PENN AMERICA GROUP INC
EXHIBIT 10.10.III
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>paex1010-iii.txt
<DESCRIPTION>EXHIBIT 10.10.III
<TEXT>
                                                               Exhibit 10-10-iii

                            PENN-AMERICA GROUP, INC.

                            1993 STOCK INCENTIVE PLAN

                      (Amended and Restated April 4, 1994)
                             (Amended April 1, 2000)

                   1. Purpose. PENN-AMERICA GROUP, INC. (the "Company") hereby
adopts, subject to shareholder approval, the amended and restated Penn-America
Group, Inc. 1993 Stock Incentive Plan (the "Plan"). The Plan is intended to
recognize the contributions made to the Company by employees of the Company
(including employees who are members of the Board of Directors) or by employees
of any Affiliate (as defined below) and certain consultants or advisors to the
Company or an Affiliate, to provide such persons with additional incentive to
devote themselves to the future success of the Company or an Affiliate, and to
improve the ability of the Company or an Affiliate to attract, retain, and
motivate individuals upon whom the Company's sustained growth and financial
success depend, by providing such persons with an opportunity to acquire or
increase their proprietary interest in the Company through receipt of rights to
acquire the Company's Common Stock, par value $.01 per Share (the "Common
Stock") and through the transfer or issuance of Common Stock subject to
conditions of forfeiture. In addition, the Plan is intended as an additional
incentive to certain directors of the Company who are not employees of the
Company or an Affiliate to serve on the Board of Directors and to devote
themselves to the future success of the Company by providing them with an
opportunity to acquire or increase their proprietary interest in the Company
through the receipt of rights to acquire Common Stock.

                   2. Definitions. Unless the context clearly indicates
otherwise, the following terms shall have the following meanings:

                            (a) "Affiliate" means a corporation which is a
parent corporation or a subsidiary corporation with respect to the Company


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within the meaning of Section 424(e) or (f) of the Code, and in any event, Penn
Independent Corp.

                            (b) "Award" shall mean a grant of Common Stock
subject to conditions of forfeiture made pursuant to the terms of the Plan.

                            (c) "Award Agreement" shall mean the agreement
between the Company and a Grantee with respect to an Award made pursuant to the
Plan.

                            (d) "Awardee" shall mean a person to whom an Award
has been granted pursuant to the Plan.

                            (e) "Board of Directors" means the Board of
Directors of the Company.

                            (f) "Change in Control" shall have the meaning as
set forth in Section 10 of the Plan.

                            (g) "Code" means the Internal Revenue Code of 1986,
as amended.

                            (h) "Committee" shall have the meaning set forth in
Section 3 of the Plan.

                            (i) "Company" means Penn-America Group, Inc., a
Pennsylvania corporation.

                            (j) "Disability" shall have the meaning set forth in
Section 22(e) (3) of the Code.

                            (k) "Disinterested Director" shall mean a member of
the Board of Directors of the Company who is "disinterested" within the meaning
of Rule 16b-3.

                            (1) "Fair Market Value" shall have the meaning set
forth in Subsection 8(b) of the Plan.

                            (m) "Formula Grant Date" with respect to a
non-employee member of the Board of Directors shall mean the date of each annual
meeting of shareholders during the term of the Plan at which such person is
elected or reelected as a member of the Board of Directors.

                            (n) "Grantee" shall mean a person to whom an Option
or an Award has been granted pursuant to the Plan.

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<PAGE>


                            (o) "Immediate Family" shall mean an Optionee's
spouse, children, grandchildren and/or any trust all the beneficiaries of which
include such Optionee and/or such persons, and any partnership all the partners
of which include such Optionee and/or such persons.

                            (p) "ISO" means an Option granted under the Plan
which is intended to qualify as an "incentive stock option" within the meaning
of Section 422(b) of the Code.

                            (q) "Non-employee members of the Board of Directors"
shall mean members of the Board of Directors of the Company who are not
employees of the Company or any Affiliate.

                            (r) "Non-qualified Stock Option" means an Option
granted under the Plan which is not intended to qualify, or otherwise does not
qualify, as an "incentive stock option" within the meaning of Section 422(b) of
the Code.

                            (s) "Option" means either an ISO or a Non-qualified
Stock Option granted under the Plan.

                            (t) "Optionee" means a person to whom an Option has
been granted under the Plan, which Option has not been exercised and has not
expired or terminated.

                            (u) "Option Document" means the document described
in Section 8 or Section 9 of the Plan, as applicable, which sets forth the terms
and conditions of each grant of Options.

                            (v) "Option Price" means the price at which Shares
may be purchased upon exercise of an Option, as calculated pursuant to
Subsection 8(b) or Subsection 9(a) of the Plan.

                            (w) "Restricted Stock" means Common Stock subject to
conditions of forfeiture and transfer granted to any person pursuant to an Award
under the Plan.

                            (x) "Rule 16b-3" means Rule 16b-3 promulgated under
the Securities Exchange Act of 1934, as amended.


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                            (y) "Section 16 Officer" means any person who is an
"officer" within the meaning of Rule 16a-1(f) promulgated under the Securities
Exchange Act of 1934, as amended, or any successor rule.

                            (z) "Shares" means the shares of Common Stock of the
Company which are the subject of Options or granted as Awards under the Plan.

                   3. Administration of the Plan. The Plan shall be administered
by the Board of Directors of the Company if all members of the Board of
Directors are Disinterested Directors; provided, however, that if all members of
the Board of Directors are Disinterested Directors, the Board of Directors may
designate a committee or committee(s) of the Board of Directors composed of two
or more directors to administer the Plan with respect to the Section 16
Officers, directors, and/or employees. If any of the members of the Board of
Directors are not Disinterested Directors, the Board of Directors shall (i)
designate a committee composed of two or more of directors, each of whom is a
Disinterested Director (the "Disinterested Director Committee"), to operate and
administer the Plan in its stead, or (ii) designate two committees to operate
and administer the Plan in its stead, a Disinterested Director Committee to
operate and administer the Plan with respect to the Company's Section 16
Officers and the directors who are not members of the Disinterested Director
Committee, and another committee composed of two or more directors (which may
include directors who are not Disinterested Directors) to operate and administer
the Plan with respect to persons other than Section 16 Officers or directors or
(iii) designate a Disinterested Director Committee to operate and administer the
Plan with respect to the Company's Section 16 Officers and directors (other than
those directors serving on the Disinterested Director Committee) and itself
operate and administer the Plan with respect to persons other than Section 16
Officers or directors. Any of such committees designated by the Board of
Directors, and the Board of Directors itself in its administrative capacity with
respect to the Plan, is referred to as the "Committee." With the exception of



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the timing of grants of Options, the price at which Shares may be purchased, and
the number of Shares covered by Options granted to each member of the
Disinterested Director Committee, all of which shall be as specifically set
forth in Section 9, the other provisions set forth herein, as they pertain to
members of the Disinterested Director Committee, shall be administered by the
Board of Directors.

                            (a) Meetings. The Committee shall hold meetings at
such times and places as it may determine. Acts approved at a meeting by a
majority of the members of the Committee or acts approved in writing by the
unanimous consent of the members of the Committee shall be the valid acts of the
Committee.

                            (b) Grants and. Awards. Except with respect to
Options granted to non-employee members of the Board of Directors pursuant to
Section 9, the Committee shall from time to time at its discretion direct the
Company to grant Options and/or Awards pursuant to the terms of the Plan. The
Committee shall have plenary authority to (i) determine the persons to whom, and
the times at which, Options and Awards are to be granted as well as the terms
applicable to Options and Awards, (ii) determine the type of Option to be
granted and the number of Shares subject thereto, (iii) determine the Awardees
to whom, and the times at which, Restricted Stock is granted, the number of
Shares awarded, and the purchase price per Share, if any, and (iv) approve the
form and terms and conditions of the Option Documents and Award Agreements; all
subject, however, to the express provisions of the Plan. In making such
determinations, the Committee may take into account the nature of the Grantee's
services and responsibilities, the Grantee's present and potential contribution
to the Company's success and such other factors as it may deem relevant.
Notwithstanding the foregoing, grants of Options to all non-employee members of
the Board of Directors shall be made exclusively in accordance with Section 9.
The interpretation and construction by the Committee of any provisions of the
Plan or of any Option or Award granted under it shall be final, binding and
conclusive.



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                            (c) Exculpation. No member of the Committee shall be
personally liable for monetary damages as such for any action taken or any
failure to take any action in connection with the administration of the Plan or
the granting of Options or Awards thereunder unless (i) the member of the
Committee has breached or failed to perform the duties of his or her office
under Subchapter B of Chapter 17 of the Pennsylvania Business Corporation Law of
1988, as amended, and (ii) the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness; provided, however, that the
provisions of this Subsection 3(c) shall not apply to the responsibility or
liability of a member of the Committee pursuant to any criminal statute or to
the liability of a member of the Committee for the payment of taxes pursuant to
local, state or federal law.

                            (d) Indemnification. Service on the Committee shall
constitute service as a member of the Board of Directors of the Company. Each
member of the Committee shall be entitled without further act on his or her part
to indemnity from the Company to the fullest extent provided by applicable law
and the Company's Articles of Incorporation and/or By-laws in connection with or
arising out of any action, suit or proceeding with respect to the administration
of the Plan or the granting of Options and Awards thereunder in which he or she
may be involved by reason of his or her being or having been a member of the
Committee, whether or not he or she continues to be such member of the Committee
at the time of the action, suit or proceeding.

                            (e) Limitations on Grants of Options to Consultants
and Advisors. With respect to the grant of Options to consultants or advisors,
bona fide services shall be rendered by consultants or advisors and such
services must not be in connection with the offer or sale of securities in a
capital-raising transaction.

                   4. Grants and Awards under the Plan. Options under the Plan
may be in the form of a Non-qualified Stock Option, and/or an ISO at the
discretion of the Committee, and Awards under the Plan shall be in the form of
Restricted Stock.




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                   5. Eligibility. All employees of the Company or an Affiliate,
and members of the Board of Directors, and consultants or advisors to the
Company or an Affiliate who satisfy the requirements set forth in Subsection
3(e), shall be eligible to receive Options hereunder. However, non-employee
members of the Board of Directors may receive Options only pursuant to Section 9
of the Plan and are not eligible to receive Awards. Only an employee of the
Company or an Affiliate shall be eligible to receive an Award. No Optionee may
receive Options pursuant to the Plan for more than 100,000 Shares in any one
year. The Committee, in its sole discretion, shall determine whether an
individual qualifies as an employee.

                   6. Shares Subject to Plan. The aggregate maximum number of
Shares for which Options and Awards may be granted pursuant to the Plan is Three
Hundred Fifty Thousand (350,000), subject to adjustment as provided in Section
11 of the Plan. The Shares shall be issued from authorized and unissued Common
Stock or Common Stock held in or hereafter acquired for the treasury of the
Company. If an Option terminates or expires without having been fully exercised
for any reason, or if Shares granted pursuant to an Award are forfeited for any
reason, such Shares may again be the subject of one or more Options or Awards
granted pursuant to the Plan.

                   7. Term of the Plan. The Plan is effective as of April 4,
1994, the date on which it was adopted by the Board of Directors, subject to the
approval of the Plan on or before April 3, 1995 by the affirmative vote of a
majority of the votes cast by all shareholders entitled to vote at a duly called
meeting of shareholders held in accordance with the laws of the Commonwealth of
Pennsylvania. No Option or Award may be granted under the Plan after April 3,
2004.

                   8. Option Documents and Terms. Each Option granted under the
Plan shall be a Non-qualified Stock Option unless the Option shall be
specifically designated at the time of grant to be an ISO for federal income tax
purposes. If any Option designated an ISO is determined for any reason not to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, such Option shall be treated as a Non-qualified Stock Option for all
purposes under the provisions of the Plan. Options granted pursuant to the Plan
shall be evidenced by the Option Documents in such form as the Committee shall



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<PAGE>

from time to time approve, which Option Documents shall comply with and be
subject to the following terms and conditions and such other terms and
conditions as the Committee shall from time to time require which are not
inconsistent with the terms of the Plan. However, the provisions of this Section
8 shall not be applicable to Options granted to the non-employee members of the
Board of Directors, except as otherwise provided in Subsection 9(c).

                            (a) Number of Option Shares. Each Option Document
shall state the number of Shares to which it pertains. An Optionee may receive
more than one Option, which may include Options which are intended to be ISO's
and Options which are not intended to be ISO's, but only on the terms and
subject to the conditions and restrictions of the Plan.

                            (b) Option Price. Each Option Document shall state
the Option Price which, for a Non-qualified Stock Option, may be less than,
equal to, or greater than the Fair Market Value of the Shares on the date the
Option is granted and, for an ISO, shall be at least 100% of the Fair Market
Value of the Shares on the date the Option is granted as determined by the
Committee in accordance with this Subsection 8(b); provided, however, that if an
ISO is granted to an Optionee who then owns, directly or by attribution under
Section 424(d) of the Code, shares possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or an Affiliate,
then the Option Price shall be at least 110% of the Fair Market Value of the
Shares on the date the Option is granted. If the Common Stock is traded in a
public market, then the Fair Market Value per Share shall be, if the Common
Stock is listed on a national securities exchange or included in the NASDAQ
National Market System, the last reported sale price thereof on the relevant
date, or, if the Common Stock is not so listed or included, the mean between the
last reported "bid" and "asked" prices thereof on the relevant date, as reported
on NASDAQ or, if not so reported, as reported by the National Daily Quotation
Bureau, Inc. or as reported in a customary financial reporting service, as
applicable and as the Committee determines. The Option Price, with respect to


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<PAGE>

Options granted effective the date of determination of the offering price for
the Common Stock in the Company's initial public offering, shall be such
offering price, which shall be deemed to constitute the Fair Market Value per
share of the Common Stock.

                            (c) Exercise. No Option shall be deemed to have been
exercised prior to the receipt by the Company of written notice of such exercise
and of payment in full of the Option Price for the Shares to be purchased. Each
such notice shall specify the number of Shares to be purchased and shall (unless
the Shares are covered by a then current registration statement or a
Notification under Regulation A under the Securities Act of 1933, as amended
(the "Act")), contain the Optionee's acknowledgment in form and substance
satisfactory to the Company that (a) such Shares are being purchased for
investment and not for distribution or resale (other than a distribution or
resale which, in the opinion of counsel satisfactory to the Company, may be made
without violating the registration provisions of the Act), (b) the Optionee has
been advised and understands that (1) the Shares have not been registered under
the Act and are "restricted securities" within the meaning of Rule 144 under the
Act and are subject to restrictions on transfer and (ii) the Company is under no
obligation to register the Shares under the Act or to take any action which
would make available to the Optionee any exemption from such registration, (c)
such Shares may not be transferred without compliance with all applicable
federal and state securities laws, and (d) an appropriate legend referring to
the foregoing restrictions on transfer and any other restrictions imposed under
the Option Documents may be endorsed on the certificates. Notwithstanding the
foregoing, if the Company determines that issuance of Shares should be delayed
pending (A) registration under federal or state securities laws, (B) the receipt
of an opinion of counsel satisfactory to the Company that an appropriate
exemption from such registration is available, (C) the listing or inclusion of
the Shares on any securities exchange or an automated quotation system or (D)
the consent or approval of any governmental regulatory body whose consent or
approval is necessary in connection with the issuance of such Shares, the
Company may defer exercise of any Option granted hereunder until any of the
events described in this sentence has occurred.



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<PAGE>

                            (d) Medium of Payment. An Optionee shall pay for
Shares (i) in cash, (ii) by certified or cashier's check payable to the order of
the Company, or (iii) by such other mode of payment as the Committee may
approve, including payment through a broker in accordance with procedures
permitted by Regulation T of the Federal Reserve Board. Furthermore, the
Committee may provide in an Option Document that payment may be made in whole or
in part in shares of the Company's Common Stock held by the Optionee. If payment
is made in whole or in part in shares of Common Stock, then the Optionee shall
deliver to the Company certificates registered in the name of such Optionee
representing the shares of Common Stock owned by such Optionee, free of all
liens, claims and encumbrances of every kind and having an aggregate Fair Market
Value on the date of delivery that is at least as great as the Option Price of
the shares (or relevant portion thereof) with respect to which such Option is to
be exercised by the payment in shares of Common Stock, endorsed in blank or
accompanied by stock powers duly endorsed in blank by the Optionee. In the event
that certificates for shares of Common Stock delivered to the Company represent
a number of shares of Common Stock in excess of the number of shares of Common
Stock required to make payment for the Option Price of the Shares (or relevant
portion thereof) with respect to which such Option is to be exercised by payment
in shares of Common Stock, the stock certificate issued to the Optionee shall
represent (i) the Shares in respect of which payment is made, and (ii) such
excess number of shares of Common Stock. Notwithstanding the foregoing, the
Committee may impose from time to time such limitations and prohibitions on the
use of shares of Common Stock to exercise an Option as it deems appropriate.

                            (e) Termination of Options.

                               (1) No Option shall be exercisable after the
first to occur of the following:


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<PAGE>

                                  (A) Expiration of the Option term specified in
the Option Document, which, in the case of an ISO, shall not occur after (1) ten
years from the date of grant, or (2) five years from the date of grant of an ISO
if the Optionee on the date of grant owns, directly or by attribution under
Section 424(d) of the Code, shares possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of an
Affiliate;

                                  (B) In the case of a Non-qualified Stock
Option unless otherwise provided in the Option Document, and in the case of an
ISO, expiration of three months from the date the Optionee's employment or
service with the Company or its Affiliates terminates for any reason other than
Disability or death or as otherwise specified in Subsection 8(e) (i) (D) or 8(e)
(i) (E) below;

                                  (C) In the case of a Non-qualified Stock
Option unless otherwise provided in the Option Document, and in the case of an
ISO, expiration of one year from the date such employment or service with the
Company or its Affiliates terminates due to the Optionee's Disability or death;

                                  (D) A finding by the Committee, after full
consideration of the facts presented on behalf of both the Company and the
Optionee, that the Optionee has breached his or her employment or service
contract with the Company or an Affiliate, or has been engaged in disloyalty to
the Company or an Affiliate, including, without limitation, fraud, embezzlement,
theft, commission of a felony or proven dishonesty in the course of his or her
employment or service, or has disclosed trade secrets or confidential
information of the Company or an Affiliate. In such event, in addition to
immediate termination of the Option, the Optionee shall automatically forfeit
all Shares for which the Company has not yet delivered the share certificates


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<PAGE>

upon refund by the Company of the Option Price. Notwithstanding anything herein
to the contrary, the Company may withhold delivery of share certificates pending
the resolution of any inquiry that could lead to a finding resulting in a
forfeiture; or

                                  (E) The date, if any, set by the Board of
Directors as an accelerated expiration date in the event of a Change in Control.

                               (ii) Notwithstanding the foregoing, the Committee
may extend the period during which all or any portion of an Option may be
exercised to a date no later than the Option term specified in the Option
Document pursuant to Subsection 8 (e) (i) (A), provided that any change pursuant
to this Subsection 8(e) (ii) which would cause an ISO to become a Non-qualified
Stock Option may be made only with the consent of the Optionee. The terms of an
executive severance agreement or other agreement between the Company and an
Optionee, approved by the Committee, whether entered into prior or subsequent to
the grant of an Option, which provide for Option exercise dates later than those
set forth in Subsection 8(e) (i) but permitted by this Subsection 8(e) (ii)
shall be deemed to be Option terms approved by the Committee and consented to by
the Optionee.

                            (f) Transfers. An ISO granted under the Plan may not
be transferred, except by will or by the laws of descent and distribution. A
Non-qualified Stock Option granted under the Plan may not be transferred, except
by will or by the laws of descent and distribution, except as follows: If the
terms of the Non-qualified Stock Option specifically so permit, a Non-qualified
Stock Option may be transferred by the Optionee by bona fide gift, with no
consideration for the transfer, to a member of such person's Immediate Family.
If the Optionee receiving such an Option, or having an outstanding Option
amended to provide for such transferability, is a Section 16 Officer, such
Option or Option amendment must be approved by the committee of disinterested
persons (as defined in Rule 16b-3) which administers the Plan with respect to
Section 16 Officers. Notwithstanding the foregoing, a Non-qualified Stock Option
may be transferred pursuant to the terms of a "qualified domestic relations
order," within the meaning of Sections 401(a) (13) and 414(p) of the Code or
within the meaning of Title I of the Employee Retirement Income Security Act of


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1974, as amended ("ERISA'). During the lifetime of the person to whom an Option
is granted (or the member of the Immediate Family if such Option has been
transferred in accordance with the above provisions), such Option may be
exercised only by such person.

                            (g) Limitation on ISO Grants. In no event shall the
aggregate Fair Market Value of the Shares of Common Stock (determined at the
time the ISO is granted) with respect to which incentive stock options under all
incentive stock option plans of the Company or its Affiliates are exercisable
for the first time by the Optionee during any calendar year exceed $100,000.

                            (h) Other Provisions. Subject to the provisions of
the Plan, the Option Documents shall contain such other provisions including,
without limitation, provisions authorizing the Committee to accelerate the
exercisability of all or any portion of an Option granted pursuant to the Plan,
additional restrictions upon the exercise of the Option or additional
limitations upon the term of the Option, as the Committee shall deem advisable.

                            (i) Amendment. Subject to the provisions of the
Plan, the Committee shall have the right to amend Option Documents issued to an
Optionee, subject to the Optionee's consent if such amendment is not favorable
to the Optionee, except that the consent of the Optionee shall not be required
for any amendment made pursuant to Subsection 8(e) (i) (E) or Section 10 of the
Plan, as applicable.

                   9. Special Provisions Relating to Grants of Options to
non-employee members of the Board of Directors. Options granted pursuant to the
Plan to non-employee members of the Board of Directors shall be granted, without
any further action by the Committee, in accordance with the terms and conditions
set forth in this Section 9. Options granted pursuant to this Section 9 shall be
evidenced by Option Documents in such form as the Committee shall from
time-to-time approve, which Option Documents shall comply with and be subject to
the following terms and conditions and such other terms and conditions as the


                                       13
<PAGE>

Committee shall from time-to-time require which are not inconsistent with the
terms of the Plan.

                            (a) Timing of Grants; Number of Shares Subject of
Options; Exercisability of Options; Option Price. Each non-employee member of
the Board of Directors shall be granted on his or her Formula Grant Date an
Option to purchase Five Thousand (5,000) Shares. Each such Option shall be a
Non-qualified Stock Option becoming exercisable on the first anniversary of the
date of grant. The Option Price shall be equal to the Fair Market Value of the
Shares on the date the Option is granted.

                            (b) Termination of Options Granted Pursuant to
Section 9. All Options granted pursuant to this Section 9 shall be exercisable
until the first to occur of the following:

                               (i) Expiration of six (6) years from the date of
grant;

                               (ii) Expiration of three (3) months from the date
the Optionee's service as a member of the Board of Directors terminates for any
reason other than Disability or death;

                               (iii) Expiration of one (1) year from the date
the Optionee's service as a member of the Board of Directors terminates due to
the Optionee's Disability or death; or

                               (iv) Expiration of thirty (30) days after the
date of a Change in Control.

                            (c) Applicability of Provisions of Section 8 to
Options Granted Pursuant to Section 9. The following provisions of Section 8
shall be applicable to Options granted pursuant to this Section 9: Subsection
8(a) (provided that all Options granted pursuant to this Section 9 shall be
Non-qualified Stock Options); the definition of Fair Market Value contained in
Subsection 8 (b); Subsection 8 (c); Subsection 8 (d) (provided that Option
Documents relating to Options granted pursuant to this Section 9 shall provide
that payment may be made in whole or in part in shares of Company Common Stock);
Subsection 8 (f); and Subsection 8 (i) (but only to the extent that the


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<PAGE>

application of such subsection to Options granted under this Section 9 would not
cause a Disinterested Director no longer to qualify as a Disinterested Director)

                   10. Change in Control. In the event of a Change in Control,
the Committee may take whatever action it deems necessary or desirable with
respect to the Options and Awards outstanding (other than Options granted
pursuant to Section 9), including, without limitation, accelerating the
expiration or termination date in the respective Option Documents to a date no
earlier than thirty (30) days after notice of such acceleration is given to the
Optionees. In addition to the foregoing, in the event of a Change in Control,
Options granted pursuant to Section 9 of the Plan and Options granted pursuant
to the Plan which are held by Optionees who are employees of the Company or an
Affiliate at the time of a Change in Control shall, and in the case of
consultants and advisors to the Company or an Affiliate shall (unless the
exercisability of the Options held by such persons is subject to some condition
other than the lapse of time (including within the term "lapse of time" the
provisions of Sections 8(e) and 9(b) of the Plan)), automatically accelerate to
the date of the Change in Control and become immediately exercisable in full,
and the restrictions applicable to Restricted Stock awarded to Awardees who are
employees at the time of a Change in Control shall immediately lapse and the
Restricted Stock held by the Company shall be delivered to the Grantees. An
Option granted to a consultant or advisor who is also a member of the Board of
Directors shall be deemed for purposes of the preceding sentence to be an Option
granted to a consultant or advisor and not to a member of the Board of Directors
if such Option is granted for services as a consultant or advisor. Any amendment
to this Section 10 which diminishes the rights of Optionees shall not be
effective with respect to Options outstanding at the time of adoption of such
amendment, whether or not such outstanding Options are then exercisable.

                   A "Change in Control" shall be deemed to have occurred upon
the earliest to occur of the following events: (i) the date the shareholders of
the Company (or the Board of Directors, if shareholder action is not required)
approve a plan or other arrangement pursuant to which the Company will be


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dissolved or liquidated, or (ii) the date the shareholders of the Company (or
the Board of Directors, if shareholder action is not required) approve a
definitive agreement to sell or otherwise dispose of substantially all of the
assets of the Company, or (iii) the date the shareholders of the Company (or the
Board of Directors, if shareholder action is not required) and the shareholders
of the other constituent corporation (or its board of directors, if shareholder
action is not required) have approved a definitive agreement to merge or
consolidate the Company with or into such other corporation, other than, in
either case, a merger or consolidation of the Company in which holders of shares
of the Company's Common Stock immediately prior to the merger or consolidation
will have at least a majority of the ownership of common stock of the surviving
corporation (and, if one class of common stock is not the only class of voting
securities entitled to vote on the election of directors of the surviving
corporation, a majority of the voting power of the surviving corporation's
voting securities) immediately after the merger or consolidation, which common
stock (and, if applicable, voting securities) is to be held in the same
proportion as such holders' ownership of Common Stock of the Company immediately
before the merger or consolidation, or (iv) the date any entity, person or
group, within the meaning of Section 13(d) (3) or Section 14(d) (2) of the
Securities Exchange Act of 1934, as amended, other than the Company, any of its
subsidiaries or any employee benefit plan (or related trust) sponsored or
maintained by the Company or any of its subsidiaries, Penn Independent
Corporation or those individuals and trusts who comprise the shareholders of
Penn Independent Corporation on the effective date of this Plan shall have
become the beneficial owner of, or shall have obtained voting control over, more
than thirty percent (30%) of the outstanding Shares of the Company's Common
Stock, or (v) the first day after the date this Plan is effective when directors
are elected such that a majority of the Board of Directors shall have been
members of the Board of Directors for less than two (2) years, unless the
nomination for election of each new director who was not a director at the
beginning of such two (2) year period was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of such period.


                                       16
<PAGE>

                   11. Adjustments on Changes in Capitalization. The aggregate
number of Shares and class of shares as to which Options and Awards may be
granted hereunder, the number and class or classes of shares covered by each
outstanding Option and the Option Price thereof shall be appropriately adjusted
in the event of a stock dividend, stock split, recapitalization or other change
in the number or class of issued and outstanding equity securities of the
Company resulting from a subdivision or consolidation of the Common Stock
and/or, if appropriate, other outstanding equity securities, or a
recapitalization or other capital adjustment (not including the issuance of
Common Stock on the conversion of other securities of the Company which are
convertible into Common Stock) affecting the Common Stock which is effected
without receipt of consideration by the Company. The Committee shall have
authority to determine the adjustments to be made under this Section, and any
such determination by the Committee shall be final, binding and conclusive.

                   12. Terms and Conditions of Awards. Awards granted pursuant
to the Plan shall be evidenced by written Award Agreements in such form as the
Committee shall from time-to-time approve, which Award Agreements shall comply
with and be subject to the following terms and conditions and such other terms
and conditions as the Committee shall from time to time require which are not
inconsistent with the terms of the Plan. The Committee may, in its sole
discretion, shorten or waive any term or condition with respect to all or any
portion of any Award. Notwithstanding the foregoing, all restrictions shall
lapse or terminate with respect to Restricted Stock upon the death or Disability
of the Awardee.

                            (a) Number of Shares. Each Award Agreement shall
state the number of Shares of Common Stock to which it pertains.

                            (b) Purchase Price. Each Award Agreement shall
specify the purchase price, if any, which applies to the Award. If the Board
specifies a purchase price, the Awardee shall be required to make payment on or


                                       17
<PAGE>

before the date specified in the Award Agreement. An Awardee shall pay for such
Shares (i) in cash, (ii) by certified check payable to the order of the Company,
or (iii) by such other mode of payment as the Committee may approve.

                            (c) Restrictions on Transfer and Forfeitures. A
stock certificate representing the Restricted Stock granted to an Awardee shall
be registered in the Awardee's name but shall be held in escrow by the Company's
Treasurer, together with an undated stock power executed by the Awardee with
respect to each stock certificate representing Restricted Stock Registered in
such Awardee's name. The Awardee shall generally have the rights and privileges
of a shareholder as to such Restricted Stock including the right to vote such
Restricted Stock and to receive and retain all cash dividends with respect to
them, except that the following restrictions shall apply: (i) the employee shall
not be entitled to delivery of the certificate until the expiration or
termination of any period designated by the Committee ("Restricted Period") and
the satisfaction of any other conditions prescribed by the Committee; and (ii)
all distributions with respect to the Restricted Stock other than cash
dividends, such as stock dividends, stock splits or distributions of property,
and any distributions (other than cash dividends) subsequently made with respect
to other distributions, shall be delivered to the Treasurer of the Company,
together with appropriate stock powers or other instruments of transfer signed
and delivered to the Treasurer by the Grantee, to be held by the Treasurer and
released to either the Grantee or the Company, as the case may be, together with
the Shares to which they relate; (iii) the Grantee will have no right to sell,
exchange, transfer, pledge, hypothecate or otherwise dispose of any of the
Restricted Stock or distributions (other than cash dividends) with respect
thereto; and (iv) all of the Restricted Stock shall be forfeited and all rights
of the Awardee with respect to such Restricted Stock shall terminate without
further obligation on the part of the Company unless the Awardee has remained an
employee of the Company, any of its affiliates or any combination thereof until
the expiration or termination of the Restricted Period and the satisfaction of
any other conditions prescribed by the Committee applicable to such Restricted
Stock. Upon the forfeiture of any Restricted Stock, such forfeited shares shall
be transferred to the Company without further action by the Awardee.

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<PAGE>

                            (d) Lapse of Restrictions. Upon the expiration or
termination of the Restricted Period and the satisfaction of any other
conditions prescribed by the Committee time as provided for in the Plan, the
restrictions applicable to the Restricted Stock shall lapse and a stock
certificate for the number of shares of Common Stock with respect to which the
restrictions have lapsed shall be delivered, free of all such restrictions,
except any that may be imposed by law, to the Awardee or the beneficiary or
estate, as the case may be. The Company shall not be required to deliver any
fractional share of Common Stock but will pay, in lieu thereof, the fair market
value (determined as of the date the restrictions lapse) of such fractional
share to the Awardee or the Awardee's beneficiary or estate, as the case may be.
The Award may provide for the lapse of restrictions on transfer and forfeiture
conditions in installments.

                            (e) Section 83(b) Elections. An Awardee who files an
election with the Internal Revenue Service to include the fair market value of
any Restricted Stock in gross income while they are still subject to
restrictions shall promptly furnish the Company with a copy of such election
together with the amount of any federal, state, local or other taxes required to
be withheld to enable the Company to claim an income tax deduction with respect
to such election.

                            (f) Upon a finding by the Committee, after full
consideration of the facts presented on behalf of both the Company and the
Awardee, that the Awardee has breached his or her employment or service contract
with the Company or an Affiliate, or has been engaged in disloyalty to the
Company or an Affiliate, including, without limitation, fraud, embezzlement,
theft, commission of a felony or proven dishonesty in the course of his or her
employment or service, or has disclosed trade secrets or confidential
information of the Company or an Affiliate, Awardee shall automatically forfeit
all Restricted Stock for which (i) the Company has not yet delivered the Share
certificates to the Awardee; (ii) the Restricted Period has not expired or (iii)
any restrictions applicable to the Restricted Stock have not lapsed.
Notwithstanding anything herein to the contrary, the Company may withhold


                                       19
<PAGE>

delivery of Restricted Stock certificates pending the resolution of any inquiry
that could lead to a finding resulting in a forfeiture.

                            (g) Amendment. Subject to the provisions of the
Plan, the Committee shall have the right to amend Awards issued to an Awardee,
subject to the Awardee's consent if such amendment is not favorable to the
Awardee, except that the consent of the Awardee shall not be required for any
amendment made pursuant to Section 10 of the Plan.

                   13. Amendment of the Plan. The Board of Directors of the
Company may amend the Plan from time-to-time in such manner as it may deem
advisable. Nevertheless, the Board of Directors of the Company may not change
the class of individuals eligible to receive an ISO or increase the maximum
number of Shares as to which Options may be granted without obtaining the
approval of such change(s), within twelve months before or after such action, by
the affirmative vote of a majority of the votes cast by all shareholders
entitled to vote at a duly called meeting of the shareholders held in accordance
with the laws of the Commonwealth of Pennsylvania (provided, however, that if
Rule 16b-3 requires a greater vote of shareholders, then the Board may not take
such action without obtaining the minimum vote required by Rule 16b-3) . No
amendment to the Plan shall adversely affect any outstanding Option or Award,
however, without the consent of the Grantee. Notwithstanding anything to the
contrary contained herein, the provisions of the Plan contained in Section 9
relating to the granting of Options to non-employee members of the Board of
Directors that determine (i) who is to be granted Options under such Section,
(ii) the number of Shares subject to such Options, (iii) the Option Price of
such Options, and (iv) the timing of grants of such Options shall not be amended
more than once in any six month period, other than to comply with changes in the
Code or ERISA.
                   14. No Commitment to Retain. The grant of an Option or Award
pursuant to the Plan shall not be construed to imply or to constitute evidence
of any agreement, express or implied, on the part of the Company or any


                                       20
<PAGE>

Affiliate to retain the Grantee in the employ of the Company or an Affiliate
and/or as a member of the Company's Board of Directors or in any other capacity.

                   15. Withholding of Taxes. Whenever the Company proposes or is
required to deliver or transfer Shares in connection with the exercise of an
Option or Award, the Company shall have the right to (a) require the recipient
to remit or otherwise make available to the Company an amount sufficient to
satisfy any federal, state and/or local withholding tax requirements prior to
the delivery or transfer of any certificate or certificates for such Shares or
(b) take whatever other action it deems necessary to protect its interests with
respect to tax liabilities. The Company's obligation to make any delivery or
transfer of Shares shall be conditioned on the Optionee's compliance, to the
Company's satisfaction, with any withholding requirement.

                   16. Interpretation. The Plan is intended to enable
transactions under the Plan with respect to directors and officers (within the
meaning of Section 16(a) under the Securities Exchange Act of 1934, as amended)
to satisfy the conditions of Rule 16b-3; to the extent that any provision of the
Plan would cause a conflict with such conditions or would cause the
administration of the Plan as provided in Section 3 to fail to satisfy the
conditions of Rule 16b-3, such provision shall be deemed null and void to the
extent permitted by applicable law. This Section shall not be applicable if no
class of the Company's equity securities is then registered pursuant to Section
12 of the Securities Exchange Act of 1934, as amended.






03/27/2002 8:15 AM


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</TEXT>
</DOCUMENT>
