Key Employee Incentive Plan

EXHIBIT 10.3


HERSHEY FOODS CORPORATION


KEY EMPLOYEE INCENTIVE PLAN
(Amended and Restated as of June 9, 1999) 1.
ESTABLISHMENT AND PURPOSE


Hershey Foods Corporation (the "Corporation") hereby establishes the Key
Employee Incentive Plan (the "Plan"). The purpose of the Plan is to provide
to selected key employees of the Corporation and its subsidiaries (as
defined below), upon whose efforts the Corporation is dependent for the
successful conduct of its business, further incentive to continue and
increase their efforts as employees and to remain in the employ of the
Corporation and its subsidiaries.


The Plan continues the Annual Incentive Program ("AIP"), with certain
modifications, as in effect under the Corporation's Management Incentive
Plan ("MIP") established in 1975 and as amended thereafter, pursuant to
which participants are entitled to receive cash awards based on achievement
of performance goals during annual performance cycles. The Plan also
continues the Long-Term Incentive Program ("LTIP") portion of the MIP with
certain modifications. In addition to performance stock units ("Performance
Stock Units"), the LTIP portion now also includes nonqualified stock
options for the purchase of Common Stock ("Options"); stock appreciation
rights ("SARs"); and restricted stock units ("Restricted Stock Units").


As used herein, (i) the term "Subsidiary Corporation" shall mean any
present or future corporation which is or would be a "subsidiary
corporation" of the Corporation as defined in Section 424 of the Internal
Revenue Code of 1986 (the "Code"), and (ii) the term "Corporation" defined
above shall refer collectively to Hershey Foods Corporation and its
Subsidiary Corporations unless the context indicates otherwise.


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2. STOCK SUBJECT TO THE PLAN


The aggregate number of shares which may be covered by Performance Stock
Units, Options, SARs and Restricted Stock Units granted pursuant to the
LTIP portion of the Plan is 6.5 million (6,500,000) shares of the
Corporation's Common Stock, $1.00 Par Value (the "Common Stock"), subject
to adjustment in accordance with Section 12 below. The shares issued under
this Plan may be either authorized but unissued shares, treasury shares
held by the Corporation or any direct or indirect subsidiary thereof or
shares acquired by the Corporation through open market purchases (whether
made before or after any exercise of Options(s) or the granting of stock
compensation hereunder) or otherwise. In addition to shares of Common Stock
actually issued or distributed under the Plan, there shall be deemed to
have been issued a number of shares equal to (i) the number of shares of
Common Stock in respect of which optionees utilize the manner of exercise
of, and payment for, Options as provided in Paragraph 7II(g) of this Plan,
and (ii) the number of shares of Common Stock which is equivalent in value
to any cash amounts distributed upon payment of Performance Stock Units,
SARs or Restricted Stock Units. For purposes of determining the charge to
be made pursuant to subpart (ii) against the shares of Common Stock subject
to the Plan, the value of a share of Common Stock shall be its Fair Market
Value as defined in Paragraph 4 when awards are made with respect to
Performance Stock Units, upon exercise of SARs, and upon expiration of the
applicable restriction period of Restricted Stock Units. Any shares
subject under the Plan to Performance Stock Units, Options, SARs or
Restricted Stock Units which, for any reason, expire or terminate or are
forfeited or surrendered shall again be available for issuance under the
Plan.


3. ADMINISTRATION


The Plan shall be administered by the Compensation and Executive
Organization Committee (the "Committee"), or any successor committee,
appointed by and consisting solely of members of the Board of Directors
(the "Board") of the Corporation, each of whom qualifies as both a
"nonemployee director" within the meaning of Rule 16b-3 or its successor
under the Securities Exchange Act of 1934 (the "Exchange Act") and an
"outside director" within the


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meaning of Section 162(m) of the Code. Committee members shall not be
eligible to participate in the Plan. The Board may from time to time
remove and appoint members of the Committee in substitution for, or in
addition to, members previously appointed and may fill vacancies, however
caused, in the Committee. The Committee may adopt such rules and
regulations as it deems useful in governing its affairs. Any action of the
Committee with respect to the administration of the Plan shall be taken
by majority vote at a Committee meeting or written consent of all
Committee members.


Subject to the terms and conditions of the Plan, the Committee shall have
authority: (i) to construe and interpret Plan provisions; (ii) to define
the terms used in the Plan; (iii) to prescribe, amend and rescind rules and
regulations relating to the Plan; (iv) to select particular employees to
participate in the Plan, (v) to determine the terms, conditions, form and
amount of grants, distributions or payments made to each participant,
including conditions upon and provisions for vesting, exercise and
acceleration of any grants, distributions or payments; (vi) upon the
request of a participant in the Plan, to approve and determine the duration
of leaves of absence which may be granted to the participant without
constituting a termination of his or her employment for purposes of the
Plan; and (vii) to make all other determinations necessary or advisable for
the administration and operation of the Plan. The Committee shall have the
right to impose varying terms and conditions with respect to each grant or
award. All determinations and interpretations made by the Committee shall
be final, binding and conclusive on all participants and on their legal
representatives and beneficiaries.


4. FAIR MARKET VALUE


As used in the Plan (unless a different method of calculation is required
by applicable law, and except as otherwise specifically provided in any
Plan provision), "Fair Market Value" on or as of any date shall mean (i)
the closing price of the Common Stock as reported in the New York Stock
Exchange Composite Transactions Report (or any other consolidated
transactions reporting system which subsequently may replace such Composite
Transactions Report) for the New York Stock Exchange trading day
immediately preceding such date, or if there are


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no sales on such date, on the next preceding day on which there were sales,
or (ii) in the event that the Common Stock is no longer listed for
trading on the New York Stock Exchange, an amount determined in
accordance with standards adopted by the Committee.


5. ELIGIBILITY AND PARTICIPATION


Key employees of the Corporation or of any of its Subsidiary Corporations,
including officers and directors who are regular employees but not members
of the Committee, who in the opinion of the Committee are in a position to
contribute significantly to the success of the Corporation or any
Subsidiary Corporation, division or operating unit thereof, shall be
eligible for selection to participate in the Plan. In making this selection
and in determining the form and amount of grants, distributions and
payments under the Plan, the Committee shall take into account the duties
of the respective employees, their present and potential contributions to
the success of the Corporation or any Subsidiary Corporation, division or
operating unit thereof, and such other factors as the Committee may deem
relevant in connection with accomplishing the purposes of the Plan. An
employee who has been selected to participate may, if he or she is
otherwise eligible, receive more than one grant from time to time, and may
be granted any combination of contingent target grants under the AIP or
under the LTIP components of the Plan, as the Committee shall determine.


6. ANNUAL INCENTIVE PROGRAM


The Committee may from time to time, subject to the provisions of the Plan
and such other terms and conditions as the Committee may determine,
establish contingent target grants for those eligible employees it selects
to participate in the AIP. Each such contingent grant may be, but need not
be, evidenced by a written instrument, and shall be determined in relation
to the participant's level of responsibility in the Corporation and the
competitive compensation practices of other major businesses, and such
other factors as are deemed appropriate by the Committee.


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(a) Awards actually earned by and paid to AIP participants ("AIP Awards")
will be based primarily upon achievement of performance goals over a
one-year performance cycle as approved by the Committee.


(b) The Committee, within the limits of the Plan, shall have full authority
and discretion to determine the time or times of establishing
contingent target grants; to select from among those eligible the
employees to receive awards; to review and certify the achievement of
performance goals; to designate levels of awards to be earned in
relation to levels of achievement of performance goals; to adopt such
financial and nonfinancial performance or other criteria for the
payment of awards as it may determine from time to time; to make
awards; and to establish such other measures as may be necessary to
achieve the objectives of the Plan. The financial or non-financial
performance goals established by the Committee may be based upon one or
more of the following: earnings per share, return on net assets, market
share, control of costs, net sales, cash flow, economic value-added
measures, sales growth, earnings growth, stock price, return on equity,
improvements in financial ratings, regulatory compliance, achievement
of balance sheet or income statement objectives, or any other objective
goals established by the Committee (the "Performance Factors").


(c) Aggregate annual AIP Awards shall not exceed six (6%) percent of the
excess of Before-Tax Income (defined for these purposes as Net Income
plus provision for Federal, state and local income taxes and interest
expense on long-term debt, but after consideration of the cost of the
cost of the Plan) over sixteen (16%) percent of Total Invested Capital
(defined for these purposes as Stockholders' Equity plus Long-Term
Debt plus Deferred Income Taxes) determined as the average of such
Total Invested Capital at the beginning of the year and the end of
each calendar quarter of such year. The maximum amount any participant
can receive as an AIP Award for any calendar year shall not exceed
$2,100,000.


(d) AIP Awards as earned under the terms of the Plan shall be paid in cash
and may exceed or be less than the contingent target grants, provided
that payments do not exceed the


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maximum permitted cost of the AIP calculated pursuant to subparagraph
(c) above. Payment shall normally be made as soon as possible
following the close of the year, but payment of all or any portion
may be deferred by participants with the approval of the Committee.


7. LONG-TERM INCENTIVE PROGRAM


The LTIP consists of the following four components:


I. PERFORMANCE STOCK UNITS


The Committee may, subject to the provisions of the Plan and such other
terms and conditions as the Committee may determine, grant Performance
Stock Units to reflect the value of contingent target grants
established for each eligible employee selected for participation. Each
grant of Performance Stock Units may be, but need not be, evidenced by
a written instrument. Such contingent target grants shall be determined
in relation to the employee's level of responsibility in the
Corporation or any Subsidiary Corporation, division or operating unit
thereof, and the competitive compensation practices of other major
businesses.


(a) Awards actually earned by and paid to holders of Performance Stock
Units ("PSU Awards") will be based upon achievement of performance
goals over performance cycles as approved by the Committee. Such
performance cycles each shall cover such period of time, not
exceeding five years, as the Committee from time to time shall
determine.


(b) The Committee, within the limits of the Plan, shall have full
authority and discretion to determine the time or times of
establishing contingent target grants and the granting of
Performance Stock Units; to select from among those eligible the
employees to receive PSU Awards; to review and certify the
achievement of performance goals; to designate levels of awards to
be earned in relation to levels of achievement of


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performance goals; to adopt such financial and nonfinancial
performance or other criteria for the payment of PSU Awards as it
may determine from time to time; to make awards; and to establish
such other measures as may be necessary to the objectives of the
Plan. The performance goals established by the Committee may be
based on one or more of the Performance Factors.


(c) Payments of PSU Awards shall be made in shares of Common Stock or
partly in cash as the Committee in its sole discretion shall
determine and shall be charged against the shares available under
the LTIP portion of the Plan as provided in Paragraph 2; provided,
however, that no fractional shares shall be issued and any such
fraction will be eliminated by rounding downward to the nearest
whole share. In any case in which actual payment of a PSU Award is
deferred as provided below, a charge will be made against the
available shares for the number of shares equivalent to the dollar
amount of the deferred PSU Award.


(d) PSU Awards as earned under the terms of the Plan may exceed or be
less than the contingent target grants. Payment shall normally be
made as soon as possible following the close of the year, but
payment of all or any portion may be deferred by participants with
the approval of the Committee.


(e) The maximum amount a participant can receive as a PSU Award in any
calendar year is $2,430,000.


II. STOCK OPTIONS


The Committee may, from time to time, subject to the provisions of the
Plan and such other terms and conditions as it may determine, grant
nonqualified Options to purchase shares of Common Stock of the
Corporation to employees eligible to participate in the Plan. Each
grant of an Option shall be on such terms and conditions and be in such
form as the Committee may from time to time approve, subject to the
following:


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(a) The exercise price per share with respect to each Option shall be
determined by the Committee in its sole discretion, but shall not
be less than 100% of the Fair Market Value of the Common Stock as
of the date of the grant of the Option.


(b) Options granted under the Plan shall be exercisable, in such
installments and for such periods, as shall be provided by the
Committee at the time of granting, but in no event shall any
Option granted extend for a period in excess of ten years from the
date of grant.


(c) The maximum number of shares of Common Stock covered by Options
granted to a participant for any calendar year shall not exceed
250,000.


(d) Among other conditions that may be imposed by the Committee, if
deemed appropriate, are those relating to (i) the period or
periods and the conditions of exercisability of any Option; (ii)
the minimum periods during which grantees of Options must be
employed, or must hold Options before they may be exercised; (iii)
the minimum periods during which shares acquired upon exercise
must be held before sale or transfer shall be permitted; (iv)
conditions under which such Options or shares may be subject to
forfeiture; and (v) the frequency of exercise or the minimum or
maximum number of shares that may be acquired at any one time.


(e) Exercise of an Option shall be by written notice stating the
election to exercise in the form and manner determined by the
Committee.


(f) The purchase price upon exercise of any Option shall be paid in
full by making payment (i ...