NATIONAL PENN BANCSHARES INC
10.20
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>ex1.txt
<DESCRIPTION>10.20
<TEXT>

                                                                   Exhibit 10.20


                         NATIONAL PENN BANCSHARES, INC.
                         ------------------------------

                               FIRSTSERVICE BANK
                               -----------------
                     SUBSTITUTE INCENTIVE STOCK OPTION PLAN
                     --------------------------------------

         (as assumed, amended and restated effective February 25, 2003)


     1.   Purpose, Assumption, Amendment and Restatement
          ---------------------------------------------

     (a)  FirstService  Bank,  ("FSB")  originally   approved  and  adopted  the
Incentive  Stock Option Plan (the "FSB Plan") in 1996. The FSB Plan was restated
in its  entirety  in 1998 and again in 2000.  The purpose of the FSB Plan was to
encourage  ownership  of shares of FSB by officers  and key  employees,  provide
additional  incentive  for them to promote the success of the  corporation,  and
increase FSB's ability to attract and retain high caliber personnel.

     (b) On February 25, 2003 (the "Effective  Date"),  FSB merged with and into
National  Penn  Bank,  with  National  Penn  Bank  surviving  such  merger  (the
"Merger"),  pursuant to an Agreement  and Plan of Merger,  dated as of September
24, 2002  ("Agreement") by and among National Penn Bancshares,  Inc.  ("National
Penn"), National Penn Bank and FSB.

     (c) On the Effective  Date,  pursuant to the  Agreement,  each  outstanding
share of FSB's common  stock was  automatically  converted  into 0.5954 share of
National Penn common stock, without par value (the "Stock"), and $3.90.

     (d)  Immediately  prior to the  Effective  Date,  there were stock  options
outstanding  under the FSB Plan for 423,001 shares of FSB's common stock, all of
which  were 100%  vested  and  currently  exercisable.  On the  Effective  Date,
pursuant to the FSB Plan and the Agreement,  each such option was  automatically
converted  into a substitute  stock option for Stock,  with the number of shares
and the per share  exercise  price  adjusted as provided  in the  Agreement  and
otherwise on the same terms and  conditions  as the  converted FSB stock option.
The number of shares of Stock subject to each  substitute  stock option is equal
to the  quotient of: (1) the product of the number of shares of FSB common stock
originally  subject to that option  times the  original  exercise  price of that
option,  divided by (2) the adjusted  exercise price of that option  immediately
following  the Effective  Date,  as  determined in accordance  with Section 5(c)
below.  As a result,  stock  options 100% vested and presently  exercisable  for
316,171 shares of Stock are outstanding.

     (e) This  National  Penn  Bancshares,  Inc.  FirstService  Bank  Substitute
Incentive Stock Option Plan (the "Plan") reflects  National Penn's assumption of
the FSB Plan and of the stock options  outstanding  under the FSB Plan as of the
Effective  Date,  on the terms and  conditions  provided in the  Agreement,  and
National Penn's  determination to delete provisions of the FSB Plan inapplicable
to such  outstanding  options.  The  Plan  amends  and  restates  the  FSB  Plan
accordingly.

     (f) As  used  hereinafter,  the  term  "Options"  means,  individually  and
collectively,  the substitute  stock options issued pursuant to the FSB Plan and
the Agreement,  exercisable  for a total of 316,171 shares of Stock,  subject to
adjustment as provided in Section 2 hereof.

     2.   Total Number of Shares
          ----------------------

                                       1
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     The total  number of shares of Stock  subject to Options  under the Plan is
316,171 shares,  subject to adjustment in accordance  with this Section.  If the
shares of Stock shall be changed  into or  exchanged  for a different  number or
kind of shares of Stock of National Penn or of another  corporation  (whether by
reason  of  merger,  consolidation,  recapitalization,  reclassification,  stock
split,  combination of shares or otherwise),  or if the number of such shares of
Stock shall be  increased  through the payment of a stock  dividend,  then there
shall be  substituted  for or added to each share of Stock  subject to an Option
under the Plan and to the maximum  number of shares of Stock that may be subject
to Options  as set forth in this  Section,  the  number and kind of shares  into
which each outstanding share of Stock shall be exchanged,  or to which each such
share shall be  entitled,  as the case may be.  Where  appropriate,  outstanding
Options shall also be amended by the  Committee  (defined in Section 4(a)) as to
Option  Price and other  terms as may be  necessary  to  equitably  reflect  the
foregoing  events.  If there shall be any other  change in the number or kind of
outstanding  shares of Stock,  or any shares into which such  shares  shall have
been  changed,  or for  which  the  Committee  shall,  in its  sole  discretion,
determine that such change  equitably  requires an adjustment in any outstanding
Options,  such  adjustments  shall be made in  accordance  with the  Committee's
determination.  Re-acquired  shares of Stock, as well as unissued shares, may be
used for the purpose of this Plan.

     3.   No Further Eligible Optionees
         ------------------------------

     Other than the  persons who  received  Options on the  Effective  Date (the
"Optionees"),  no persons are eligible to participate in the Plan.  Prior to the
Effective  Date,  the  persons  eligible  to  participate  in the FSB Plan  were
officers and key  employees of FSB and its  subsidiaries  and such other persons
determined by the Board,  provided that all persons  benefited were permitted to
be benefited  without  adversely  affecting the  qualification of the Plan under
Section 422 of the Internal Revenue Code.

     4.   Administration of Plan
          ----------------------

     (a) The Plan shall be administered by a committee (the  "Committee")  which
shall be either the entire Board of Directors of National  Penn (the "Board") or
a committee appointed by the Board composed of three to six members of the Board
who are (i) "non-employee directors" of National Penn within the meaning of Rule
16b-3(b)(3)  under Section 16 of the Securities  Exchange Act of 1934 (the "1934
Act"),  and (ii)  "outside  directors"  of  National  Penn within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").

     (b) The  Committee  shall adopt such rules for the conduct of its  business
and  administration of this Plan, as it considers  desirable.  A majority of the
members of the Committee shall constitute a quorum for all purposes. The vote or
written  consent of a majority of the members of the  Committee  on a particular
matter shall  constitute the act of the Committee on such matter.  The Committee
shall have the right to construe  the Plan and the Options,  to correct  defects
and  omissions  and to  reconcile  inconsistencies  to the extent  necessary  to
effectuate the Plan and the Options, and such action shall be final, binding and
conclusive upon all parties  concerned.  No member of the Committee or the Board
shall be liable for any act or  omission  (whether  or not  negligent)  taken or
omitted in good  faith,  or for the  exercise  of any  authority  or  discretion
granted in connection with the Plan to a Committee or the Board, or for the acts
or  omissions of any other  members of a Committee or the Board.  Subject to the
numerical  limitations on Committee membership set forth in Section 4(a) hereof,
the Board may at any time appoint additional members of the Committee and may at
any time remove any member of the Committee with or without cause.  Vacancies in
the Committee, however caused, may be filled by the Board if it so desires.


<PAGE>

     (c) The Committee  does not have authority to grant any stock options under
the Plan in addition to the Options set forth in Section 2 hereof.

     5.   Terms and Conditions of Incentive Stock Option Awards.
          ------------------------------------------------------

     (a) Written  Notification  of Options.  Each  Optionee  will be notified in
writing of the number of shares of Stock  subject to and the  exercise  price of
each Option he or she holds pursuant to the Plan.

     (b) Exercise of Options.  (i) The Options shall be  exercisable  during the
period  originally fixed by the board of directors of FSB, but in no event shall
an option be exercisable  after the last day of the ten year period beginning on
the date the predecessor option was granted, unless terminated earlier under the
terms of the Option.

          (ii) An option may be  exercised  in whole at one time or in part from
time to time,  unless the board of  directors  of FSB, in granting  the original
option, imposed a limitation with respect to the number of shares covered by the
option which may be purchased  during various  periods of time within the period
of the original option.

     (c) Option Price. The per share exercise price of the Stock covered by each
Option (the "Option  Price") is equal to the quotient of: (1) the product of the
closing  price of the Stock on the  Effective  Date times the original  exercise
price of that  option,  divided by (2) the sum of (a) the product of the closing
price of the Stock on the Effective  Date times the exchange  ratio (.5954) plus
(b) $3.90.

     (d)  Nontransferability  of Options. An Option shall not be transferable by
an Optionee  otherwise than by will or the laws of descent and distribution and,
during his  lifetime,  shall be  exercisable  only by him.  Upon the death of an
Optionee,  and to the  extent  that the  Optionee  shall have been  entitled  to
exercise an Option at the date of his death,  the Option may be  exercised  by a
legatee or  legatees of the  Optionee  under his last will,  or by his  personal
representatives or distributees.

     (e) Termination of Employment.  (i) The  unexercised  portion of the Option
will  terminate on the date the Optionee  ceases to be employed by National Penn
or any of its  subsidiaries  for any reason  other than death or the  Optionee's
retirement pursuant to any retirement or pension plan of National Penn or any of
its subsidiaries. The Optionee will cease to be employed by National Penn or any
of its  subsidiaries  on the first to occur of (1) the last date for which he is
paid by  National  Penn or any of its  subsidiaries,  (2) the  date on  which he
ceases working for National Penn or any of its subsidiaries or (3) the effective
date of the termination of his employment set forth in any notice to him of such
termination.

          (ii) In the case of the Optionee's death before the option expires, or
in the case of the Optionee's  retirement  pursuant to any retirement or pension
plan of National Penn or any of its subsidiaries,  the Option shall be exercised
within the three (3) month  period  beginning on the date of  retirement  or the
date of death,  but in no case  later  than the last day of the ten year  period
beginning on the date the original option was granted to the Optionee.


                                       3
<PAGE>

         (f) Payment. Full payment for Stock purchased by the exercise of
Options granted under the Plan shall be made in cash or in Stock at the time the
Option is exercised.

         (g) Other Provisions. In addition to the limitations, conditions and
restrictions specifically set forth in the Plan, the Board shall have the power
to impose any limitations, conditions or restrictions which it shall deem
appropriate upon any or all options granted hereunder.

     6.   Plan and Options Not to Affect Employment
          -----------------------------------------

     Neither the Plan nor any Option  granted  hereunder  shall  confer upon any
employee of National  Penn or any of its  subsidiaries  any right to continue in
the employment of National Penn or any of its subsidiaries.

     7.   Interpretation
          --------------

The  interpretation and construction by the Board of any provisions of this Plan
or of any Option granted hereunder shall be final and conclusive. It is intended
that the rights granted pursuant to the Plan shall  constitute  "incentive stock
options"  as  defined in  Section  422 of the  Internal  Revenue  Code,  and the
provisions of the Plan shall be interpreted and construed,  insofar as possible,
to carry out this intent.

     8.   Effective Date of Plan
          ----------------------

     This Plan shall be effective as of February 25, 2003.

     9.   General Conditions
          -------------------

     (a) The term  "subsidiary  corporation"  as used in this Plan  shall mean a
corporation in which National Penn owns, directly or indirectly, shares of stock
representing  fifty  percent  or more of the  outstanding  voting  power  of all
classes of stock of such corporation Plan.

     (b)  References  in this Plan to the Code  shall be deemed to also refer to
the corresponding provisions of any future United States revenue law.

     (c) The use of the  masculine  pronoun  shall  include the feminine  gender
whenever appropriate.


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