Subject
to Section 11.3, if the Company or a Subsidiary terminates a Participant's
employment not for Cause, or if a Participant's employment or a Participant's
service as a Director terminates due to death, Disability or
Retirement:

(a)
Each SAR and Option held by the Participant (whether or not exercisable prior to
the date of termination) may be exercised on or before the earlier of the
expiration date of the SAR or Option or five years following the date of
termination;

(b) Any
remaining Restricted Period applicable to shares of Restricted Stock or
Restricted Stock Units under Section 8.2 shall automatically terminate, and the
shares of Restricted Stock shall thereby be free of restrictions and be fully
transferable, and distribution of shares with respect to Restricted Stock Units
shall occur pursuant to Section 8.4;

(c)
Each Performance Unit or Performance Share held by the Participant shall be
deemed earned on a pro-rated basis and a pro-rated payment based on the
Participant's number of full months of service during the Performance Period,
further adjusted based on the achievement of the Performance Goals during the
entire Performance Period, as computed by the Committee, shall be made at the
time payments are made to Participants who did not terminate service during the
Performance Period; and

(d) No
amounts shall be earned or payable under any Other Incentive Award, except as
may be otherwise determined by the Committee.

11.3
Effect
of Termination of Employment or Service.

The
disposition of each Award held by a Participant if there is a termination of the
Participant's employment or a termination of the Participant's service as a
Director shall be as determined by the Committee and set forth in the applicable
Award Agreement or in any amendment or modification of an Award Agreement, which
disposition may differ from the provisions of Sections 11.1 and 11.2. To the
extent the applicable Award Agreement or an amendment or modification of an
Award Agreement does not expressly provide for such disposition, the disposition
of the Award shall be determined in accordance with Sections 11.1 and
11.2.

ARTICLE
12. BENEFICIARY DESIGNATION

Each
Participant may, from time to time, name any beneficiary or beneficiaries (who
may be named contingently or successively and who may include a trustee under a
Will or living trust) to whom any benefit under the Plan is to be paid in case
of the Participant's death before receipt of any or all of such benefit. Each
designation will revoke all prior designations by the same Participant, shall be
in a form prescribed by the Committee, and will be effective only when filed by
the Participant in writing with the Committee during his lifetime. In the
absence of any such designation or if all designated beneficiaries predecease
the Participant, benefits remaining unpaid at the Participant's death shall be
paid to the Participant's estate.

ARTICLE
13. RIGHTS OF PARTICIPANTS

13.1
Employment
or Service.

Nothing
in the Plan shall interfere with or limit in any way the right of the Company or
any of its Subsidiaries to terminate any Participant's employment or service as
a Director at any time, nor confer upon any Participant any right to continue in
the employ or to so serve as a Director of the Company or any of its
Subsidiaries.

13.2
Participation.

No
Employee or Director shall have a right to be selected as a Participant, or,
having been so selected one or more times, to be selected again as a
Participant.

13.3
No
Implied Rights; Rights on Termination of Service.

Neither
the establishment of the Plan nor any amendment to the Plan shall be construed
as giving any Participant, beneficiary, or any other person any legal or
equitable right unless such right shall be specifically provided for in the Plan
or conferred by specific action of the Committee in accordance with the terms
and conditions of the Plan. Except as expressly provided in the Plan, neither
the Company nor any of its Subsidiaries shall be required or be liable to make
any payment under the Plan.

13.4
No
Right to Company Assets.

No
Participant nor any other person shall acquire, by reason of the Plan, any right
in or title to any assets, funds or property of the Company or any of its
Subsidiaries whatsoever including, without limitation, any specific funds,
assets, or other property which the Company or any of its Subsidiaries, in its
sole discretion, may set aside in anticipation of a liability under any Award.
Any benefits which become payable under any Award shall be paid from the general
assets of the Company or the applicable Subsidiary.
The Participant shall have only a contractual right to the amounts, if any,
payable to the Participant, unsecured by any asset of the Company or any of its
Subsidiaries. Nothing contained in the Plan constitutes a guarantee by the
Company or any of its Subsidiaries that the assets of the Company or the
applicable Subsidiary shall be sufficient to pay any benefit to any
person.

13.5
Rights
as Shareholder; Fractional Shares.

Except
as otherwise provided under the Plan, a Participant or Beneficiary shall have no
rights as a holder of shares of Stock with respect to any Award unless and until
shares are issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company). Fractional
shares shall not be issued or transferred under an Award, but the Committee may
authorize payment of cash in lieu of a fraction, or round the fraction down. To
the extent the shares of Stock are uncertificated, references in the Plan to
certificates shall be deemed to include references to any book-entry evidencing
such shares.

13.6
Election
to Defer.

The
receipt of payment of cash or delivery of shares of Stock that would otherwise
be due to a Participant pursuant to an Award may be deferred at the election of
the Participant pursuant to any applicable deferral plan that may be established
by the Company or a Subsidiary. Such deferrals shall be made in accordance with
such rules and procedures as the Committee may establish under the Plan or under
the applicable deferral plan.

13.7
Other
Restrictions and Limitations.

The
Committee may impose such restrictions and limitations on any Awards as it may
deem advisable, including, without limitation, restrictions under applicable
Federal or state securities laws, under the requirements of Nasdaq or any stock
exchange on which the Stock is then listed, Stock ownership or holding period
requirements, or requirements to enter into or to comply with confidentiality,
non-competition and/or other restrictive or similar covenants, and may place
restrictive legends on certificates representing shares of Stock issued in
connection with an Award and/or issue stop transfer orders with respect to such
shares to give appropriate notice of any such restrictions.

ARTICLE
14. CHANGE IN CONTROL

14.1
Stock-Based
Awards.

Notwithstanding
any other provisions of the Plan, and except as otherwise provided in an Award
Agreement, if there is a Change in Control, all Stock-based Awards shall
immediately vest 100% in each Participant, including Incentive Stock Options,
Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock and
Restricted Stock Units.

 

14.2
Performance-Based
Awards.

Notwithstanding
any other provisions of the Plan, and except as otherwise provided in an Award
Agreement, if there is a Change in Control, all Awards granted under the Plan
which are subject to Performance Goals shall be immediately paid out, including
Performance Units and Performance Shares. The amount of the payout shall be
based on the higher of (i) the extent, as determined by the Committee, to which
Performance Goals, established for the Performance Period then in progress have
been met up through and including the effective date of the Change in Control;
or (ii) 100% of the value on the date of grant of the Performance Units or
number of Performance Shares.

ARTICLE
15. AMENDMENT, MODIFICATION, AND TERMINATION

15.1
Amendment,
Modification and Termination of Plan.

The
Board may terminate the Plan in whole or in part at any time. The Board may
amend or modify the Plan from time to time in such respects as the Board may
deem advisable in order that any Awards shall conform to any change in
applicable laws or regulations or in any other respect the Board may deem to be
in the best interests of the Company; provided, however, that no such amendment
or modification shall, without shareholder approval:

(i)
Except as provided in Section 4.2, increase the number of shares of Stock which
may be issued under the Plan;

(ii)
Expand the types of Awards available to Participants under the
Plan;

(iii)
Materially expand the class of persons eligible to participate in the
Plan;

(iv)
Delete or limit the provisions in Section 6.3 prohibiting the repricing of
Options or reduce the price at which shares of Stock may be offered under
Options; or

(v)
Extend the termination date for making Awards under the Plan.

In
addition, the Plan shall not be amended without approval of such amendment by
the Company's shareholders if such amendment is required under (1) the rules and
regulations of Nasdaq or any stock exchange on which the Stock is then listed,
or (2) other applicable law, rules or regulations.

15.2
Amendment
or Modification of Awards.

The
Committee may amend or modify any outstanding Awards in any manner to the extent
that the Committee would have had the authority under the Plan initially to make
such Award as so modified or amended, including, without limitation, to change
the date or dates as of which Awards may be exercised, to remove the
restrictions on Awards, or to modify the manner in which Awards are determined
and paid.

15.3
Effect
on Outstanding Awards.

No
amendment, modification or termination of the Plan pursuant to Section 15.1, or
amendment or modification of an Award pursuant to Section 15.2, shall materially
adversely alter or impair any outstanding Award without the consent of the
Participant affected thereby.

ARTICLE
16. WITHHOLDING

16.1
Tax
Withholding.

The
Company and any of its Subsidiaries shall have the power and the right to deduct
or withhold, or require a Participant to remit to the Company or any of its
Subsidiaries, an amount sufficient to satisfy Federal, state and local taxes
(including the Participant's FICA obligation) required by law to be withheld
with respect to any grant, exercise, or payment made under or as a result of the
Plan.

16.2
Stock
Delivery or Withholding.

With
respect to tax withholdings required upon the exercise of Options or SARs, upon
the lapse of restrictions on Restricted Stock or Restricted Stock Units, or upon
any other taxable event arising as a result of Awards, Participants may elect to
satisfy the withholding requirement, in whole or in part, by having the Company
withhold from delivery shares of Stock having a Fair Market Value on the date
the tax is to be determined equal to the minimum statutory total tax which would
be imposed on the transaction (or such greater amount as the Committee may
permit). All such elections shall be irrevocable, made in writing, signed by the
Participant, and shall be subject to any restrictions or limitations that the
Committee, in its sole discretion, deems appropriate. Stock withholding
elections made by Participants who are subject to the short-swing profit
restrictions of Section 16 of the Exchange Act must comply with any additional
restrictions of Section 16 and Rule 16b-3 that may apply to such
elections.

ARTICLE
17. SUCCESSORS

All
obligations of the Company under the Plan and under all Awards shall be binding
on any successor to the Company, whether the existence of such successor is the
result of a direct or indirect purchase, merger, consolidation or other
acquisition of all or substantially all of the business and/or assets of the
Company.

ARTICLE
18. GOVERNING LAW

18.1 Requirements
of Law. The
granting of Awards and the issuance of shares of Stock under the Plan shall be
subject to all applicable laws, rules, and regulations, and to such approvals by
any governmental agencies or national securities exchanges as may be
required.

18.2 Governing
Law. The
Plan, and all Award Agreements, shall be construed in accordance with and
governed by the laws of the Commonwealth of Pennsylvania.

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