<SEC-DOCUMENT>0001021408-01-507507.txt : 20011009
<SEC-HEADER>0001021408-01-507507.hdr.sgml : 20011009
ACCESSION NUMBER:		0001021408-01-507507
CONFORMED SUBMISSION TYPE:	S-8
PUBLIC DOCUMENT COUNT:		4
FILED AS OF DATE:		20010928
EFFECTIVENESS DATE:		20010928

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			INNOVATIVE SOLUTIONS & SUPPORT INC
		CENTRAL INDEX KEY:			0000836690
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-COMPUTER PROGRAMMING SERVICES [7371]
		IRS NUMBER:				232507402
		STATE OF INCORPORATION:			PA
		FISCAL YEAR END:			0930

	FILING VALUES:
		FORM TYPE:		S-8
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-70468
		FILM NUMBER:		1748272

	BUSINESS ADDRESS:	
		STREET 1:		420 LAPP RD
		CITY:			MALVERN
		STATE:			PA
		ZIP:			19355
		BUSINESS PHONE:		6108899898

	MAIL ADDRESS:	
		STREET 1:		420 LAPP ROAD
		CITY:			MALVERN
		STATE:			PA
		ZIP:			19355
</SEC-HEADER>
<DOCUMENT>
<TYPE>S-8
<SEQUENCE>1
<FILENAME>ds8.txt
<DESCRIPTION>INNOVATIVE SOLUTIONS FORM S-8
<TEXT>
<PAGE>

      As filed with the Securities and Exchange Commission on September 19, 2001
                                                    Registration No. 333-_______
--------------------------------------------------------------------------------

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                             --------------------
                                   FORM S-8

                            REGISTRATION STATEMENT
                                     UNDER
                          THE SECURITIES ACT OF 1933

                    INNOVATIVE SOLUTIONS AND SUPPORT, INC.
            (Exact name of Registrant as Specified in Its Charter)

              Pennsylvania                          23-2507402
     (State or other Jurisdiction of    (I.R.S employer Identification No.)
              Incorporation)

                       420 Lapp Road, Malvern, PA 19355
         (Address of Principal Executive Offices, including Zip Code)

         Innovative Solutions and Support, Inc. 1998 Stock Option Plan
    Innovative Solutions and Support, Inc. 1988 Incentive Stock Option Plan
                           (Full Title of the Plans)

                            Geoffrey S. M. Hedrick
                            Chief Executive Officer
                    Innovative Solutions and Support, Inc.
                                 420 Lapp Road
                               Malvern, PA 19355
                    (Name and Address of Agent For Service)

                                (610) 889-9898
         (Telephone Number, including area code, of Agent for Service)

                                   COPY TO:
                         Michael P. Gallagher, Esquire
                              Pepper Hamilton LLP
                             1235 Westlakes Drive
                                   Suite 400
                          Berwyn, Pennsylvania 19312
                                (610) 640-7800
<PAGE>

                        CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
============================================================================================================================
                                                                     Proposed              Proposed
                                                   Amount             Maximum              Maximum             Amount Of
                                                   To Be            Offering Price         Aggregate         Registration
   Title of securities to be registered        Registered/(1)/       Per Share           Offering Price           Fee
----------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                  <C>                  <C>                 <C>
Common Stock, par value $.001 per
share
----------------------------------------------------------------------------------------------------------------------------
    Underlying outstanding options
    granted under the 1988
    Incentive Stock Option Plan                   59,197             $ 2.44(2)          $  144,633(2)           $     37(2)
----------------------------------------------------------------------------------------------------------------------------
    Underlying outstanding options
    granted under the 1998 Stock
    Option Plan                                  441,842             $11.21(2)          $4,952,431(2)           $  1,239(2)
----------------------------------------------------------------------------------------------------------------------------
    Subject to future grants or
    issued and outstanding as a
    result of the exercise of
    options granted under the 1998
    Stock Option Plan                            592,779             $ 8.08(3)          $4,789,654(3)           $  1,198(3)
----------------------------------------------------------------------------------------------------------------------------
Total                                          1,203,442                                $9,886,718              $  2,474
============================================================================================================================
</TABLE>

(1)  Pursuant to Rule 416 under the Securities Act of 1933, this Registration
     Statement also registers such additional shares as may hereinafter be
     offered or issued to prevent dilution resulting from stock splits, stock
     dividends, recapitalizations or certain other capital adjustments.
(2)  Estimated solely for the purposes of calculating the registration fee in
     accordance with Rule 457(h) under the Securities Act of 1933, as amended,
     and based on the weighted average exercise price of the outstanding options
     under each respective option plan.
(3)  Estimated solely for the purposes of calculating the registration fee in
     accordance with Rule 457(c) under the Securities Act of 1933, as amended,
     based on a share price of $8.08, the average of the high and low prices of
     the Registrant's Common Stock as reported on the Nasdaq National Market on
     September 17, 2001.

<PAGE>

                                    PART I
             INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS

     The information required by Part I of Form S-8 is included in documents to
be given to the recipient of the securities registered hereby in accordance with
Rule 428(b)(1) under the Securities Act of 1933, as amended.

                                    PART II
              INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

Item 3.  Incorporation of Documents by Reference.

     The following documents, as filed by Innovative Solutions and Support, Inc.
(the "Registrant") with the Securities and Exchange Commission (the
"Commission"), are incorporated by reference in this Registration Statement:

     1.  The Registrant's Annual Report on Form 10-K for the year ended
September 30, 2000, as amended.

     2.  The Registrant's Quarterly Reports on Form 10-Q for the quarters ended
December 31, 2000, March 31, 2001 and June 30, 2001.

     3.  The description of the Registrant's Common Stock contained in the
Registrant's Registration Statement on Form 8-A filed by the Registrant to
register such securities under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").

     All documents filed by the Registrant pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act after the date of this Registration Statement but
prior to the filing of a post-effective amendment that indicates that all
securities offered hereby have been sold or that deregisters all securities then
remaining unsold, shall be deemed to be incorporated by reference in this
Registration Statement and to be a part hereof from the date of filing of each
such document.

     Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes hereof to the extent
that a statement contained herein (or in any other subsequently filed document
that is also incorporated by reference herein) modifies or supersedes such
statement.  Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part hereof.

Item 4.  Description of Securities.

     Not Applicable.

Item 5.  Interests of Named Experts and Counsel.

     Not Applicable.
<PAGE>

Item 6.  Indemnification of Directors and Officers.

     Subchapter D (Sections 1741 through 1750) of Chapter 17 of the Pennsylvania
Business Corporation Law of 1988 (the "PBCL") contains provisions for mandatory
and discretionary indemnification of a corporation's directors, officers,
employees and agents (collectively "Representatives") and related matters.

     Under Section 1741, subject to certain limitations, a corporation has the
power to indemnify directors, officers and other Representatives under certain
prescribed circumstances against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with a threatened, pending or completed action or proceeding,
whether civil, criminal, administrative or investigative, to which any of them
is a party or threatened to be made a party by reason of his being a
Representative of the corporation or serving at the request of the corporation
as a Representative of another corporation, partnership, joint venture, trust or
other enterprise, if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
with respect to any criminal proceeding, had no reasonable cause to believe his
conduct was unlawful.

     Section 1742 provides for indemnification with respect to derivative and
corporate actions similar to that provided by Section 1741. However,
indemnification is not provided under Section 1742 in respect of any claim,
issue or matter as to which a Representative has been adjudged to be liable to
the corporation unless and only to the extent that the proper court determines
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, a Representative is fairly and reasonably
entitled to indemnity for the expenses that the court deems proper.

     Section 1743 provides that indemnification against expenses is mandatory to
the extent that a Representative has been successful on the merits or otherwise
in defense of any such action or proceeding referred to in Section 1741 or 1742.

     Section 1744 provides that unless ordered by a court, any indemnification
under Section 1741 or 1742 shall be made by the corporation as authorized in the
specific case upon a determination that indemnification of a Representative is
proper because the Representative met the applicable standard of conduct, and
such determination will be made by the board of directors by a majority vote of
a quorum of directors not parties to the action or proceeding; if a quorum is
not obtainable or if obtainable and a majority of disinterested directors so
directs, by independent legal counsel; or by the shareholders.

     Section 1745 provides that expenses incurred by a Representative in
defending any action or proceeding referred to in Subchapter D of Chapter 17 of
the PBCL may be paid by the corporation in advance of the final disposition of
such action or proceeding upon receipt of an undertaking by or on behalf of the
Representative to repay such amount if it shall ultimately be determined that he
is not entitled to be indemnified by the corporation.

     Section 1746 provides generally that except in any case where the act or
failure to act giving rise to the claim for indemnification is determined by a
court to have constituted willful misconduct or recklessness, the
indemnification and advancement of expenses provided by
<PAGE>

Subchapter D of Chapter 17 of the PBCL shall not be deemed exclusive of any
other rights to which a Representative seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding that office.

     Section 1747 grants a corporation the power to purchase and maintain
insurance on behalf of any Representative against any liability incurred by him
in his capacity as a Representative, whether or not the corporation would have
the power to indemnify him against that liability under Subchapter D of Chapter
17 of the PBCL.

     Sections 1748 and 1749 apply the indemnification and advancement of
expenses provisions contained in Subchapter D of Chapter 17 of the PBCL to
successor corporations resulting from consolidation, merger or division and to
service as a Representative of a corporation or an employee benefit plan.

     Article VII of the Registrant's bylaws provides indemnification to
directors and officers for all actions taken by them and for all failures to
take action to the fullest extent permitted by Pennsylvania law against all
expense, liability and loss reasonably incurred or suffered by them in
connection with any threatened, pending or completed action, suit or proceeding
(including, without limitation, an action, suit or proceeding by or in the right
of the Registrant), whether civil, criminal, administrative, investigative or
through arbitration. Article VII also permits the Registrant, by action of its
board of directors, to indemnify officers, employees and other persons to the
same extent as directors. Amendments, repeals or modifications of Article VII
can only be prospective, and such changes require the affirmative vote of not
less than all of the directors then serving or the holders of a majority of the
outstanding shares of stock entitled to vote in elections of directors. Article
VII further permits the Registrant to maintain insurance, at its expense, for
the benefit of any person on behalf of whom insurance is permitted to be
purchased by Pennsylvania law against any such expenses, liability or loss,
whether or not the Regsistrant would have the power to indemnify such person
against such expense, liability or loss under Pennsylvania or other law.

Item 7.  Exemption from Registration Claimed.

     Not Applicable.

Item 8.  Exhibits.

     The following exhibits are filed as part of this Registration Statement.

Exhibit
  No.                               Description
------    ----------------------------------------------------------------------
5.1       Opinion of Pepper Hamilton LLP
23.1      Consent of Arthur Andersen LLP
23.2      Consent of Counsel -- included in opinion filed as Exhibit 5.1 hereto
24.1      Power of Attorney (included with signature page of this
          Registration Statement)
99.1      1998 Stock Option Plan, As Amended
<PAGE>

99.2      1988 Incentive Stock Option Plan (incorporated by reference to Exhibit
          10.2 to the Registration Statement on Form S-1 (File No. 333-36584
          filed on May 9, 2000)

Item 9.  Undertakings.

     (a)  The undersigned Registrant hereby undertakes:

          (1)  To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:

               (i)    To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;

               (ii)   To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the Registration Statement;

               (iii)  To include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;

provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.

          (2)  That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

          (3)  To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

     (b)  The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

     (c)  Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the
<PAGE>

foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Malvern, Pennsylvania on September 19, 2001.

                              INNOVATIVE SOLUTIONS AND SUPPORT, INC.

                              By: /s/ Geoffrey S. M. Hedrick
                                  ------------------------------------
                                  Geoffrey S. M. Hedrick
                                  Chairman and Chief Executive Officer

     Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.  Each person in so signing, also makes,
constitutes and appoints Geoffrey S. M. Hedrick and James J. Reilly, and each of
them acting alone, his true and lawful attorneys-in-fact, in his name, place,
and stead to execute and cause to be filed with the securities and exchange
commission any and all amendments (including post-effective amendments)to this
registration statement with all exhibits thereto and other documents in
connection therewith.

Dated: September 19, 2001     /s/ Geoffrey S. M. Hedrick
                              --------------------------
                              Geoffrey S. M. Hedrick
                              Chairman and Chief Executive Officer
                              (Principal Executive Officer)

Dated: September 19, 2001     /s/ James J. Reilly
                              -------------------
                              James J. Reilly
                              Chief Financial Officer
                              (Principal Financial and Accounting Officer)

Dated: September 18, 2001     /s/ Winston J. Churchill
                              ------------------------
                              Winston J. Churchill
                              Director

Dated: September 18, 2001     /s/ Benjamin A. Cosgrove
                              ------------------------
                              Benjamin A. Cosgrove
                              Director

Dated: September 18, 2001     /s/ Ivan M. Marks
                              -----------------
                              Ivan M. Marks
                              Director
<PAGE>

Dated: September 18, 2001     Robert E. Mittelstaedt, Jr.
                              ---------------------------
                              Robert E. Mittelstaedt, Jr.
                              Director

<PAGE>

                                 EXHIBIT INDEX


Exhibit
  No.     Description
------    ----------------------------------------------------------------------
5.1       Opinion of Pepper Hamilton LLP
23.1      Consent of Arthur Andersen LLP
23.2      Consent of Counsel -- included in opinion filed as Exhibit 5.1 hereto
24.1      Power of Attorney (included with signature page of this
          Registration Statement)
99.1      1998 Stock Option Plan, as amended
99.2      1988 Incentive Stock Option Plan (incorporated by reference to Exhibit
          10.2 to the Registration Statement on Form S-1 (File No. 333-36584 )
          filed on May 9, 2000)

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-5.1
<SEQUENCE>3
<FILENAME>dex51.txt
<DESCRIPTION>OPINION OF PEPPER HAMILTON
<TEXT>
<PAGE>

                                                                     EXHIBIT 5.1

                              September 19, 2001


Innovative Solutions and Support, Inc.
420 Lapp Road
Malvern, Pennsylvania 19355


          Re: Registration Statement on Form S-8
              ----------------------------------

Dear Sir/Madam:

          We have acted as counsel to Innovative Solutions and Support, Inc., a
Pennsylvania corporation (the "Company"), in connection with a Registration
Statement on Form S-8 filed with the Securities and Exchange Commission on the
date hereof (the "Registration Statement"), relating to the offer and sale of up
to (i) 59,197 shares of common stock, $.001 par value per share, of the Company
(the "Common Stock"), issuable by the Company pursuant to awards granted or
available for grant under the Company's 1988 Stock Option Plan (the "1988 Plan")
and (ii) 1,034,621 shares of Common Stock issuable by the Company pursuant to
awards granted or available for grant under the Company's 1998 Incentive Stock
Option Plan (together with 1988 Plan, the "Plans").

          In rendering this opinion, we have examined the Registration
Statement, including the exhibits thereto, the Company's Articles of
Incorporation, as amended and By-Laws as currently in effect, the Plans and such
other documents as we have deemed appropriate.  We have not performed any
independent investigation other than the document examination described above.
In the foregoing examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals and the
authenticity of all documents submitted to us as copies of originals.

          Based on the foregoing, we are of the opinion that the shares of
Common Stock issuable pursuant to awards granted or available for grant under
each of the Plans will be, when issued and paid for in accordance with the terms
of each of the respective Plans and any applicable option award agreements or
related documents, validly issued, fully paid and non-assessable.

          The opinion set forth above is limited to the Business Corporation Law
of the Commonwealth of Pennsylvania, as amended.

          We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement.

          The opinion expressed herein is solely for your benefit and may be
relied upon only by you.

                              Very truly yours,

                              /s/ Pepper Hamilton LLP
                              ----------------------------
                                  PEPPER HAMILTON LLP




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>4
<FILENAME>dex231.txt
<DESCRIPTION>CONSENT OF ARTHUR ANDERSEN
<TEXT>
<PAGE>

                                                                    EXHIBIT 23.1





                   Consent of Independent Public Accountants


As independent public accountants, we hereby consent to the incorporation by
reference in this Form S-8 Registration Statement of our report dated October
27, 2000 included in Innovative Solutions and Support, Inc.'s Form 10-K for the
year ended September 30, 2000.



/s/ ARTHUR ANDERSEN LLP


Philadelphia, Pennsylvania

September 27, 2001

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>5
<FILENAME>dex991.txt
<DESCRIPTION>1998 STOCK OPTION PLAN
<TEXT>
<PAGE>

                                                                    EXHIBIT 99.1
                                                                    ------------

                    INNOVATIVE SOLUTIONS AND SUPPORT, INC.
                            1998 STOCK OPTION PLAN

   Innovative Solutions and Support, Inc. (the "Company") hereby establishes
and adopts the Innovative Solutions and Support, Inc. 1998 Stock Option Plan,
as set forth in this document.

   1. Purpose. The Plan is intended to recognize the contributions made to the
Company or an Affiliate by employees of the Company or any Affiliate (as
hereinafter defined), members of the Board of Directors of the Company or any
Affiliate, and certain consultants and advisors to the Company or any
Affiliate, to provide such persons with additional incentive to devote
themselves to the future success of the Company or any 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, $.001 par value (the "Common Stock").

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

     (a) "Act" means the Securities Act of 1933, as amended.

     (b) "Affiliate" means a corporation which is a parent corporation or a
  subsidiary corporation with respect to the Company within the meaning of
  Section 424(e) or (f) of the Code.

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

     (d) "Change of Control" shall have the meaning set forth in Section 9 of
  the Plan.

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

     (f) "Committee" means the committee designated by the Board of Directors
  in accordance with the provisions of Section 3 of the Plan.

     (g) "Company" means Innovative Solutions and Support, Inc., a
  Pennsylvania corporation.

     (h) "Disability" shall mean, in the case of an Optionee who is covered
  by a disability policy or plan paid for or provided by the Company, a
  condition which entitles the Optionee to benefits under the policy or plan.
  If there is no such policy or plan covering the Optionee, "Disability"
  shall mean a mental or physical condition which renders the Optionee
  incapable of performing his duties for the Company and which is expected to
  be permanent, as determined by the Committee.

     (i) "Exchange Act" means the Securities Exchange Act of 1934, as
  amended.

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

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

     (l) "Non-qualified Stock Option" means an Option granted under the Plan
  which is not intended to qualify, or otherwise does not qualify, as an ISO.

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

     (n) "Optionee" means a person to whom an Option has been granted under
  the Plan.

     (o) "Option Document" means the written document described in Section 8
  of the Plan evidencing the Option and setting forth the terms and
  conditions upon which the Option is granted and upon which it may be
  exercised.

                                       1
<PAGE>

     (p) "Option Price" means the price at which Shares may be purchased upon
  exercise of an Option, as determined pursuant to Section 8(b) of the Plan.

     (q) "Plan" means the Innovative Solutions and Support, Inc. 1998 Stock
  Option Plan.

     (r) "Shares" means the shares of Common Stock of the Company which are
  the subject of Options, except as the same may be modified pursuant to the
  terms of Section 10 of the Plan.

   3. Administration of the Plan.

   (a) Committee. The Plan shall be administered by a committee appointed by
the Board of Directors composed of two or more "outside directors" within the
meaning of Section 162(m) of the Code. No person shall be eligible or continue
to serve as a member of the Committee unless such person is an "outside
director" as aforesaid. Members of the Committee shall serve at the pleasure of
the Board of Directors which shall also fill any vacancies in the membership of
the Committee.

   (b) Meetings. The Committee shall hold meetings at such times and places as
it may determine and shall keep minutes of its meetings. A majority of the
Committee shall constitute a quorum thereof, and acts approved at a meeting or
acts approved in writing by a majority of the members of the Committee shall be
the valid acts of the Committee.

   (c) Grants. The Committee shall from time to time, in its discretion, direct
the Company to grant Options pursuant to the terms of the Plan. The Committee
shall have plenary authority to (i) determine the Optionees to whom, the times
at which, and the price at which Options shall be granted, (ii) determine the
type of Option to be granted and the number of Shares subject thereto, and
(iii) approve the form and terms and conditions of the Option Documents; all
subject, however, to the express provisions of the Plan. In making such
determinations, the Committee shall take into account the nature of the
Optionee's services and responsibilities, the Optionee's present and potential
contribution to the Company's success and such other factors as the Committee
may deem relevant. The interpretation and construction by the Committee of any
provisions of the Plan or of any Option granted under the Plan, and of any
Option Document, shall be final, binding and conclusive.

   (d) Exculpation. No member of the Committee or of the Board of Directors
shall be personally liable for monetary damages for any action taken or any
failure to take any action in connection with the administration of the Plan or
the granting of Options under the Plan, provided that this Section 3(d) shall
not apply to (i) any breach of such member's duty of loyalty to the Company or
its shareholders, (ii) acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law, (iii) acts or omissions
that would result in liability under Section 1553 of the Pennsylvania Business
Corporation Law, as amended, or (iv) any transaction from which the member
derived an improper personal benefit.

   (e) Indemnification. Service on the Committee shall constitute service as a
member of the Board of Directors. Each member of the Committee shall be
entitled without further act on his 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 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 a member of the Committee at the time of the action, suit
or proceeding.

   4. Grants under the Plan. Grants under the Plan may be in the form of a Non-
qualified Stock Option, an ISO or a combination thereof, at the discretion of
the Committee. More than one Option may be granted to any individual, and each
such grant may include Options which are intended to be ISOs and Options which
are not intended to be ISOs, but only on the terms and subject to the
conditions and restrictions of the Plan.

   5. Eligibility. All employees and members of the Board of Directors of, and
consultants and advisors to, the Company or an Affiliate shall be eligible to
receive Options hereunder.

                                       2
<PAGE>

   6. Shares Subject to Plan. The aggregate maximum number of Shares for which
Options may be granted pursuant to the Plan is 1,259,350, subject to adjustment
as provided in Section 10 of the Plan. The maximum number of Shares with
respect to which Options may be granted under the Plan to any Employee during
any calendar year is 250,000 Shares, subject to adjustment in Section 10 of the
Plan. The Shares shall be issued from either 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, the Shares for which the Option was not exercised may again be
the subject of further Option grants under the Plan.

   7. Term of the Plan. No Option may be granted under the Plan after November
13, 2008 or the earlier termination of the Plan.

   8. Option Documents and Terms. Each Option granted under the Plan shall be a
Non-qualified Stock Option unless the Option shall specifically be designated
an ISO at the time of grant. If any Option designated as 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. The grant of
each Option under the Plan shall be evidenced by one or more Option Documents
in such form as the Committee shall from time to time approve, which Option
Documents shall be executed by the Company as promptly as possible following
such grant. Each Option Document 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, and the Option Document shall expressly state the provisions
of the Plan or incorporate them by reference.

   (a) Number of Option Shares. Each Option Document shall state the number of
Shares to which it pertains.

   (b) Option Price. Each Option Document shall, subject to adjustment as
provided in Section 10 of the Plan, 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
Section 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, stock
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, 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, 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. If the Common Stock is not traded in a public market on
the relevant date, the Fair Market Value shall be as determined in good faith
by the Committee.

   (c) Exercise. An Option granted under the Plan may be exercised in whole or
in part to the extent then exercisable under the terms of the Option Document
and this Plan, provided that no Option shall be deemed to have been exercised
prior to the receipt by the Company of written notice of such exercise (on such
form or forms as the Committee may prescribe for this purpose) and of payment
in full (except as otherwise provided in Section 8(d) of the Plan) of the
Option Price for the Shares to be purchased. Moreover, except as an Option
Document may otherwise provide, no Option may be exercised within six months of
the date of grant. Each such notice of exercise shall specify the number of
Shares to be purchased and shall (unless the Shares are covered by a then
current and effective registration statement or qualified Offering Statement
under Regulation A under the Securities Act) contain the Optionee's
acknowledgment in form and substance satisfactory to the Company that (i) 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

                                       3
<PAGE>

violating the registration provisions of the Act), (ii) the Optionee has been
advised and understands that (A) the Shares have not been registered under the
Act, are "restricted securities" within the meaning of Rule 144 under the Act
and are subject to restrictions on transfer and (B) 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,
(iii) such Shares may not be transferred without compliance with all applicable
federal and state securities laws, and (iv) 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 in its sole discretion determines that issuance of
Shares should be delayed pending (I) registration under federal or state
securities laws, (II) the receipt of an opinion of counsel satisfactory to the
Company that an appropriate exemption from such registration is available,
(III) the listing, registration, qualification or inclusion of the Shares on
any securities exchange or an automated quotation system or under any state or
federal law or (IV) the consent or approval of any governmental regulatory body
whose consent or approval is necessary or desirable 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.

   (d) Medium of Payment. Upon exercise of an Option, the aggregate Option
Price for the Shares as to which the Option is being exercised shall, in the
discretion of the Committee, be (i) paid in U.S. funds by cash (including a
check, draft or wire transfer made payable to the order of the Company), or
delivery of stock certificates for Shares of the Company's Common Stock, free
of all liens, claims and encumbrances of every kind, and endorsed in blank or
accompanied by executed stock powers with signatures guaranteed by a national
bank or trust company or a member of a national securities exchange evidencing
Shares which have been held for more than six months (in which case the value
of such Shares shall be deemed to be their Fair Market Value on the date of
exercise of the Option), (ii) paid on a deferred basis upon such terms and
conditions as the Committee in its discretion shall provide, (iii) deemed to be
paid provided the notice of exercise of the Option is accompanied to the
Committee's satisfaction by a copy of irrevocable instructions to a broker to
promptly deliver to the Company an amount of sales or loan proceeds sufficient
to pay the Option Price in full, or (iv) a combination of the foregoing. If any
part of the Option Price is to be paid on a deferred basis, the Shares with
respect to which payment is deferred shall be registered in the name of the
Optionee, but the certificate representing such Shares shall serve as security
to the Company for the payment of the Option Price and shall not be delivered
to the Optionee until the Option Price for said Shares has been paid in full.

   (e) Termination of Options.

     (i) No Option or any unexercised installment thereof shall be
  exercisable after the first to occur of the following:

       (A) Expiration of the Option term specified in the Option Document
    which, subject to earlier termination as hereinafter provided, shall
    not exceed (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 and/or by attribution under Section 424(d) of the Code, stock
    possessing more than ten percent of the total combined voting power of
    all classes of stock of the Company or of an Affiliate;

       (B) 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; provided, however, that such
    Option was exercisable on the date of termination of employment or
    service under the provisions of the Option Document or the Committee
    specifically waives the restrictions relating to exercisability, if
    any, contained in the Option Document.

       (C) 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, whether or not the Option was exercisable on the
    date of such termination under the provisions of the Option Document
    relating thereto. The determination of whether the termination of the
    Optionee's employment or service with

                                       4
<PAGE>

    the Company is due to Disability shall be made by the Committee, and
    such determination shall be final and binding on the Company and the
    Optionee;

       (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 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 committed an
    intentional or grossly negligent act detrimental to the interests 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 upon refund by the Company of the Option Price of such
    Shares. 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 of Control.

     (ii) Notwithstanding the Option termination provisions of Section
  8(e)(i), the Committee, in it sole discretion, 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 Section
  8(e)(i)(A), provided that any change pursuant to this Section 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.

   (f) Transfers. Except as otherwise provided by law, no Option granted under
the Plan may be transferred, except by will or by the laws of descent and
distribution. During the lifetime of the person to whom an Option is granted,
such Option may be exercised only by him or his guardian or legal
representative. Notwithstanding the foregoing, the Committee in its sole
discretion may permit the transfer of an Option, without payment of
consideration, to immediate family members of the Optionee or to trusts or
partnerships for such family members.

   (g) Limitation on ISO Grants. In no event shall the aggregate fair market
value of the Shares of Common Stock (determined at the time an 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 or such greater sum as
may here after be permitted under Section 422 of the Code.

   (h) Conversion of ISO to Non-Qualified Stock Option. An Optionee shall have
the right, at the Optionee's election and upon notice to the Company, to
convert or to otherwise cause the conversion of ISO's granted to the Optionee
hereunder into Non-qualified Stock Options; provided, that Optionee shall
indemnify and hold harmless the Company from and against any loss or damage
resulting from such conversion, including, but not limited to, any loss
incurred by reason of the nonavailability of any deduction to the Company under
federal income tax law.

   (i) Other Provisions. Subject to the provisions of the Plan, each Option
Document 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.

   (j) Amendment. The Committee shall have the right to amend any Option
Document issued to an Optionee to the extent the terms to be amended are within
the Committee's discretion as provided in the Plan but 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 Section 8(e)(i)(E) or Section 9 of the Plan, as applicable.

                                       5
<PAGE>

   9. Change of Control. In the event of a Change of Control, all Options then
outstanding under the Plan immediately shall become vested and exercisable in
full; provided that any acceleration of exercisability of options under this
Section 9 which would cause an ISO to become a Non-Qualified Stock Option may
be made only with the consent of the Optionee. In addition, in the event of a
Change of Control, the Committee may take whatever other action with respect to
Options outstanding as it deems necessary or desirable, including without
limitation, accelerating the expiration date of any Options. Any amendment to
this Section 9 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 of Control" shall be deemed to have occurred upon the earliest to
occur of the following events: (a) 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 dissolved or
liquidated, (b) 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, (c) 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 Common
Stock immediately prior to the merger or consolidation will have at least a
majority of the voting power of the surviving corporation's voting securities
immediately after the merger or consolidation, which voting securities are to
be held in the same proportion as such holders' ownership of Common Stock
immediately before the merger or consolidation, (d) the date any entity, person
or group, within the meaning of Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act (other than (i) the Company or any of its Affiliates or any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any of its Affiliates, or (ii) any other person who, as of January 1, 1995,
shall have been the beneficial owner (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of more than 30% of outstanding shares of
Common Stock), shall have become the beneficial owner of, or shall have
obtained voting control over, more than 30% of the outstanding shares of Common
Stock, or (e) 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 years, unless the
nomination for election of each new director who was not a director at the
beginning of such two-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.

   10. Adjustments. In the event that a dividend shall be declared upon the
Common Stock payable in Shares of Common Stock or if a stock split is declared
with respect to the Common Stock, the number of Shares of Common Stock then
subject to any Option outstanding under the Plan and the number of Shares
reserved for the grant of Options pursuant to the Plan but not yet subject to
an Option shall be adjusted by adding to each such Share the number of shares
which would be distributable in respect thereof if such Shares had been
outstanding on the date fixed for determining the shareholders of the Company
entitled to receive such stock dividend or stock split. In the event that the
outstanding shares of Common Stock shall be changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company
or of another corporation, whether through reorganization, recapitalization,
stock split combination of shares, merger, consolidation or otherwise, there
shall be substituted for each Share of Common Stock subject to any such Option
and for each Share of Common Stock reserved for the grant of Options pursuant
to the Plan but not yet subject to an Option, the number and kind of shares of
stock or other securities into which each outstanding share of Common Stock
shall have been so changed or for which each such share shall have been
exchanged. In the event there shall be any change, other than as specified
above in this Section 10, in the number or kind of outstanding shares of Common
Stock or of any stock or other securities into which such Common Stock shall
have been changed or for which it shall have been exchanged, then if the Board
of Directors shall in its sole discretion determine that such change equitably
requires an adjustment in the number or kind of Shares theretofore reserved for
the grant of Options pursuant to the Plan but not yet subject to an Option and
of the Shares then subject to Options, such adjustment shall be made by the
Board of Directors and shall be effective

                                       6
<PAGE>

and binding for all purposes of the Plan and of each Option outstanding
thereunder. In the case of any such substitution or adjustment as provided for
in this Section 10, the Option Price for each Share of stock or other security
which shall have been substituted for each Share of Common Stock covered by an
outstanding Option shall be adjusted appropriately to reflect such substitution
or adjustment. No adjustment or substitution provided for in this Section 10
shall require the Company to sell a fractional share of Common Stock, and the
total substitution or adjustment with respect to each outstanding Option shall
be limited accordingly. Upon any adjustment made pursuant to this Section 10,
the Company will, upon request, deliver to the Optionee a certificate of its
Secretary setting forth the Option Price thereafter in effect and the number
and kind of shares or other securities thereafter purchasable on the exercise
of such Option.

   11. Amendment or Termination of the Plan. The Board of Directors may
terminate the Plan in whole or in part at any time or amend the Plan from time
to time in such manner as it may deem advisable. Nevertheless, the Board of
Directors of the Company shall not (a) change the class of individuals eligible
to receive an ISO, (b) increase the maximum number of Shares as to which
Options may be granted or (c) make any other change or amendment to which
shareholder approval is required in order to satisfy the conditions set forth
in Rule 16b-3 promulgated under the Exchange Act, in each case without
obtaining approval, within twelve months before or after such action, by vote
of a majority of the votes cast at a duly called meeting of the shareholders at
which a quorum representing a majority of all outstanding voting stock of the
Company is, either in person or by proxy, present and voting on the matter. No
amendment to the Plan, however, shall adversely affect any outstanding Option
in any material respect without the consent of the Optionee.

   12. No Commitment to Retain. The grant of an Option 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 Affiliate to retain the
Optionee in the employ or service of the Company or an Affiliate and/or as a
member of the Company's Board of Directors or in any other capacity, and
nothing in the Plan shall interfere with or limit in any way the right of the
Company or an Affiliate to terminate the employment or service of an Optionee.

   13. Withholding of Taxes. The Company shall deduct or withhold an amount
sufficient to satisfy all Federal, state and local taxes required by law to be
withheld with respect to any grant or exercise of an Option or other
transaction under the Plan which gives rise to a withholding obligation and, in
so doing, the Company shall by agreement with the Optionee or unilaterally take
such action as it deems necessary or prudent to protect the Company's interest
with respect to such withholding obligations. In the sole discretion of the
Committee, and subject to such conditions or limitations as the Committee shall
prescribe, an Optionee may satisfy the withholding obligation, in whole or in
part, by electing to have the number of Shares to be issued upon exercise of an
Option reduced by a number of Shares having a Fair Market Value equal to the
desired withholding amount or by surrendering to the Company Shares which the
Optionee has held for more than six months having an equivalent Fair Market
Value. If the method of payment for the Shares is from a loan or sale by a
broker of the Shares acquired on exercise of the Option, the withholding
obligation shall be satisfied from the proceeds of such loan or sale.

   14. Interpretation. It is the intent of the Company that transactions under
the Plan with respect to directors and officers (within the meaning of Section
16(a) of the Exchange Act) satisfy the conditions of Rule 16b-3 promulgated
under the Exchange Act. To the extent that any provision of the Plan or action
by the Committee would result in a conflict with or fail to comply with any
such condition, such provision or action shall be deemed null and void as
applied to such transactions to the extent permitted by applicable law and
deemed advisable by the Company. This Section 14 shall not be applicable if no
class of the Company's equity securities is then registered pursuant to Section
12 of the Exchange Act. In addition, with respect to employees subject to
Section 162(m) of the Code, transactions under the Plan are intended to avoid
the loss of a deduction under that Code section. Accordingly, to the extent any
provision of the Plan or action by the Committee fails to comply with Section
162(m) of the Code to avoid the loss of a deduction, it shall be deemed null
and void to the extent permitted by law and deemed advisable by the Company.

                                       7
<PAGE>

   15. Governing Law. The granting of Options and the issuance of Shares under
the Plan shall be subject to all applicable laws and regulations and to such
approvals by any governmental agency or national securities exchanges as may be
required. To the extent not pre-empted by Federal law, the Plan and all Option
Documents hereunder shall be construed in accordance with and governed by the
laws of Pennsylvania.

                                       8

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
