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                                                                    EXHIBIT 10.3
                                DOVER CORPORATION
                        1995 INCENTIVE STOCK OPTION PLAN
                                       AND
                          1995 CASH PERFORMANCE PROGRAM
                         (AS AMENDED FEBRUARY 10, 2000)

                             A. PURPOSE AND SCOPE OF
                                PLAN AND PROGRAM

         1. Purpose. The 1995 Incentive Stock Option Plan (the "Plan") and 1995
Cash Performance Program (the "Program") are intended to promote the long-term
success of Dover Corporation by providing salaried officers and other key
employees of Dover Corporation and its subsidiaries, on whom major
responsibility for the present and future success of Dover Corporation rests,
with a long-range inducement to remain with the organization and to encourage
them to increase their efforts to make Dover Corporation successful. The term
"Corporation" shall mean Dover Corporation and any present or future corporation
which is or would be a "subsidiary corporation" of Dover Corporation as defined
in Section 424 of the Internal Revenue Code of 1986, as amended (the "Code"),
unless the context requires otherwise.

         2. Successor Plan and Program. The Plan and the Program are successors
to the 1984 Incentive Stock Option Plan and Cash Performance Program
(hereinafter the "Predecessor Plans"). No further grants of options or incentive
awards may be made under the Predecessor Plans. Options and incentive awards
under the Predecessor Plans shall be administered pursuant to the provisions of
those respective Plans.

         3. Administration. The Plan and the Program shall be administered and
interpreted by the Compensation Committee (or such other Committee of the Board
of Directors as the Board may designate if there is no Compensation Committee;
hereinafter the "Committee"), consisting of not less than three persons
appointed by the Board of Directors of the Corporation from among its members. A
person may serve as a Committee member provided he or she shall comply in all
respects with any qualifications required by law, including specifically being a
"disinterested person" for purposes of the rules promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and an
"outside director" for purposes of Section 162(m) of the Code. The Committee
will have sole and complete authority to administer all aspects of the Plan and
the Program, including but not limited to: (a) determining the individuals
eligible to receive options and restricted stock under the Plan and/or to
participate in the Program; (b) granting options, restricted stock and
participations; (c) determining the number of options and the amount of
restricted stock and participations to be granted to any such eligible
individuals at any time or from time to time; (d) determining the terms and
conditions under which grants and participations will be made; and (e)
determining whether objectives and conditions for performance bonuses have been
met. The Committee may, subject to the provisions of the Plan and Program, from
time to time establish such rules and regulations as it deems appropriate for
the proper administration of the Plan and the Program. The Committee's decisions
shall be final, conclusive and binding with respect to the interpretation and
administration of the Plan and the Program and any grants or awards made
thereunder.

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         4. Eligibility. Grants may be made to any employee of the Corporation
who is a salaried officer or other key employee, including salaried members of
the Board of Directors (hereinafter sometimes referred to as "participants").
The Committee shall select the participants eligible and determine the terms of
the grants and participations to each.

         5. Shares Available for Grant. 20,000,000 shares of Common Stock of
Dover Corporation (the "Common Stock") will be reserved for issuance upon
exercise of options to purchase Common Stock granted under the Plan, which
options may be granted at any time prior to January 30, 2005, and for awards of
restricted stock. These maximum numbers are subject to appropriate adjustment
resulting from future stock splits, stock dividends, recapitalizations,
reorganizations and other similar changes to be computed in the same manner as
that provided for in Paragraph 14 below. If any option or award of restricted
stock granted under the Plan expires, terminates or is canceled for any reason
without having been exercised in full, the number of unpurchased shares under
such option or restricted stock under such award will again be available for the
purpose of the Plan.

                             B. STOCK OPTION AWARDS

         6. Stock Options. Options granted under the terms of this Plan shall be
designated as either "non-qualified" stock options or "incentive" stock options
within the meaning of Section 422 of the Code, and shall contain such terms and
conditions as the Committee may from time to time determine, subject to the
following limitations:

                 (a) Option Price. The fair market value of a share of Common
Stock on the date the option is granted shall be determined in good faith by the
Committee on the basis of such considerations as the Committee deems appropriate
from time to time, including, but not limited to, such factors as the closing
price for a share of Common Stock on such day (or, if such day is not a trading
day, on the next trading day) on the New York Stock Exchange (the "Exchange"),
the average of the closing bid and asked prices for a share of Common Stock on
the Exchange on the date the option is granted by the Committee or the average
of the high and low sales price of a share of Common Stock on the Exchange on
the date the option is granted by the Committee. The Committee shall be
authorized, in its discretion, to round the fair market value of a share of
Common Stock to the nearest whole number or quarterly fraction thereof.

                 (b) Option Exercise Period. The term of each option will be for
such period as the Committee may determine, but in no event may an option be
exercised more than 10 years following the granting thereof.

                 (c) Rights of Option Holder. A recipient of stock options shall
have no rights as a stockholder with respect to any shares issuable or
transferable upon exercise thereof until the date of issuance of a stock
certificate for such shares. Except as specifically set forth in Paragraph 14
below, no adjustment shall be made for dividends or other distributions of cash
or other property on or with respect to shares of stock covered by these options
paid or payable to holders of record prior to such issuance.

                 (d) Limits on Individuals. Options on a maximum number of
600,000 shares may be granted each year to a single participant. The aggregate
fair market value (determined on the date of grant) of Common Stock with respect
to which a participant is granted incentive stock

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options (including incentive stock options granted under any Predecessor Plan)
which first become exercisable during any given calendar year shall not exceed
$100,000.

         7. Exercise of Option. Stock options may be exercised at such time or
times and subject to such terms and conditions as the Committee shall determine
and are specified in the option instrument, not inconsistent with the terms of
the Plan; provided, however, that except as set forth in Paragraphs 11 and 14,
no option may be exercised prior to the third anniversary of such Option grant
and any partial exercise of an option shall be for not less than 500 shares. To
exercise an option, the option holder must give written notice to the
Corporation of the number of shares to be purchased accompanied by payment of
the full purchase price of such shares as set forth in Paragraph 8. The date of
actual receipt by the Corporation of such notice and payment shall be deemed the
date of exercise of the option with respect to the shares being purchased and
the stock certificates therefor shall be issued as soon as practicable
thereafter. The shares to be issued upon exercise of an option will be either
treasury or authorized and unissued stock, in the sole discretion of the
Corporation.

         8. Payment. Payment of the option exercise price must be made in full
at the time of exercise (a) by check made payable to the Corporation, (b) if
available, through the Loan Program (as hereinafter described), (c) by transfer
to the Corporation of shares of Common Stock owned by the participant or (d)
with a combination of the foregoing. If payment is made by the transfer of
shares, the value per share of the shares so transferred to the Corporation to
be credited toward the purchase price will be the average between the high and
the low sales price per share of Common Stock on the Exchange on the date the
option is exercised or, if no sales have occurred on that date, such value will
be the closing price per share on the Exchange on the next trading day following
the exercise of the option. The shares transferred to Dover will be added to the
Corporation's treasury shares or canceled and become authorized and unissued
shares.

         9. Option Transfers. The options granted under the Plan may not be
sold, transferred, hypothecated, pledged or otherwise disposed of by any of the
holders except by will or by the laws of descent and distribution, or as
otherwise provided herein. The option of any person to acquire stock and all
rights thereunder shall terminate immediately if the holder attempts to or does
sell, assign, transfer, pledge, hypothecate or otherwise dispose of the option
or any rights thereunder to any other person except as permitted herein.
Notwithstanding the foregoing, a participant may transfer any non-qualified
option granted under this Plan to members of the holder's immediate family
(defined as a spouse, children and/or grandchildren), or to one or more trusts
for the benefit of such family members if the instrument evidencing such option
expressly so provides and the option holder does not receive any consideration
for the transfer; provided that any such transferred option shall continue to be
subject to the same terms and conditions that were applicable to such option
immediately prior to its transfer (except that such transferred option shall not
be further transferred by the transferee during the transferee's lifetime).

         10. Registration. The Corporation will stamp stock certificates
delivered to the stockholder with an appropriate legend if the shares are not
registered under the Securities Act of 1933, as amended (the "Act"), or are
otherwise not free to be transferred by the holder and will issue appropriate
stop-order instructions to the transfer agent for the Common Stock, if and to
the extent such stamping or instructions may then be required by the Act or by
any rule or regulation of the Securities and Exchange Commission issued pursuant
to the Act.

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         11. Effect of Death, or Permanent Disability or Retirement. If an
option holder dies or becomes permanently disabled while employed by the
Corporation, the option holder or such holder's estate or the legatees or
distributees of such holder's estate or of the option, as the case may be, shall
have the right, on or before the earlier of the expiration date of the option or
sixty (60) months following the date of such death or permanent disability, to
purchase under the option the number of shares, if any, which the option holder
was entitled to purchase as of such date of death or permanent disability. If an
option holder retires at or after age 65 (or at an earlier retirement date
approved by the Committee and subject to the provisions of Paragraph 37 below),
the option holder shall have the right, on or before the earlier of the
expiration date of the option or sixty (60) months following the date of such
retirement, to purchase shares under any options which at retirement are, or
within sixty (60) months following retirement would become, exercisable.

         12. Voluntary or Involuntary Termination. If any option holder's
employment with the Corporation is voluntarily or involuntarily terminated for
any reason, other than for reasons specified above or for "cause" (as defined
below), the option holder shall have the right to purchase under the option the
number of shares, if any, which such holder was entitled to purchase at the time
of such termination at any time on or before the earlier of three (3) months
following the effective date of such termination of employment or the expiration
date of the option.

         13. Termination for Cause. If an option holder's employment with the
Corporation is terminated for cause (defined as (a) a felony conviction of the
option holder; (b) the commission by the option holder of an act of fraud or
embezzlement against the Corporation; or (c) the option holder's willful
misconduct or gross negligence materially detrimental to the Corporation), the
option shall be canceled and the holder shall have no further rights to exercise
any such option and all of such holder's rights thereunder shall terminate as of
the effective date of termination of employment.

         14. Effect of Stock Dividends, Merger, Recapitalization or
Reorganization or Similar Events. If any Common Stock dividend is paid by the
Corporation, if any non-cash distribution is made by the Corporation as respects
its Common Stock, if the shares of Common Stock are split or reclassified, if
the Corporation should be reorganized or consolidated or merged with or into
another corporation, or if all or substantially all the assets of the
Corporation are transferred to any other corporation in a reorganization, each
option holder shall be entitled, upon exercise of such holder's option, to
receive for the same aggregate exercise price the same number and kind of shares
of stock (to the nearest whole number) as he or she would have been entitled to
receive upon the happening of such stock dividend, distribution, stock split,
reclassification, reorganization, consolidation, merger or transfer, if he or
she had been, immediately prior to such event, the holder of such shares.
Outstanding options shall be appropriately amended as to price and other terms
in a manner consistent with the aforementioned adjustment to the shares of
Common Stock subject to the Plan. The Board of Directors shall have the power,
in the event of any disposition of substantially all of the assets of the
Corporation, its dissolution, any merger or consolidation, or the merger or
consolidation of any other corporation into the Corporation, to amend all
outstanding options to permit their exercise prior to the effectiveness of any
such transaction and to terminate such options as of such effectiveness. If the
Board of Directors shall exercise such power, all options outstanding shall be
deemed to have been amended to permit the exercise thereof in whole or in part
by the holder at any time or from time to time as determined by the Board of
Directors prior to the effectiveness of such transaction and such options shall
be deemed to terminate upon such effectiveness.

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         15. Loan Program. Except in unusual circumstances, it is the
Corporation's expectation that shares acquired through the exercise of options
are to be held by participants for the duration of their employment with the
Corporation. In order to help participants finance the exercise of their options
and resulting income taxes, if any, the Corporation may provide for loans to
Plan participants at any time and from time to time after May 1, 1995. If
established by the Board, any loan program will be administered by the Committee
and may apply to all existing unexercised options, with the exception of
incentive options, and/or all future option grants, as the Committee shall
decide. The terms of any loans shall be specified by the Committee, as they may
deem appropriate, provided that the following terms shall apply:

                 (a) The maximum amount of any loan cannot be greater than the
option exercise price of the acquired stock, together with the amount of any
taxes due as a result of such exercise, and in any event cannot exceed the fair
market value of the acquired stock. In the event the participant chooses to
satisfy all or a portion of the option exercise price by surrender, at fair
market value, of other Common Stock already owned by the participant, the
maximum amount of the loan will be reduced by the value of the stock
surrendered.

                 (b) Loans will be evidenced by promissory notes having a term
of not more than ten (10) years, which notes shall be subject to further
extension for additional periods of time not exceeding ten (10) years at each
such extension. Prepayment of loan principal may not be required during the
participant's employment with the Corporation and/or subsidiaries. Repayment in
full must be made within one (1) month of termination of employment; however,
this period is extended to six (6) months if employment ceases due to death,
permanent disability or retirement. Loan prepayment may be made by the
participant at the participant's discretion but, once reduced, the loan may not
be subsequently increased.

                 (c) The Corporation shall have the right to hold as collateral
all stock acquired under a particular option instrument, regardless of the
amount of the loan, until the loan is fully repaid. Such stock will be
registered in the participant's name (or such other name as the Plan permits) so
that the participant may vote the stock and receive the dividends applicable
thereto, provided the loan is current.

                 (d) The participant will be responsible for the full repayment
of the loan, regardless of the value of the stock. However, no additional
collateral for the loan will be required regardless of the fair market value of
the stock.

                 (e) Interest on the loan balance will be due quarterly, in
arrears, and will be at a sufficient rate so as not to result in any imputed
income to the participant under the terms of the Code.

         16. Change of Control. Options and grantees of options shall be subject
to the terms of Paragraph 36 below related to a change of control of the
Corporation.

                           C. RESTRICTED STOCK AWARDS

         17. Grant. Subject to the provisions and as part of the Plan, the
Committee shall have sole and complete discretion and authority to determine the
eligible persons who shall receive

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shares of Common Stock which are subject to certain forfeiture restrictions
during the restriction period and subject to the terms of the Plan ("restricted
stock"). Awards of restricted stock shall contain such terms and conditions as
the Committee may from time to time determine, subject to the following
limitations.

         18. Term of Restriction Period. The Committee may adopt such vesting
schedules, not longer than five (5) years from the date of the award, as it may
deem appropriate with respect to awards of restricted stock and may condition
the lapse of the restrictions applicable to an award upon the attainment by the
Corporation or any subsidiary or division or by the participant of any
performance objectives set by the Committee.

         19. Issuance of Shares. Certificates issued for restricted stock shall
be registered in the name of the participant and deposited by the participant
with the Secretary of the Corporation, together with a stock power endorsed in
blank. Upon lapse of the applicable restriction period, the Corporation shall
deliver such certificates to the participant. In the event that the shares of
restricted stock are forfeited, such shares automatically shall be transferred
back to the Corporation. The Corporation will stamp the stock certificates
delivered to the participant with an appropriate legend if the shares are not
registered under the Act, or are otherwise not free to be transferred by the
participant and will issue appropriate stop-order instructions to the transfer
agent for the Common Stock, if and to the extent such stamping or instructions
may then be required by the Act or by any rule or regulation of the Securities
and Exchange Commission issued pursuant to the Act.

         20. Dividends and Voting Rights. In the discretion of the Committee,
dividends which become payable with respect to restricted stock during the
restriction period will be reinvested in additional shares of restricted stock
for the account of the award recipient, accumulated for later distribution to
vested participants, or distributed to the award recipient as paid. An employee
who receives an award of restricted stock may also in the discretion of the
Committee be entitled, during the restriction period, to exercise voting rights
with respect to such restricted stock.

         21. Nontransferability. Shares of restricted stock may not be sold,
assigned, transferred, pledged or otherwise encumbered and shall not be subject
to execution, attachment, garnishment or other similar legal process, except as
otherwise provided in the applicable award agreement. Upon any attempt to sell,
transfer, assign, pledge, or otherwise encumber or dispose of the restricted
stock contrary to the provisions of the award agreement or the Plan, the
restricted stock shall immediately be forfeited to the Corporation.

         22. Termination of Employment. In the case of a participant's permanent
disability, death, termination of employment by the Corporation other than for
cause (as defined in Paragraph 13 above) or special circumstances, as determined
by the Committee, any restrictions remaining with respect to shares of
restricted stock as of the date of the participant's termination of employment
shall lapse. If the participant's employment with the Corporation is terminated
as a result of the retirement of the participant at or after age 65 (or at an
earlier retirement date approved by the Committee and subject to the provisions
of Paragraph 37 below), the shares of restricted stock shall continue to vest as
if the participant's employment had not terminated until such time as the
remaining restrictions lapse. If a participant's employment with the Corporation
is voluntarily or involuntarily terminated for any other reason during the
restriction period, the shares of restricted stock shall be forfeited.

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         23. Effect of Stock Dividends, Merger, Recapitalization or
Reorganization or Similar Events. In the event of a stock dividend, merger,
recapitalization, reorganization or other transaction described in Paragraph 14
above, the terms and conditions of the restricted stock awards shall be adjusted
in a manner consistent with adjustments made to options granted under the Plan.

         24. Change of Control. Awards of restricted stock and persons who are
awarded restricted stock shall be subject to the terms of Paragraph 36 below.

         25. Cancellation. The Committee may at any time require the
cancellation of any award of restricted stock in consideration of a cash payment
or alternative award under the Plan equal to the fair market value of the
cancelled award of restricted stock.

                           D. CASH PERFORMANCE AWARDS

         26. Awards and Period of Contingency. The Committee may, concurrently
with, or independently of, the granting of an option under the Plan, in its sole
discretion, grant to a participant the opportunity to earn a cash performance
payment, conditional upon the attainment of an objective performance goal during
a performance period. The performance period shall be not less than three fiscal
years of the Corporation, including the year in which the conditional grant is
made. Any performance goal established by the Committee shall include an
objective formula or standard for determining the amount of the performance
payment payable to a participant if the goal is attained. The performance goal
may be fixed by the Committee for the Corporation as a whole or for a subsidiary
or division of the Corporation, depending on the Committee's judgment as to what
is most appropriate for the individual involved, and shall be set by the
Committee before the 90th day after the commencement of the period of services
to which the performance payment relates. Performance goals shall be based on at
least one or more of the following factors which the Committee deems
appropriate, as they apply to the Corporation as a whole or to a subsidiary or a
division: (a) earnings per share, (b) operating earnings, (c) return on equity
and (d) return on investment. The performance goal with respect to a performance
period will be the same for all persons within the same business unit. The
material terms of the performance goals shall be subject to stockholder approval
to the extent provided in regulations promulgated under Section 162(m) of the
Code.

         27. Determination of Payment Amount. The aggregate maximum cash payout
for any business unit within the Corporation or the Corporation as a whole shall
not exceed a fixed percentage of the annual average earnings increase of the
relevant entity during the performance period, such percentages and dollar
amounts to be determined by the Committee annually when performance goals are
established. In no event can an individual receive an annual payment which
exceeds $2 million. A performance payment shall be payable with respect to a
performance period only if the Committee shall have certified that the
applicable performance target has been attained. The Committee shall also have
the power to approve proportional or adjusted payments under the Program to
address situations where participants join the Corporation, or transfer within
the Corporation, during a performance period. The Committee shall have the
discretion to decrease the amount payable upon attainment of the performance
goal (as determined under such formula or standard) to take into account the
effect of any unusual, non-recurring circumstance, but shall have the discretion
to increase the amount payable to take into account any such effect only if such
discretion would not cause such compensation to fail to qualify as "qualified
performance-based compensation" for purposes of Section 162(m) of the Code.

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         28. Effect of Death, Disability or Other Early Termination of
Employment. If the participant in the Program (a) dies, becomes permanently
disabled while employed by the Corporation or terminates employment for any
reason designated by the Committee, subject to the provisions of Paragraph 37
below, as an "approved termination" (other than related to retirement), in each
case before the date of payment or distribution of any final award, or (b)
otherwise ceases to be an employee, whether voluntarily or involuntarily, after
the performance measurement period and before the payment date for any reason
other than termination by the employer for cause, the participant (or the
participant's estate or the legatees or distributees of the participant's
estate, as the case may be) shall be entitled to receive on the payment date the
cash payment which the participant would have earned had the participant then
been an employee of the Corporation multiplied by a fraction, the numerator of
which is the number of months the participant was employed by the Corporation
during the performance measurement period and the denominator of which is the
number of months of the performance measurement period (treating fractional
months as whole months in each case).

         29. Effect of Normal Retirement. If before the date of payment, the
participant retires on or after age 65 years (or at an earlier retirement date
approved by the Committee and subject to the provisions of Paragraph 37 below),
the participant shall be entitled to receive on the payment date the same amount
of cash which the participant would have earned had such participant then been
an employee of the Corporation as of such date.

         30. Effect of Other Termination. If the participant's employment with
the Corporation is terminated for any reason during or after the performance
period and before the payment date other than as set forth in the preceding two
paragraphs, whether such termination be voluntary or involuntary, such
participation shall be canceled and all of the participant's rights under the
grant shall terminate as of the effective date of termination of such
employment.

         31. Change of Control. The terms of a performance goal and each
participant in the Cash Performance Program shall be subject to the terms of
Paragraph 36 below.

                              E. GENERAL PROVISIONS

         32. Legal Compliance. It is the intent of the Corporation that the Plan
comply in all respects with applicable provisions of the Exchange Act, including
Section 16 and Rule 16b-3, so that any grant of options or restricted stock to,
or other transaction by, a participant who is subject to the reporting
requirements of Section 16(a) of the Exchange Act shall not result in
short-swing profits liability under Section 16(b) (except for any transaction
exempted under alternative Exchange Act rules or intended by such participant to
be a non-exempt transaction). It is also the intent of the Corporation that any
compensation income realized in connection with options or restricted stock and
any performance payments made under the Plan and Program constitute
"performance-based compensation" within the meaning of Section 162(m)(4)(C) of
the Code so that any deduction to which the Corporation is entitled in
connection with such compensation will not be subject to the limitations of
Section 162(m)(1) of the Code. Accordingly, if any provision of the Plan or
Program or any agreement relating to an option, grant of restricted stock or
participation does not comply with the requirements of Rule 16b-3 as then
applicable to any such transaction so that such a participant would be subject
to Section 16(b) liability (except for any transaction exempted under
alternative Exchange Act rules or intended by such participant to be a
non-exempt

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transaction), or if any provision of the Plan or Program or any agreement
relating to an option, grant of restricted stock or participation would limit,
under Section 162(m)(1) of the Code, the amount of compensation income to an
optionee or participant that the Corporation would otherwise be entitled to
deduct, such provision shall be construed or deemed amended to the extent
necessary to conform to such requirements, or to eliminate such deductibility
limitation, and the participant shall be deemed to have consented to such
construction or amendment.

         33. Withholding Taxes. The Committee shall make arrangements for the
collection of any Federal, State or local taxes of any kind required to be
withheld with respect to any transactions effected under the Plan or the
Program. The obligations of the Corporation under the Plan and the Program shall
be conditional on satisfaction of such obligations and the Corporation, to the
extent permitted by law, shall have the right to deduct any such taxes from any
payment of any kind otherwise due to a participant.

         34. Effect of Recapitalization or Reorganization. The obligations of
the Corporation with respect to an option or restricted stock granted under the
Plan or a participation under the Program shall be binding upon the Corporation,
its successors or assigns, including any successor or resulting company either
in liquidation or merger of the Corporation into another company owning all the
outstanding voting stock of the Corporation or in any other transaction whether
by merger, consolidation or otherwise under which such succeeding or resulting
company acquires all or substantially all the assets of the Corporation and
assumes all or substantially all its obligations unless options are terminated
in accordance with Paragraph 14.

         35. Employment Rights and Obligations. Neither the granting of any
option or award of restricted stock under the Plan or participation under the
Program nor the provisions related to a change of control of the Corporation (as
defined below) or a Person seeking to effect a change of control of the
Corporation shall alter or otherwise affect the rights of the Corporation to
change any and all the terms and conditions of employment of any participant
including, but not limited to, the right to terminate such participant's
employment.

         36.     Change of Control.

                 (a) Each participant, upon acceptance of a grant of options or
restricted stock or the opportunity to earn a cash performance payment, and as a
condition to such grant, shall be deemed to have agreed that, in the event any
Person begins a tender or exchange offer, circulates a proxy to shareholders, or
takes other steps seeking to effect a change of control of the Corporation (as
defined below), such participant will not voluntarily terminate his or her
employment with the Corporation or with a direct or indirect subsidiary of the
Corporation, as the case may be, and, unless terminated by the Corporation or
such subsidiary, will continue to render services to the Corporation or such
subsidiary until such Person has abandoned or terminated efforts to effect a
change of control.

                 (b)     In the event of a change of control,

                         (i) all options to purchase shares of common stock of
the Corporation shall immediately vest and become exercisable in accordance with
the terms of the appropriate stock option agreement;

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                         (ii) all outstanding restrictions with respect to any
restricted stock shall immediately expire;

                         (iii) with respect to performance awards under the Cash
Performance Program:

                                (A) all performance awards outstanding shall
immediately vest and become immediately due and payable;

                                (B) the performance measurement period of all
performance awards outstanding shall terminate on the last day of the month
prior to the month in which the change of control occurs;

                                (C) the participant shall be entitled to a cash
payment the amount of which shall be determined in accordance with the terms and
conditions of the Program and the appropriate program award agreement, which
amount shall be multiplied by a fraction, the numerator of which is the actual
number of months in the performance measurement period (as determined in
accordance with clause (iii)(B) above) and the denominator of which is 36 (or 48
if the performance measurement period established at the date of grant is four
years or more); and

                                (D) the Continuing Directors (as defined in
Article Fourteenth of the Corporation's Certificate of Incorporation) shall
promptly determine whether the participant is entitled to any performance award,
and any performance award payable shall be paid to the participant promptly but
in no event more than five days after a change of control;

                         (iv) the Continuing Directors shall have the sole and
complete authority and discretion to decide any questions concerning the
application, interpretation or scope of any of the terms and conditions of any
grant or participation under the Plan or the Program, and their decisions shall
be binding and conclusive upon all interested parties; and

                         (v) other than as set forth above, the terms and
conditions of all grants and participations shall remain unchanged.

                  (c) A "change of control" shall be deemed to have taken place
upon the occurrence of any of the following events (capitalized terms are
defined below):

                         (i) any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Corporation (not including in the
securities beneficially owned by such Person any securities acquired directly
from the Corporation or its Affiliates) representing 20% or more of either the
then outstanding shares of common stock of the Corporation or the combined
voting power of the Corporation's then outstanding securities, excluding any
Person who becomes such a Beneficial Owner in connection with a transaction
described in clause (A) of paragraph (iii) below; or

                         (ii) the following individuals cease for any reason to
constitute a majority of the number of directors then serving: individuals who,
on February 1, 1995, constituted the Board and any new director (other than a
director whose initial assumption of office is in connection with an actual or
threatened election contest, including but not limited to a consent
solicitation, relating to

                                       10
<PAGE>   11
the election of directors of the Corporation) whose appointment or election by
the Board or nomination for election by the Corporation's stockholders was
approved or recommended by a vote of at least two-thirds (2/3) of the directors
in office at the time of such approval or recommendation who either were
directors on February 1, 1995 or whose appointment, election or nomination for
election was previously so approved or recommended; or

                         (iii) there is consummated a merger or consolidation of
the Corporation or any direct or indirect subsidiary of the Corporation with any
other corporation, other than (A) any such merger or consolidation after the
consummation of which the voting securities of the Corporation outstanding
immediately prior to such merger or consolidation continue to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity or any parent thereof) at least 50% of the combined voting
power of the voting securities of the Corporation or such surviving entity or
any parent thereof outstanding immediately after such merger or consolidation,
or (B) any such merger or consolidation effected to implement a recapitalization
of the Corporation (or similar transaction) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of securities of the Corporation (not
including in the securities Beneficially Owned by such Person any securities
acquired directly from the Corporation or its Affiliates) representing 20% or
more of either the then outstanding shares of common stock of the Corporation or
the combined voting power of the Corporation's then outstanding securities; or

                         (iv) the stockholders of the Corporation approve a plan
of complete liquidation or dissolution of the Corporation or there is
consummated an agreement for the sale or disposition by the Corporation of all
or substantially all of the Corporation's assets, other than a sale or
disposition by the Corporation of all or substantially all of the Corporation's
assets to an entity, at least 50% of the combined voting power of the voting
securities of which are owned by stockholders of the Corporation in
substantially the same proportions as their ownership of the Corporation
immediately prior to such transaction or series of transactions.

                 (d) For purposes of this Paragraph 36, the following terms
shall have the meanings indicated:

                         (i) "Affiliate" shall have the meaning set forth in
Rule 12b-2 under Section 12 of the Exchange Act.

                         (ii) "Beneficial Owner" shall have the meaning set
forth in Rule 13d-3 under the Exchange Act, except that a Person shall not be
deemed to be the Beneficial Owner of any securities which are properly filed on
a Form 13-G.

                         (iii) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended from time to time.

                         (iv) "Person" shall have the meaning given in Section
3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not include (i) the Corporation or any of
its Affiliates, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Corporation or any of its Affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Corporation in substantially the same proportions as their
ownership of stock of the Corporation.

                                       11
<PAGE>   12
         37. Non-compete. (a) Any approval by the Committee of a participant who
takes early retirement being accorded the same treatment as a participant
retiring at or after age 65, as contemplated in Paragraphs 11, 22 and 29, and
any designation by the Committee of a termination as an "approved termination"
under Paragraph 28(a) shall be subject to the provisions of this Paragraph 37.
Any participant who is the beneficiary of any such approval or designation by
the Committee shall be deemed to have expressly agreed not to compete with the
Corporation or any subsidiary of the Corporation at which such participant was
employed at any time in the three years immediately prior to termination of
employment, as the case may be, in the geographic area in which the Corporation
or such subsidiary actively carried on business at the end of the participant's
employment there, for the period with respect to which such approval or
designation affords the participant enhanced benefits, which period shall be,
(a) with respect to stock options, the additional period allowed the participant
for the vesting and exercise of options outstanding at termination of
employment, (b) with respect to restricted stock, the period remaining after the
participant's termination of employment until the end of the original
restriction period for such restricted stock, and (c) with respect to
performance awards under the Cash Performance Program, the period until the
payment date following the end of the last applicable performance period.

                 (b) In the event that a participant shall fail to comply with
the provisions of this Paragraph 37, the Committee's approval and/or
designation, as applicable, described above shall be automatically rescinded and
the participant shall forfeit the enhanced benefits referred to above and shall
return to the Corporation the economic value theretofore realized by reason of
such benefits as determined by the Committee. If the provision of this Paragraph
37, or the corresponding provisions of a grant, award or participation
agreement, shall be unenforceable as to any participant, the Committee may
rescind any such approval or designation with respect to such participant.

                 (c) If any provision of this Paragraph 37, or the corresponding
provisions of a grant, award or participation agreement, is determined by a
court to be unenforceable because of its scope in terms of geographic area or
duration in time or otherwise, the Corporation and the participant agree that
the court making such determination is specifically authorized to reduce the
duration and/or geographical area and/or other scope of such provision and, in
its reduced form, such provision shall then be enforceable; and in every case
the remainder of this Paragraph 37, or the corresponding provisions of a grant,
award or participation agreement, shall not be affected thereby and shall remain
valid and enforceable, as if such affected provision were not contained herein
or therein.

         38. Interpretation. The Committee shall have the sole and complete
authority and discretion to decide any questions concerning the application,
interpretation or scope of any of the terms and conditions of the Plan and the
Program, of any stock option agreement, loan or restricted stock award agreement
entered into pursuant to the Plan, or of any participation under the Program,
and its decisions shall be binding and conclusive upon all interested parties.

         39. Amendment. Except as expressly provided in the next sentence, the
Board of Directors may amend the Plan or Program in any manner it deems
necessary or appropriate (including any of the terms, conditions or definitions
contained herein), or terminate the Plan and/or Program at any time prior to
January 30, 2005; provided, however, that any such termination will not affect
the validity of any then outstanding options or restricted stock awards
previously granted under the Plan or outstanding participations under the
Program, as the case may be. Without the

                                       12
<PAGE>   13
approval of the Corporation's stockholders, the Board cannot: (a) increase the
maximum number of shares covered by the Plan or change the class of employees
eligible to receive options or restricted stock awards; (b) reduce the option
price below the fair market value of the Common Stock on the date of the option
grant; or (c) extend beyond 120 months from the date of the grant the period
within which an option may be exercised.

         40. Effectiveness, and Termination of Plan. The Plan and the Program
will become effective on the date of their adoption by the Board of Directors,
subject to ratification of the adoption of the Plan and the Program by
affirmative vote of holders of a majority of the issued and outstanding shares
of Common Stock. The Plan and Program will both terminate on January 30, 2005
and no option or restricted stock award grant or participation grant, as the
case may be, may be made on or after such date.

         41. Foreign Jurisdictions. The Committee may adopt, amend, and
terminate such arrangements, not inconsistent with the intent of the Plan and
the Program, as it may deem necessary or desirable to make available tax or
other benefits of the laws of foreign jurisdictions to participants who are
subject to such laws.

         42. Governing Law. The Plan, the Program and all grants, options,
awards and payments made hereunder shall be governed by and interpreted in
accordance with the internal laws of the State of New York, without regard to
conflicts of law principles.

                                       13<PAGE>   1
                                                                    EXHIBIT 10.3

                                SECOND AMENDMENT

          SECOND AMENDMENT (this "Amendment"), dated as of January 28, 1999
among TOWN SPORTS INTERNATIONAL, INC., a New York corporation (the "Borrower"),
the various lending institutions party to the Credit Agreement referred to below
(the "Banks"), and BANKERS TRUST COMPANY, as administrative agent (the
"Administrative Agent"). All capitalized terms used herein and not otherwise
defined shall have the respective meanings provided such terms in the Credit
Agreement referred to below.

                              W I T N E S S E T H :

          WHEREAS, the Borrower, the Banks and the Administrative Agent are
parties to an Amended and Restated Credit Agreement, dated as of October 16,
1997, (the "Credit Agreement"); and,

          WHEREAS, the Banks and the Administrative Agent are willing to amend
the Credit Agreement to permit the Borrower to cause its fiscal year to end on
December 31 of each year;

          NOW, THEREFORE, it is agreed that as of the Second Amendment Effective
Date (as defined below):

          1.     Section 1.08 of the Credit Agreement is hereby amended by
deleting the text "August, November, February and May" appearing in the first
sentence of Section 1.08(d) and replacing such text with "September, December,
March and June".

          2.     Section 7.09 of the Credit Agreement is hereby amended by (i)
deleting Section 7.09 in its entirety and (ii) replacing it with the following
new Section 7.09 as set forth below:

          The Borrower will, for financial reporting and tax purposes, cause (i)
each of its, and each of its Subsidiaries' fiscal years to end on December 31 of
each year and (ii) each of its, and each of its Subsidiaries' fiscal quarters to
end on September 30, December 31, March 31, and June 30 of each year.

          3.     Section 8.09 of the Credit Agreement is hereby amended by (i)
deleting the table appearing therein and (ii) replacing it with the following
new table as set forth below:

<TABLE>
<CAPTION>
          Date                                                 Ratio
          ----                                                 -----
          <S>                                                  <C>
          November 30, 1997                                    1.75:1
          February 28, 1998                                    1.75:1
          May 31, 1998                                         1.75:1
</TABLE>

<PAGE>   2

<TABLE>
          <S>                                                  <C>
          August 31, 1998                                      1.75:1
          November 30, 1998                                    1.8:1
          March 31, 1999                                       1.9:1
          June 30, 1999                                        2.0:1

          September 30, 1999                                   2.0:1
          December 31, 1999                                    2.1:1
          March 31, 2000                                       2.2:1
          June 30, 2000                                        2.3:1

          September 30, 2000                                   2.3:1
          December 31, 2000                                    2.4:1
          March 31, 2001                                       2.4:1
          The Last Day of Each Fiscal Quarter Thereafter       2.5:1
</TABLE>

          4.     Section 8.10 of the Credit Agreement is hereby amended by (i)
deleting the table appearing therein and (ii) replacing it with the following
new table as set forth below:

<TABLE>
<CAPTION>
          Period                                                                Ratio
          ------                                                                -----
          <S>                                                                   <C>
          Effective Date through Fiscal quarter ending November 30, 1998        5:5:1
          November 30, 1998 through December 31, 1998                           5.4:1
          December 31, 1998 through January 31, 1999                            5.3:1
          January 31, 1999 through February 28, 1999                            5.2:1
          February 28, 1999 through March 31, 1999                              5.0:1
          March 31, 1999 through April 30, 1999                                 4.8:1
          April 30, 1999 through May 31, 1999                                   4.6:1

          May 31, 1999 through Fiscal quarter ending September 30, 1999         4.5:1
          Fiscal quarter ending December 31, 1999                               4.2:1
          Fiscal quarter ending March 31, 2000                                  4.1:1
          Fiscal quarter ending June 30, 2000                                   4.0:1

          Fiscal quarter ending September 30, 2000                              3.9:1
          Fiscal quarter ending December 31, 2000                               3.85:1
          Fiscal quarter ending March 31, 2001                                  3.80:1
          Each Fiscal Quarter Thereafter                                        3.75:1
</TABLE>

          5.     In order to induce the Banks to enter into this Second
Amendment, the Borrower hereby represents and warrants that on the Second
Amendment Effective Date, both before and after giving effect to this Second
Amendment and the transactions contemplated hereby, (1) no Default or Event of
Default shall exist and (2) all of the representations and warranties contained
in the Credit Documents shall be true and correct in all material respects,

                                      -2-
<PAGE>   3

with the same effect as though such representations and warranties had been made
on and as of the Second Amendment Effective Date (it being understood that any
representation or warranty made as of a specific date shall be true and correct
in all material respects as of such specific date).

          6.     This Second Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.

          7.     This Second Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which counterparts when executed and delivered shall be an original, but all
of which shall together constitute one and the same instrument. A complete set
of counterparts shall be lodged with the Borrower and the Agent.

          8.     THIS SECOND AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW
OF THE STATE OF NEW YORK.

          9.     This Second Amendment shall become effective as of the date
hereof (the "Second Amendment Effective Date") when the Borrower, the Required
Banks (including each Bank whose Commitment is increased pursuant hereto) and
the Administrative Agent shall have signed a copy hereof (whether the same or
different copies) and shall have delivered (including by way of telecopier) the
same to the Administrative Agent.

                                      -3-
<PAGE>   4

          IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.

Address:

888 Seventh Avenue, 25th Floor              TOWN SPORTS INTERNATIONAL, INC.

New York, New York 10106

Telephone (212) 246-6700

Facsimile:  (212) 246-8422

                                            By /S/ R. G. Pyle
                                               ---------------------------------

                                               Title: Chief Financial Officer

Attention:  Richard Pyle

One Bankers Trust Plaza -34th Floor         BANKERS TRUST COMPANY,

New York, New York 10006                      Individually and as Administrative
                                               Assistant
Telephone: (212) 250-5175

Facsimile (212) 250-7218

                                            By  /S/ Patricia M. Hogan
                                               ---------------------------------

                                                Title: Principal

Attention:  Patricia M. Hogan

565 Fifth Avenue                            BANK OF SCOTLAND

New York, New York 10017

Telephone:  (212) 450-0871

Facsimile:  (212) 557-9460

                                            By: /S/ Annie Chin Tat
                                               ---------------------------------

Attention:  Annie Chin Tat                      Title: Senior Vice President

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