Document:

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                                                                   Exhibit 10.43

                   AMENDMENT NO. 2 TO STOCKHOLDERS AGREEMENT

          AMENDMENT NO. 2 TO STOCKHOLDERS AGREEMENT, dated as of November 19,
1999 (the "Amendment No. 2"), by and among Select Medical Corporation, a
Delaware corporation (the "Company"), the stockholders of the Company whose
names appear in Schedule I annexed hereto (collectively, the "Stockholders"),
amending the Stockholders Agreement dated as of February 5, 1997, as amended on
December 15, 1998 (the "Agreement") by and among the Company and the
Stockholders.

          WHEREAS, the Company and certain of the Stockholders (the "November
1999 Investors") are parties to a Securities Purchase Agreement dated as of
November 19, 1999 (the "Securities Purchase Agreement"), providing, among other
things, for the sale to such November 1999 Investors of an aggregate 1,667,000
shares pursuant to the Securities Purchase Agreement (the "November 1999 Common
Shares") of the Company's Common Stock, par value $.01 (the "Common Stock") and
16,000,000 shares of the Company's Class B Preferred Stock, par value $.01 (the
"Class B Preferred" together with the November 1999 Common, the "November 1999
Shares"); and

          WHEREAS, the Company and the Stockholders entered into the Agreement
in order, among other things, to specify certain rights and obligations of each
of the parties thereto with respect to the shares of Common Stock held by each
of them; and

          WHEREAS, the Agreement may be amended by the written consent of the
Company and the Stockholders; and

          WHEREAS, the Company and the Stockholders now desire to amend the
Agreement in the manner set forth below in order, among other things, to include
the November 1999 Shares as "Stockholder Shares" under the Agreement;

          NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

          Section 1.  Definitions; References. Unless otherwise specifically
                      -----------------------
defined herein, each term used herein which is defined in the Agreement shall
have the meaning assigned to such term in the Agreement. Each reference to
"hereof" "hereunder," "herein," and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Agreement shall from and after the date hereof refer to the
Agreement as amended by this Amendment No. 2.

          Section 2.  Stockholder Shares. For purposes of the Agreement, the
                      ------------------
November 1999 Common Shares shall be deemed to be included in the term "Common
Stock" and the November 1999 Shares shall be deemed to be included in the term
"Stockholder Shares."
<PAGE>

          Section 3.  Amendment to Second Unnumbered Paragraph. The first
                      ----------------------------------------
sentence of the second unnumbered paragraph of the Agreement is hereby amended
to read in its entirety as follows:

          "Certain of the Investors will purchase shares of the Company's Common
     Stock, par value $.01 per share (the "February 1997 Common"), and the
     Company's Class A Preferred Stock (the "Class A Preferred"), pursuant to a
     Purchase Agreement, dated as of February 5, 1997 (the "1997 Purchase
     Agreement"), among the Company and such Investors.  Certain of the
     Investors and the Additional Stockholders (as such term is defined in
     Amendment No. 1 to Stockholders Agreement dated as of December 15, 1998
     among the Company and the parties thereto ("Amendment No. 1")) will also
     purchase shares of the Company's Common Stock, par value $.01 per share
     (the "December 1998 Common") pursuant to a Securities Purchase Agreement,
     dated as of December 15, 1998 (the "1998 Purchase Agreement") among the
     Company, such Investors and the Additional Stockholders.  Certain of the
     Stockholders (as such term is defined in Amendment No. 2 to the
     Stockholders Agreement dated as of December 15, 1998, as amended, among the
     Company and the parties thereto ("Amendment No. 2") will also purchase
     shares of the Company's Common Stock, par value $.01 per share
     (collectively with the February 1997 Common and the December 1998 Common,
     the "Common Stock") and shares of the Company's Class B Preferred Stock,
     par value $.01 per share (the "Class B Preferred") pursuant to a Securities
     Purchase Agreement dated as of November 19, 1999 (the "1999 Purchase
     Agreement" and collectively with the 1997 Purchase Agreement and the 1998
     Purchase Agreement, the "Purchase Agreements" or "Purchase Agreement"),
     among the Company and such Stockholders.

          Section 4.  Amendment to Fourth Unnumbered Paragraph. The fourth
                      ----------------------------------------
unnumbered paragraph of the Agreement is hereby amended to read in its entirety
as follows:

          "The execution and delivery of this Agreement is a condition
     to certain of the Investors' purchase of Common Stock and Class A
     Preferred pursuant to the 1997 Purchase Agreement. The execution
     and delivery of Amendment No. 1 is a condition to the purchase by
     certain of the Investors and the Additional Stockholders of
     Common Stock pursuant to the 1998 Purchase Agreement. The
     execution and delivery of Amendment No. 2 is a condition to the
     purchase by certain Stockholders of Common Stock and Class B
     Preferred pursuant to the 1999 Purchase Agreement."

          Section 5.  Effect of Amendment.  Except as expressly provided in this
                      -------------------
Amendment No. 2, nothing herein shall affect or be deemed to affect any
provisions of the Agreement, and except only to the extent that they may be
varied hereby, all of the terms of the Agreement shall remain unchanged and in
full force and effect.

          Section 6.  Applicable Law. This Amendment No. 2 shall be construed
                      --------------
and enforced in accordance with, and the rights of the parties shall be governed
by, the laws of the State of Delaware without reference to the principles of
conflicts of law.
<PAGE>

          Section 7.  Counterparts.  This Amendment No. 2 may be executed in
                      ------------
counterparts, all of which together shall constitute one agreement binding on
all the parties hereto, notwithstanding that all such parties are not
signatories to the original or the same counterpart.  Each party shall become
bound by this Amendment No. 2 immediately upon affixing such party's signature
hereto.

          IN WITNESS WHEREOF, the Company and the Stockholders have executed
this Amendment No. 2 as of the day and year first above written.

                              SELECT MEDICAL CORPORATION

                              By /s/ Michael E. Tarvin
                                 ----------------------------------
                              Name:  Michael E. Tarvin
                              Title: Vice President

                              STOCKHOLDERS:

                              GOLDER, THOMA, CRESSEY, RAUNER FUND V, L.P.
                              By GTCR V, L.P., General Partner
                              By Golder, Thoma, Cressey, Rauner, Inc., General
                              Partner

                              By /s/ Donald Edwards
                                 ----------------------------------
                              Name:  Donald Edwards
                              Title:

                              WELSH, CARSON, ANDERSON & STOWE VII, L.P.
                              By WCAS VII Partners, L.P., General Partner

                              By /s/ Jonathan Rather
                                 ----------------------------------
                              Name:  Jonathan Rather
                              Title: General Partner

                              John Almeida
                              Bruce K. Anderson
                              Russell L. Carson
                              Anthony J. de Nicola
                              James B. Hoover
<PAGE>

                              Thomas E. McInerney
                              D. Scott Mackesy
                              Robert A. Minicucci
                              Priscilla A. Newman
                              Andrew M. Paul
                              Paul B. Queally
                              Jonathan Rather
                              Rudolph E. Rupert
                              Lawrence B. Sorrel
                              Richard H. Stowe
                              Sanjay Swani
                              Sean Traynor
                              Laura M. VanBuren
                              Patrick J. Welsh

                              By /s/ Jonathan Rather
                                --------------------------
                                     Jonathan Rather
                                     as Attorney-in-Fact

                              DELAWARE CHARTER TRUST CO., AS TRUSTEE FOR THE
                              BENEFIT OF THE IRA ROLLOVER OF JAMES B. HOOVER

                              By /s/ James B. Hoover
                                --------------------------
                              Name:  James B. Hoover
                              Title:

                                /s/   Rocco A. Ortenzio
                                --------------------------
                                      Rocco A. Ortenzio

                                /s/  Robert A. Ortenzio
                                --------------------------
                                     Robert A. Ortenzio

                              ANVERS II, L.P.

                              By /s/ Leopold Swergold
                                --------------------------
                              Name:  Leopold Swergold
                              Title:
<PAGE>

                              GTCR VI EXECUTIVE FUND, L.P.
                              By GTCR Partners VI, L.P., General Partner
                              By GTCR Golder Rauner, L.L.C., General Partner

                              By /s/ Donald Edwards
                                 ----------------------------------
                              Name:
                              Its: Principal

                              GTCR ASSOCIATES VI
                              By GTCR Partners VI, L.P., Managing General
                              Partner
                              By GTCR Golder Rauner, L.L.C., General Partner

                              By /s/ Donald Edwards
                                 ----------------------------------
                              Name:
                              Its: Principal

                                 /s/ Bryan C. Cressey
                                 ----------------------------------
                                          Bryan C. Cressey

                              THOMA CRESSEY FRIENDS FUND VI, L.P.
                              By TC Partners VI, L.P. General Partner
                              By Thoma Cressey Equity Partners, Inc. General
                              Partner

                              By /s/ Bryan C. Cressey
                                 ----------------------------------
                              Name:
                              Title:EXHIBIT 10a(7)

                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

                          2001 LONG-TERM INCENTIVE PLAN

                                                        Amended February 8, 2001

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                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

                          2001 LONG-TERM INCENTIVE PLAN

                                    ARTICLE I

                                     PURPOSE

     Section 1.1 PURPOSES. This Public Service Enterprise Group Incorporated
2001 Long-Term Incentive Plan is intended to advance the interests of the
Company and its Affiliates by affording an incentive to officers and other key
Employees to acquire a proprietary interest in the Company in order to induce
them to exert their maximum efforts toward the Company's success, to remain in
its employ and to more closely align the interests of such key Employees with
the long-term interests of the Company's Stockholders. The Plan is also intended
to attract to the Company and its Affiliates individuals of experience and
ability by providing a more competitive total compensation program.

     Section 1.2 TYPES OF AWARDS. This Plan allows the Company to grant
Non-Qualified Stock Options to officers and key Employees of the Company and its
Affiliates.

                                   ARTICLE II

                                   DEFINITIONS

     When used herein, the words and phrases hereinafter defined shall have the
following meanings unless a different meaning is clearly required by the context
of the Plan:

     Section 2.1 "Affiliate" shall mean any organization which is a member of a
controlled group of corporations (as defined in Code section 414(b) as modified
by Code section 415(h)) which includes the Company, or any trades or businesses
(whether or not incorporated) which are under common control (as defined in Code
section 414(c) as modified by Code section 415(h)) with the Company, or a member
of an affiliated service group (as defined in Code section 414(m)) which
includes the Company, or any other entity required to be aggregated with the
Company pursuant to regulations promulgated pursuant to Code section 414(o).

     Section 2.2 "Board of Directors" shall mean the Board of Directors of the
Company.

     Section 2.3 "Code" shall mean the Internal Revenue Code of 1986, as
amended, or as it may be amended from time to time.

     Section 2.4 "Committee" shall mean the Organization and Compensation
Committee of the Board of Directors, the membership on which shall be limited to
Directors of the Company who are not Employees.

     Section 2.5 "Common Stock" shall mean the Common Stock, without nominal or
par value of the Company.

     Section 2.6 "Company" shall mean Public Service Enterprise Group
Incorporated, a New Jersey corporation, or any successor thereto.

     Section 2.7 "Director" shall mean a member of the Board of Directors.

     Section 2.8 "Disability" shall mean any physical or mental condition that
renders a Participant incapable of performing further work for his or her
employer, as certified in writing by a medical practitioner designated and/or
approved by the Committee.

     Section 2.9 "Employee" shall mean any person not included in a unit of
employees covered by a collective bargaining agreement who is an employee (such
term having its customary meaning) of the Company or a Participating Affiliate,
whether full-time or part-time, and whether or not an officer or director, and
who is receiving remuneration for personal services rendered to the Company or
Participating Affiliate other than (1) solely as a director of the Company or a

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Participating Affiliate, (2) as a temporary employee, (3) as a consultant or (4)
as an independent contractor (regardless of whether a determination is made by
the Internal Revenue Service or other governmental agency or court after the
individual is engaged to perform such services that the individual is an
employee of the Company or Participating Affiliate for the purposes of the Code
or otherwise).

     Section 2.10 "Exchange Act" shall mean the Securities and Exchange Act of
1934, as amended, or as it may be amended from time to time.

     Section 2.11 "Fair Market Value" shall mean, as of a given date, if the
shares of Common Stock are listed as of such date on the NYSE, the closing price
on such date. If the shares are not then listed on the NYSE, and if the shares
of Common Stock are then listed on any other national securities exchange or
traded on the over-the-counter market, the fair market value shall be the
closing price on such exchange or on the NASDAQ National Market System or the
mean of the closing bid and asked prices of the shares of Common Stock on the
over-the-counter market, as reported by the NASDAQ, the National Association of
Securities Dealers OTC Bulletin Board or the National Quotation Bureau, Inc., as
the case may be, on such date or, if there is no closing price or bid or asked
price on that day, the closing price or mean of the closing bid and asked prices
on the most recent day preceding such date for which such prices are available.

     Section 2.12 "NASDAQ" shall mean the National Association of Securities
Dealers Automated Quotation System.

     Section 2.13 "NYSE" shall mean the New York Stock Exchange, Inc.

     Section 2.14 "Option" shall mean a non-qualified stock option, that is, a
stock option which is not intended to qualify as an "incentive stock option" as
that term is defined in Section 422(b) of the Code.

     Section 2.15 "Option Price" shall mean the exercise price for any Options
granted pursuant to the Plan computed in accordance with Section 6.1(b) or
6.1(d), as appropriate.

     Section 2.16 "Participant" shall mean any officer or key Employee of the
Company or an Affiliate who has been granted an Option pursuant to this Plan.

     Section 2.17 "Plan" shall mean this Public Service Enterprise Group
Incorporated 2001 Long-Term Incentive Plan, as it may be amended from
time-to-time.

     Section 2.18 "Purchase Price" shall mean the Option Price times the number
of shares with respect to which an Option is exercised.

     Section 2.19 "Retirement" shall mean the termination of employment by a
Participant other than by reason of his death:

          (a) under circumstances entitling the Participant to an immediately
     payable periodic retirement benefit under any pension plan of his employer,
     or

          (b) at or after age 65.

     Section 2.20 "Securities Act" shall mean the Securities Act of 1933, as
amended, or as it may be amended from time to time.

     Section 2.21 "Share" shall mean a share of Common Stock.

     Section 2.22 "Stockholders" shall mean the holders of Common Stock entitled
to vote in an election of Directors.

                                   ARTICLE III

                           SHARES SUBJECT TO THE PLAN

     Section 3.1 TOTAL SHARES AVAILABLE. The total number of shares of Common
Stock that may be subject to Options granted under the Plan shall be 15,000,000
shares in the aggregate, subject to adjustment as provided in Article VIII.
Shares of Common Stock issued pursuant to this Plan may be either authorized but
unissued shares or shares now or hereafter acquired in the open market by an
agent independent of the Company, as selected by the Company. In the event any
Option

                                        2

<PAGE>

granted under the Plan shall expire or terminate for any reason without having
been exercised in full or shall cease for any reason to be exercisable in whole
or in part, the unpurchased shares subject thereto shall again be available for
the granting of other Options under the Plan.

     Section 3.2 LIMIT ON SHARE GRANTS. In any given year, no Participant may
receive Options under this Plan relating to more than 1,000,000 shares of Common
Stock.

                                   ARTICLE IV

                                   ELIGIBILITY

     Section 4.1 ELIGIBLE RECIPIENTS. Options may be granted from time to time
under the Plan to one or more officers or key Employees of the Company or any
Affiliate.

                                    ARTICLE V

                           ADMINISTRATION OF THE PLAN.

     Section 5.1 COMMITTEE. The Committee shall administer the Plan. No member
of the Committee shall be eligible to participate in the Plan.

     Within the limits of the express provisions of the Plan, the Committee
shall have the authority, subject to such orders or resolutions, not
inconsistent with the provisions of the Plan, as may from time to time be issued
or adopted by the Board of Directors, in its discretion to determine the
individuals to whom, and the time or times at which, Options shall be granted,
the number of shares of Common Stock to be subject to each Option, the
limitations, restrictions and conditions applicable to each Option grant, the
terms and provisions of option agreements that may be entered into in connection
with Options (which need not be identical), to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to the Plan and to make all
other determinations and take all other actions necessary or advisable for the
administration of the Plan.

     In making its determinations relating to Option grants, the Committee may
consult with the chief executive officer of the Company and may take into
account the recommendations of the chief executive officer with respect to
grants made to other Employees. The Committee may also take into account the
nature of the services rendered by such individuals, their present and potential
contributions to the Company's success and such other factors as the Committee,
in its discretion, shall deem relevant.

     The Committee's determinations on the matters regarding this Plan
(including matters referred to in this Section 5.1) shall be conclusive and
shall be binding on the Company, its Stockholders, its Affiliates, all
Participants, all other Employees and all other persons.

     Section 5.2 SECTION 16 OF THE EXCHANGE ACT. Notwithstanding anything
contained herein to the contrary, the Committee shall have the exclusive right
to grant Options to persons subject to Section 16 of the Exchange Act and set
forth the terms and conditions thereof. With respect to persons subject to
Section 16 of the Exchange Act, transactions under the Plan are intended to
comply with all applicable conditions of Rule 16b-3, as amended from time to
time (and its successor provisions, if any), under the Exchange Act. To the
extent any provision of the Plan or action by the Board of Directors or the
Committee fails to so comply, it shall be deemed null and void to the extent
required by law and to the extent deemed advisable by the Board of Directors
and/or the Committee.

     Section 5.3 RETENTION OF ADVISORS. The Committee may retain such counsel,
consultants or advisors as it shall deem necessary or appropriate in the
performance of its duties and may rely upon any opinion or computation received
from any such counsel, consultant or advisor. Expenses incurred by the Committee
in the engagement of such counsel, consultant or advisor shall be paid by the
Company or such Affiliate whose Employees have benefited from the Plan, as
determined by the Committee. The Company shall indemnify members of the
Committee and any agent of the Committee who is an Employee of the Company or an
Affiliate against any and all liabilities or expenses to which they may be
subjected by reason of any act or failure to act with respect to their duties on
behalf of the Plan, except in circumstances involving such person's gross
negligence or willful misconduct.

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                                   ARTICLE VI

                                TERMS OF OPTIONS

     Section 6.1 OPTION PROVISIONS. The Committee may grant Options within the
limits of the express provisions of the Plan. An Option shall enable the
Participant to purchase from the Company, at any time during a specified
exercise period, a specified number of shares of Common Stock at a specified
Option Price. The character and terms of each Option granted under the Plan
shall be determined by the Committee consistent with the provisions of the Plan,
including the following:

          (a) The Option Price of the shares of Common Stock related to all
     Options granted under the Plan shall not be less than the Fair Market Value
     of such shares of Common Stock as of the time such Option is granted.

          (b) The number of shares of Common Stock subject to an Option granted
     to any Participant shall, when combined with any other Options granted to
     such Participant in the same Plan Year, not exceed 1,000,000 shares.

          (c) In no event shall any Option granted under the Plan have an
     expiration date later than ten (10) years from the date of its grant and
     all Options granted under the Plan shall be subject to earlier termination
     as expressly provided in this Article VI.

          (d) Unless otherwise provided in any option agreement under the Plan,
     an Option granted under the Plan shall become exercisable, in whole at any
     time or in part from time to time, but in no case may an Option (i) be
     exercised as to less than one hundred (100) shares of Common Stock at any
     one time, or the remaining shares of Common Stock covered by the Option if
     less than one hundred (100), and (ii) become fully exercisable more than
     ten (10) years from the date of its grant. Except as otherwise provided
     herein, Options shall not be exercisable until one (1) year after the date
     of grant.

          (e) An Option granted under the Plan shall be exercised by the
     delivery by the holder thereof to the Company at its principal office (to
     the attention of the Compensation Manager of PSEG Services Corporation, the
     Company's subsidiary) of written notice of the number of full shares of
     Common Stock with respect to which the Option is being exercised,
     accompanied by payment in full, in cash or by certified or bank check
     payable to the order of the Company, of the Option Price of such shares of
     Common Stock, or, at the discretion of the Committee, by the delivery of
     shares of Common Stock having a Fair Market Value equal to the Option
     Price, or, at the option of the Committee, by a combination of cash and/or
     such shares (subject to the restrictions above) held by a Participant that
     have an exercise value or a Fair Market Value together with such cash that
     shall equal the Option Price. At the discretion of the Committee, the
     Option Price may also be paid in full by a broker-dealer to whom the
     Participant has submitted an exercise notice consisting of a fully endorsed
     Option, or through any other medium of payment as the Committee, in its
     discretion, shall authorize.

          (f) The holder of an Option shall have none of the rights of a
     Stockholder with respect to the shares of Common Stock covered by such
     holder's Option until such shares of Common Stock shall be issued to such
     holder upon the exercise of the Option.

          (g) No Options granted under the Plan shall be transferable otherwise
     than by will or the laws of descent and distribution, and any Option
     granted under the Plan may be exercised during the lifetime of the holder
     thereof only by the holder. No Option granted under the Plan shall be
     subject to execution, attachment or other process.

          (h) Except as otherwise provided herein, the right to exercise an
     Option shall expire when the Participant shall no longer be an Employee of
     the Company or Affiliate.

     Section 6.2 RETIREMENT OR DISABILITY. Except as otherwise provided herein,
upon termination of employment with the Company or an Affiliate on account of
Retirement or Disability, all Options shall become exercisable in full, and any
Participant holding any such Options may exercise such Options at any time
within three (3) years after the date of such termination, subject to the
provisions of Section 6.5. In addition, and anything contained hereto to the
contrary notwithstanding, the term during which a Participant may exercise
Options subsequent to the date of termination may, in the Committee's
discretion, be modified, subject to applicable law and regulation, from the term
specified above, as of the date of grant and as specified in an option agreement
evidencing the grant of Options under the Plan.

       Section 6.3 DEATH. If a Participant dies holding an Option (i) while
employed by the Company or a Affiliate or (ii) within three (3) months after the
termination of such Participant's employment on account of Retirement or
Disability, such

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<PAGE>

Options shall become exercisable in full and, subject to the provisions of
Section 6.5, may be exercised by such Participant's personal representative at
any time within three (3) years after the Participant's death.

     Section 6.4 OTHER TERMINATION OF EMPLOYMENT. In the event that Participant
holding Options terminates employment otherwise than on account of death,
Disability or Retirement, then upon such termination, all such Options shall
expire and be no longer exercisable.

     Section 6.5 NO EXTENSION. An Option may not be exercised pursuant to this
Article VI except to the extent that the Participant holding such Option was
entitled to exercise the Option at the time of termination of employment or
death and, in any event, may not be exercised after the original expiration date
of the Option.

     Section 6.6 CHANGE IN CONTROL.

          (a) Notwithstanding anything in this Plan to the contrary, if a
     Participant's employment is terminated by the Company following a Change in
     Control (as defined below), (i) all outstanding Options shall immediately
     vest and become exercisable in full.

          (b) "Change in Control" shall mean the occurrence of any of the
     following events:

               (i) any "person" (within the meaning of Section 13(d) of the
          Securities Exchange Act of 1934, as amended from time to time (the
          "Act")) is or becomes the beneficial owner within the meaning of Rule
          13d-3 under the Act (a "Beneficial Owner"), directly or indirectly, of
          securities of the Company (not including in the securities
          beneficially owned by such person any securities acquired directly
          from the Company or its affiliates) representing 25% or more of the
          combined voting power of the Company'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 December 15, 1998, constitute the Board of Directors 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 the election of
          directors of the Company) whose appointment or election by the Board
          of Directors or nomination for election by the Company's Stockholders
          was approved or recommended by a vote of at least two-thirds (2/3) of
          the directors then still in office who either were directors on
          December 15, 1998 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
          Company or any direct or indirect wholly owned subsidiary of the
          Company with any other corporation, other than (A) a merger or
          consolidation which would result in the voting securities of the
          Company outstanding immediately prior to such merger or consolidation
          continuing to represent (either by remaining outstanding or by being
          converted into voting securities of the surviving entity or any parent
          thereof), in combination with the ownership of any trustee or other
          fiduciary holding securities under an employee benefit plan of the
          Company or any subsidiary of the Company, at least 75% of the combined
          voting power of the securities of the Company or such surviving entity
          or any parent thereof outstanding immediately after such merger or
          consolidation, or (B) a merger or consolidation effected to implement
          a recapitalization of the Company (or similar transaction) in which no
          person is or becomes the Beneficial Owner, directly or indirectly, of
          securities of the Company representing 25% or more of the combined
          voting power of the Company's then outstanding securities; or

               (iv) the Stockholders of the Company approve a plan of complete
          liquidation or dissolution of the Company or there is consummated an
          agreement for the sale or disposition by the Company of all or
          substantially all of the Company's assets, other than a sale or
          disposition by the Company of all or substantially all of the
          Company's assets to an entity, at least 75% of the combined voting
          power of the voting securities of which are owned by stockholders of
          the Company in substantially the same proportions as their ownership
          of the Company immediately prior to such sale.

               Notwithstanding the foregoing subparagraphs (i), (ii), (iii) and
          (iv), a "Change in Control" shall not be deemed to have occurred by
          virtue of the consummation of any transaction or series of integrated
          transactions immediately following which the record holders of the
          common stock of the Company immediately prior to such transaction or
          series of transactions continue to have substantially the same
          proportionate ownership in an entity

                                        5

<PAGE>

          which owns all or substantially all of the assets of the Company
          immediately following such transaction or series of transactions.

     Section 6.7 VESTING ON ACCOUNT OF DEATH. In addition, and notwithstanding
anything contained herein to the contrary, in the event an Participant dies
during such time as the Participant is employed by the Company or an Affiliate,
then any outstanding Options which have not vested and are not exercisable by
the Participant as of the date of death shall be automatically deemed vested and
exercisable by the Participant's personal representative and/or his legatees in
accordance with Section 6.3.

                                   ARTICLE VII

                                LEAVE OF ABSENCE

     Section 7.1 LEAVES. For the purposes of the Plan, a Participant who is on
military or sick leave or other bona fide leave of absence shall be considered
as remaining in the employ of the Company or of a Affiliate or for ninety (90)
days or such longer period as such Participant's right to reemployment is
guaranteed either by statute or by contract.

                                  ARTICLE VIII

                    ADJUSTMENT UPON CHANGES IN CAPITALIZATION

     Section 8.1 RECAPITALIZATION. In the event that the outstanding shares of
Common Stock are hereafter changed by reason of recapitalization,
reclassification, stock split, combination or exchange of shares of Common Stock
or the like, or by the issuance of dividends payable in shares of Common Stock,
an appropriate adjustment shall be made by the Committee in the aggregate number
of shares of Common Stock available under the Plan, in the number of shares of
Common Stock issuable upon exercise of outstanding Options and the Option Price
per share. In the event of any consolidation or merger of the Company with or
into another company or the conveyance of all or substantially all of the assets
of the Company to another company, each then outstanding Option shall, upon
exercise, thereafter entitle the holder thereof to such number of shares of
Common Stock or other securities or property to which a holder of shares of
Common Stock would have been entitled to upon such consolidation, merger or
conveyance; and, in any such case, appropriate adjustment, as determined by the
Committee, shall be made as set forth above with respect to any future changes
in the capitalization of the Company or its successor entity. In the event of
the proposed dissolution or liquidation of the Company, all outstanding Options
under the Plan will automatically terminate, unless otherwise provided by the
Board or any authorized committee thereof; provided, however, that the Committee
shall give at least 30 days prior written notice of such event to each
Participant during which time he or she shall have a right to exercise his or
her unexercised Options, and, subject to prior expiration as otherwise provided
in this Plan, each such Stock Option shall be exercisable after receipt of such
written notice and prior to the effective date of such transaction.

     Section 8.2 UNEXERCISED OPTIONS. Any adjustment in the number of shares of
Common Stock shall apply proportionately to only the unexercised portion of the
Options granted hereunder. If fractions of shares of Common Stock would result
from any such adjustment, the adjustment shall be revised to the next higher
whole number of shares of Common Stock.

                                   ARTICLE IX

                               FURTHER CONDITIONS

     Section 9.1 REPRESENTATION BY THE PARTICIPANT. Unless the shares of Common
Stock issuable upon the exercise of an Option to be awarded under the Plan have
been registered with the Securities and Exchange Commission under the Securities
Act prior to the exercise of the Option, the Participant receiving such Option
must represent in writing to the Company that such shares of Common Stock are
being acquired for investment purposes only and not with a view towards the
further resale or distribution thereof and must supply to the Company such other
documentation as may be required by

                                        6

<PAGE>

the Company, unless in the opinion of counsel to the Company such
representation, agreement or documentation is not necessary to comply with such
law.

     Section 9.2 EXCHANGE LISTING. The Company shall not be obligated to deliver
any shares of Common Stock until they have been listed on each securities
exchange on which the shares of Common Sock may then be listed or until there
has been qualification under or compliance with such state or federal laws,
rules or regulations as the Company may deem applicable. The Company shall use
reasonable efforts to obtain such listing, qualification and compliance.

     Section 9.3 TAX WITHHOLDING. The Committee may make such provisions and
take such steps as it may deem necessary or appropriate for the withholding of
any taxes that the Company is required by any law or regulation of any
governmental authority, whether federal, state or local, domestic or foreign, to
withhold in connection with the exercise of any Option, including, but not
limited to, (i) the withholding of delivery of shares of Common Stock until the
Participant reimburses the Company for the amount the Company is required to
withhold with respect to such taxes, (ii) the canceling of any number of shares
of Common Stock issuable in an amount sufficient to reimburse the Company for
the amount it is required to so withhold or (iii) withholding the amount due
from any such Participant's wages or other compensation. A Participant may
request that the Company withhold from the shares of Common Stock to be issued
upon exercise of an Option that number of shares having a Fair Market Value
equal to the tax withholding amount due in order to provide for such withholding
tax.

                                    ARTICLE X

                     TERMINATION, MODIFICATION AND AMENDMENT

     Section 10.1 TERMINATION OF PLAN. The Committee or the Board of Directors
may, at any time, terminate the Plan or from time to time make such
modifications or amendments of the Plan it may deem advisable.

     Section 10.2 MODIFICATION OF OUTSTANDING AWARDS. The Committee may amend
the terms of any award granted under the plan, prospectively or retroactively,
but no amendment may impair the rights of any participant without his or her
consent, exceed the limitation provided by Section 3.2 hereof or amend the terms
of any option to reduce the option price. Neither may the Committee, without the
approval of shareholders, cancel any outstanding option and replace it with a
new option with a lower option price, where the economic effect would be the
same as reducing the option price of the cancelled option.

     Section 10.3 EFFECT ON OUTSTANDING AWARDS. No action taken pursuant to
Sections 10.1 or 10.2 may materially and adversely affect the rights of a
Participant under any outstanding Option without the consent of such
Participant.

                                   ARTICLE XI

                           EFFECTIVE DATE OF THE PLAN

     Section 11.1 EFFECTIVE DATE. The effective date of this Plan is January 1,
2001.

                                   ARTICLE XII

                          NOT A CONTRACT OF EMPLOYMENT

     Section 12.1 NO EMPLOYMENT RIGHTS CONFERRED. Nothing contained in the Plan
or in any option agreement executed pursuant hereto shall be deemed to confer
upon any Participant to whom an Option is or may be granted hereunder any right
to remain in the employ of the Company or of an Affiliate or in any way limit
the right of the Company, or of any Affiliate, to terminate the employment of
any Participant or to terminate any other relationship with a Participant.

                                  ARTICLE XIII

                            OTHER COMPENSATION PLANS

     Section 13.1 NO EFFECT ON OTHER PLANS. The adoption of this Plan shall not
affect any other stock option plan, incentive plan or any other compensation
plan in effect for the Company or any Affiliate, nor shall the Plan preclude the

                                        7

<PAGE>

Company or any Affiliate from establishing any other form of stock option plan,
incentive plan or any other compensation plan.

                                   ARTICLE XIV

                                  MISCELLANEOUS

     Section 14.1 NON-ASSIGNABILITY. No grant of any "derivative security" (as
defined by Rule 16a-1(c) under the Exchange Act) made under the Plan or any
rights or interests therein shall be assignable or transferable by a Participant
except by will or the laws of descent and distribution and except to the extent
it is otherwise permissible under the Exchange Act, nor shall any "derivative
security" be subject to execution, attachment or similar process, it being
understood that no grant of any "derivative security" shall be assignable or
transferable pursuant to a domestic relations order. During the lifetime of a
Participant, awards granted hereunder shall be exercisable only by the
Participant or the Participant's guardian or legal representative. Any attempted
assignment, transfer, pledge, hypothecation, other disposition, levy of
attachment or similar process not specifically permitted herein shall be null
and void and without effect.

     Section 14.2 COSTS AND EXPENSES. The costs and expenses of administering
the Plan shall be borne by the Company and its Affiliates and shall not be
charged against any award or to any Participant receiving an award.

     Section 14.3 WRITTEN OPTION AGREEMENT. Notwithstanding anything to the
contrary contained herein, the Company shall be under no obligation to sell or
deliver Common Stock or to make any other payment under this Plan to any
Participant unless and until such Participant shall execute a written option
agreement in form and substance satisfactory to the Committee.

     Section 14.4 NON-COMPETITION. Any option agreement may contain, among other
things, provisions prohibiting Participants from competing with the Company or
any Affiliate in a form or forms acceptable to the Committee, in its sole
discretion.

     Section 14.5 TRANSFER OF EMPLOYMENT. For the purposes hereof, a Participant
shall not be considered as having terminated his/her employment if he/she
transfers employment between the Company and an Affiliate or between Affiliates.

     Section 14.6 GOVERNING LAW. To the extent not preempted by Federal law,
this Plan and actions taken in connection herewith shall be governed and
construed in accordance with the laws of the State of New Jersey without regard
to its Conflicts of Law principles.

     Section 14.7 RULES OF CONSTRUCTION. The captions and section numbers
appearing in this Plan are inserted only as a matter of convenience. They do not
define, limit or describe the scope or intent of the provisions of this Plan. In
this Plan, words in the singular number include the plural and in the plural
include the singular; and words of the masculine gender include the feminine and
the neuter, and when the sense so indicates, words of the neuter gender may
refer to any gender.

     Section 14.8 TIME FOR PERFORMANCE. Whenever the time for payment or
performance hereunder shall fall on a weekend or public holiday, such payment or
performance shall be deemed to be timely if made on the next succeeding business
day; provided, however, that this Section 14.6 shall not be construed to extend
the ten (10) year period referred to in Section 6.1(d).

      Section 14.9 NOTICES. Every direction, revocation or notice authorized or
required by the Plan shall be deemed delivered to the Company (a) on the date it
is personally delivered its principal executive offices to the attention of the
Compensation Manager of PSEG Services Corporation or (b) three business days
after it is sent by registered or certified mail, postage prepaid, addressed to
the Company (attn: Compensation Manager of PSEG Services Corporation) at such
offices; and shall be deemed delivered to a Participant (a) on the date it is
personally delivered to him or her, or (b) three business days after it is sent
by registered or certified mail, postage prepaid, addressed to him or her at the
last address shown for him or her on the records of the Company.

                                        8

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