Exhibit 4.1


 


 


2004 MERCER
INSURANCE GROUP, INC.

STOCK INCENTIVE PLAN

Effective June 16,
2004

(As Approved By Shareholders On June 16,
2004)


 





















 


2004 MERCER
INSURANCE GROUP, INC.

STOCK INCENTIVE PLAN


 


TABLE OF CONTENTS


 


	
  ARTICLE

  	
   

  
	
   

  	
   

  
	
  ARTICLE 1.
  PURPOSE OF THE PLAN; TYPES OF AWARDS

  	
   

  
	
   

  	
   

  
	
  ARTICLE 2. DEFINITIONS

  	
   

  
	
   

  	
   

  
	
  ARTICLE 3.
  ADMINISTRATION

  	
   

  
	
   

  	
   

  
	
  ARTICLE 4.
  COMMON STOCK SUBJECT TO THE PLAN

  	
   

  
	
   

  	
   

  
	
  ARTICLE 5. ELIGIBILITY

  	
   

  
	
   

  	
   

  
	
  ARTICLE 6.
  STOCK OPTIONS IN GENERAL

  	
   

  
	
   

  	
   

  
	
  ARTICLE 7.
  TERM, VESTING AND EXERCISE OF OPTIONS

  	
   

  
	
   

  	
   

  
	
  ARTICLE 8.
  EXERCISE OF OPTIONS FOLLOWING TERMINATION OF EMPLOYMENT OR SERVICE

  	
   

  
	
   

  	
   

  
	
  ARTICLE 9. RESTRICTED
  STOCK

  	
   

  
	
   

  	
   

  
	
  ARTICLE 10.
  ADJUSTMENT PROVISIONS

  	
   

  
	
   

  	
   

  
	
  ARTICLE 11.
  GENERAL PROVISIONS

  	
   

  



 





















 


ARTICLE 1.  PURPOSE OF THE PLAN;
TYPES OF AWARDS


 


1.1  Purpose.  The Mercer Insurance Group, Inc.
2004 Stock Incentive Plan is intended to provide selected employees and
non-employee directors of Mercer Insurance Group and its Subsidiaries with an
opportunity to acquire Common Stock of the Corporation.  The Plan is designed to help the Corporation
attract, retain and motivate employees and non-employee directors to make
substantial contributions to the success of the Corporation’s business and the
businesses of its Subsidiaries.  Awards
will be granted under the Plan based, among other things, on a participant’s
level of responsibility and performance.


 


1.2  Authorized
Plan Awards.  Incentive Stock
Options, Nonqualified Stock Options, and Restricted Stock may be awarded within
the limitations of the Plan herein described.


 


ARTICLE
2.  DEFINITIONS


 


2.1  “Agreement.”  A written or electronic agreement between the
Corporation and a Participant evidencing the grant of an Award.  A Participant may be issued one or more
Agreements from time to time, reflecting one or more Awards.


 


2.2  “Award.”  The grant of a Stock Option or Restricted
Stock.


 


2.3  “Board.”  The Board of Directors of the Corporation.


 


2.4  “Change in
Control.”  Except as otherwise provided
in an Agreement, the first to occur of any of the following events:


 


(a)  any “Person” (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), except for any of the
Corporation’s employee benefit plans, or any entity holding the Corporation’s
voting securities for, or pursuant to, the terms of any such plan (or any trust
forming a part thereof) (the “Benefit Plan(s)”), is or becomes the beneficial
owner, directly or indirectly, of the Corporation’s securities representing
19.9% or more of the combined voting power of the Corporation’s then
outstanding securities other than pursuant to a transaction excepted in
Clause (d);


 


(b)  there occurs a contested proxy solicitation
of the Corporation’s shareholders that results in the contesting party
obtaining the ability to vote securities representing 19.9% or more of the
combined voting power of the Corporation’s then outstanding securities;


 


(c)  a binding written agreement is executed
providing for a sale, exchange, transfer or other disposition of all or
substantially all of the assets of the Corporation to another entity, except to
an entity controlled directly or indirectly by the Corporation;


 


(d)  the shareholders of the Corporation approve a
merger, consolidation, or other reorganization of the Corporation, unless:


 


(i)  under the terms of the agreement providing
for such merger, consolidation or reorganization, the shareholders of the
Corporation immediately before such merger, consolidation or reorganization,
will own, directly or indirectly immediately following


 


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such merger, consolidation or reorganization, at least
51% of the combined voting power of the outstanding voting securities of the
Corporation resulting from such merger, consolidation or reorganization (the “Surviving
Corporation”) in substantially the same proportion as their ownership of the
voting securities immediately before such merger, consolidation or
reorganization;


 


(ii)  under the terms of the agreement providing
for such merger, consolidation or reorganization, the individuals who were
members of the Board immediately prior to the execution of such agreement will
constitute at least 51% of the members of the board of directors of the
Surviving Corporation after such merger, consolidation or reorganization; and


 


(iii)  based on the terms of the agreement providing
for such merger, consolidation or reorganization, no Person (other than
(A) the Corporation or any Subsidiary of the Corporation, (B) any
Benefit Plan, (C) the Surviving Corporation or any Subsidiary of the
Surviving Corporation, or (D) any Person who, immediately prior to such
merger, consolidation or reorganization had beneficial ownership of 19.9% or
more of the then outstanding voting securities) will have beneficial ownership
of 19.9% or more of the combined voting power of the Surviving Corporation’s
then outstanding voting securities;


 


(e)  a plan of liquidation or dissolution of the
Corporation, other than pursuant to bankruptcy or insolvency laws, is adopted;
or


 


(f)  during any period of two consecutive years,
individuals, who at the beginning of such period, constituted the Board cease
for any reason to constitute at least a majority of the Board unless the
election, or the nomination for election by the Corporation’s shareholders, of
each new director was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of the
period.


 


Notwithstanding Clause (a), a Change in Control
shall not be deemed to have occurred if a Person becomes the beneficial owner,
directly or indirectly, of the Corporation’s securities representing 19.9% or
more of the combined voting power of the Corporation’s then outstanding
securities solely as a result of an acquisition by the Corporation of its
voting securities which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by such Person
to 19.9% or more of the combined voting power of the Corporation’s then
outstanding securities; provided, however, that if a Person becomes a
beneficial owner of 19.9% or more of the combined voting power of the
Corporation’s then outstanding securities by reason of share purchases by the
Corporation and shall, after such share purchases by the Corporation, become
the beneficial owner, directly or indirectly, of any additional voting
securities of the Corporation (other than as a result of a stock split, stock
dividend or similar transaction), then a Change in Control of the Corporation
shall be deemed to have occurred with respect to such Person under Clause (a).  In no event shall a Change in Control of the
Corporation be deemed to occur under Clause (a) with respect to Benefit
Plans.


 


2.5  “Code.”  The Internal Revenue Code of 1986, as
amended.


 


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2.6  “Code of
Conduct.”  The policies and procedures
related to employment of employees by the Corporation or a Subsidiary set forth
in the Corporation’s employee handbook. 
The Code of Conduct may be amended and updated at any time.  The term “Code of Conduct” shall also include
any other policy or procedure that may be adopted by the Corporation or a
Subsidiary and communicated to Employees and Non-Employee Directors of the
Corporation or a Subsidiary.


 


2.7  “Committee.”  The Compensation Committee of the Board.


 


2.8  “Common
Stock.”  The common stock of the
Corporation (no par value) as described in the Corporation’s Articles of
Incorporation, or such other stock as shall be substituted therefor.


 


2.9  “Corporation.”  Mercer Insurance Group, Inc., a Pennsylvania
corporation.


 


2.10  “Employee.”  Any common law employee of the Corporation or
a Subsidiary.  An Employee does not
include any individual who: (i) does not receive payment for services
directly from the Corporation’s or a Subsidiary’s payroll; (ii) is
employed by an employment agency that is not a Subsidiary; or (iii) who
renders services pursuant to a written arrangement that expressly provides that
the service provider is not eligible for participation in the Plan, regardless
if such person is later determined by the Internal Revenue Service or a court
of law to be a common law employee.


 


2.11  “Exchange
Act.”  The Securities Exchange Act
of 1934, as amended.


 


2.12  “Incentive
Stock Option.”  A Stock Option intended
to satisfy the requirements of Code Section 422(b).


 


2.13  “Non-Employee
Director.”  A member of the Board who is
not an Employee.


 


2.14  “Nonqualified
Stock Option.”  A Stock Option which does
not satisfy the requirements of Code Section 422(b).


 


2.15  “Optionee.”  A Participant who is awarded a Stock Option
pursuant to the provisions of the Plan.


 


2.16  “Participant.”  An Employee or Non-Employee Director to whom
an Award has been granted and remains outstanding.


 


2.17  “Performance
Criteria.”  Any objective determination
based on one or more of the following areas of performance of the Corporation,
a Subsidiary, or any division, department or group of either which includes,
but is not limited to: (a) earnings, (b) cash flow, (c) revenue,
(d) financial ratios, (e) market performance, (f) shareholder
return, (g) operating profits (including earnings before interest, taxes,
depreciation and amortization), (h) earnings per share, (i) return on
assets, (j) return on equity, (k) return on investment,
(l) stock price, (m) asset quality, (n) expense reduction, (o) systems
conversion, (p) special projects as determined by the Committee, and
(q) acquisition integration initiatives. 
Performance Criteria shall be established by the Committee prior to the
issuance of a Performance Grant.


 


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2.18  “Performance
Goal.”  One or more goals established by
the Committee, with respect to an Award intended to constitute a Performance
Grant, that relate to one or more Performance Criteria.  A Performance Goal shall relate to such period
of time, not less than one year (unless coupled with a vesting schedule of at
least one year) or more than five years, as may be specified by the Committee
at the time of the awarding of a Performance Grant.


 


2.19  “Performance
Grant.”  An Award, the vesting or receipt
without restriction of which, is conditioned on the satisfaction of one or more
Performance Goals.


 


2.20  “Plan.”  The Mercer Insurance Group, Inc.
2004 Stock Incentive Plan.


 


2.21  “Restricted
Stock.”  An award of Common Stock pursuant
to the provisions of the Plan, which award is subject to such restrictions and
other conditions, including achievement of one or more performance goals, as
may be specified by the Committee at the time of such award.


 


2.22  “Retirement.”  The termination of a Participant’s employment
following the first day of the month coincident with or next following
attainment of age 65, as the term “Normal Retirement Date” is defined in
the Mercer Insurance Group, Inc. Employee Stock Ownership Plan, or attainment
of age 55 and the completion of five (5) years service as described
in the Mercer Insurance Group, Inc. Employee Stock Ownership Plan.


 


2.23  “Securities
Act.”  The Securities Act of 1933,
as amended.


 


2.24   “Stock Option” or “Option.”  A grant of a right to purchase Common Stock
pursuant to the provisions of the Plan.


 


2.25  “Subsidiary.”  A subsidiary corporation, as defined in Code
Section 424(f), that is a subsidiary of a relevant corporation.


 


2.26  “Termination
or Dismissal For Cause.”  Termination of
an Employee by the Corporation or a Subsidiary or dismissal of a Non-Employee
Director from the Board after:


 


(a)  any
government regulatory agency recommends or orders in writing that the
Corporation or a Subsidiary terminate the employment of such Employee or
relieve him or her of his or her duties;


 


(b)  such Employee or Non-Employee Director is
convicted of or enters a plea of guilty or nolo  contendere to a
felony, a crime of falsehood, or a crime involving fraud or moral turpitude, or
the actual incarceration of the Employee or Non-Employee Director for a period
of 45 consecutive days;


 


(c)  a determination by the Committee that such
Employee willfully failed to follow the lawful instructions of the Board or any
officer of the Corporation or a Subsidiary after such Employee’s receipt of
written notice of such instructions, other than a failure resulting from the
Employee’s incapacity because of physical or mental illness;


 


(d)  a determination by the Committee that the
willful or continued failure by such Employee or Non-Employee Director to
substantially and satisfactorily perform his duties with


 


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the Corporation or
a Subsidiary (other than any such failure resulting from the Employee or
Non-Employee Director being “disabled” (as defined in the Corporation’s group
long term disability policy) or as a result of physical or mental illness),
within a reasonable period of time after a demand for substantial performance
or notice of lack of substantial or satisfactory performance is delivered to
the Employee or Non-Employee Director, which demand identifies the manner in
which the Employee or Non-Employee Director has not substantially or
satisfactorily performed his or her duties; or


 


(e)  a determination by the Committee that such
Employee or Non-Employee Director has failed to conform to the Corporation’s
Code of Conduct.


 


For purposes of the Plan, no act, or failure to act,
on a Employee’s or Non-Employee Director’s part shall be deemed “willful”
unless done, or omitted to be done, by such Employee or Non-Employee Director
not in good faith and without reasonable belief that such Employee’s or
Non-Employee Director’s action or omission was in the best interest of the
Corporation or a Subsidiary.


 


ARTICLE
3.  ADMINISTRATION


 


3.1  The
Committee.  The Plan shall be
administered by the Compensation Committee of the Board composed of two or more
members of the Board, all of whom are (a) ”non-employee directors” as such
term is defined under the rules and regulations adopted from time to time by
the Securities and Exchange Commission pursuant to Section 16(b) of the
Exchange Act, and (b) ”outside directors” within the meaning of
Code Section 162(m).  The Board may
from time to time remove members from, or add members to, the Committee.  Vacancies on the Committee, however caused,
shall be filled by the Board.


 


3.2  Powers
of the Committee.


 


(a)  The Committee shall be vested with full
authority to make such rules and regulations as it deems necessary or desirable
to administer the Plan and to interpret the provisions of the Plan, unless
otherwise determined by a majority of the disinterested members of the
Board.  Any determination, decision, or
action of the Committee in connection with the construction, interpretation,
administration or application of the Plan shall be final, conclusive, and
binding upon all Participants and any person claiming under or through a
Participant, unless otherwise determined by a majority of the disinterested
members of the Board.


 


(b)  Subject to the terms, provisions and
conditions of the Plan and subject to review and approval by a majority of the
disinterested members of the Board, the Committee shall have exclusive
jurisdiction to:


 


(i)  determine and select the Employees and Non-Employee
Directors to be granted Awards (it being understood that more than one Award
may be granted to the same person);


 


(ii)  determine the number of shares subject to
each Award;


 


(iii)  determine the date or dates when the Awards
will be granted;


 


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(iv)  determine the exercise price of shares
subject to an Option in accordance with Article 6;


 


(v)  determine the date or dates when an Option
may be exercised within the term of the Option specified pursuant to Article 7;


 


(vi)  determine whether an Option constitutes an
Incentive Stock Option or a Nonqualified Stock Option;


 


(vii)  determine the Performance Criteria and
establish Performance Goals with respect thereto, to be applied to an Award;
and


 


(viii)  prescribe the form, which shall be consistent
with the Plan document, of the Agreement evidencing any Awards granted under
the Plan.


 


3.3  Liability.  No member of the Board or the Committee shall
be liable for any action or determination made in good faith by the Board or
the Committee with respect to this Plan or any Awards granted under this Plan.


 


3.4  Establishment
and Certification of Performance Goals. 
The Committee shall establish, prior to grant, Performance Goals with
respect to each Award intended to constitute a Performance Grant.  Except as may otherwise be provided in
Article 8 hereof, no Option that is intended to constitute a Performance
Grant may be exercised until the Performance Goal or Goals applicable thereto
is or are satisfied, nor shall any share of Restricted Stock that is intended
to constitute a Performance Grant be released to a Participant until the
Performance Goal or Goals applicable thereto is or are satisfied.


 


3.5  No
Waiver of Performance Goals.  Except
as may otherwise be provided in Article 8 hereof, the Committee or the
Board shall not waive any Performance Goals with respect to the grant of any
Award hereunder.


 


3.6  Performance
Grants Not Mandatory.  Nothing herein
shall be construed as requiring that any Award be made a Performance Grant.


 


ARTICLE 4.  COMMON STOCK SUBJECT TO
THE PLAN


 


4.1  Common
Stock Authorized.


 


(a)  The initial total aggregate number of shares
of Common Stock for which Options may be granted under the Plan or which may be
awarded as Restricted Stock under the Plan shall not exceed 876,555.  Notwithstanding the foregoing, the number of
shares of Common Stock available for issuance under the Plan shall
automatically increase on the first trading day of January of each calendar
year during the term of the Plan, beginning with calendar year 2005, by an
amount equal to one percent (1%) of the shares of Common Stock outstanding
on the last trading day in December of the immediately preceding calendar
year.  No Incentive Stock Options may be
granted on the basis of the additional shares of Common Stock resulting from
such annual increases.  The limitation
established by the preceding sentence shall also be subject to adjustment as
provided in Article 10.


 


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(b)  The maximum aggregate number of shares of
Common Stock for which Restricted Stock may be awarded under the Plan shall not
exceed 250,000.  The limitation
established by the preceding sentence shall be subject to adjustment in
proportion to any increase in the total number of shares available for issuance
under the Plan as provided in Section 4.1(a) above and Article 10.


 


(c)  The maximum aggregate number of shares of
Common Stock for which Incentive Stock Options may be granted under the Plan
shall not exceed 500,000.  The limitation
established by the preceding sentence shall be subject to adjustment as
provided in Article 10.


 


(d)  The maximum aggregate number of shares of
Common Stock for which Awards may be granted under the Plan to non-employee
directors shall not exceed 350,000.  The
limitation established by the preceding sentence shall be subject to adjustment
as provided in Article 10.


 


(e)  If any Option is exercised by tendering
Common Stock, either actually or by attestation, to the Corporation as full or
partial payment in connection with the exercise of such Option under the Plan,
or if the tax withholding requirements are satisfied through such tender, only
the number of shares of Common Stock issued net of the Common Stock tendered
shall be deemed delivered for purposes of determining the maximum number of
shares available for Awards under the Plan.


 


4.2  Shares
Available.  The Common Stock to be
issued under the Plan shall be the Corporation’s Common Stock which shall be
made available at the discretion of the Board, either from authorized but
unissued Common Stock or from Common Stock acquired by the Corporation,
including shares purchased in the open market. 
In the event that any outstanding Award under the Plan for any reason
expires, terminates, or is forfeited, the shares of Common Stock allocable to
such expiration, termination, or forfeiture may thereafter again be made
subject to an Award under the Plan.


 


ARTICLE
5.  ELIGIBILITY


 


5.1  Participation.  Awards shall be granted by the Committee only
to persons who are Employees and Non-Employee Directors.


 


5.2  Incentive
Stock Option Eligibility.  Incentive
Stock Option Awards may only be granted to Employees of the Corporation.  Notwithstanding any other provision of the
Plan to the contrary, an individual who owns more than ten percent of the total
combined voting power of all classes of outstanding stock of the Corporation
shall not be eligible for the grant of an Incentive Stock Option, unless the
special requirements set forth in Sections 6.1 and 7.1 are satisfied.  For purposes of this section, in determining
stock ownership, an individual shall be considered as owning the stock owned,
directly or indirectly, by or for his brothers and sisters (whether by the
whole or half blood), spouse, ancestors and lineal descendants.  Stock owned, directly or indirectly, by or
for a corporation, partnership, estate or trust shall be considered as being
owned proportionately by or for its shareholders, partners or
beneficiaries.  “Outstanding stock” shall
include all stock actually issued and outstanding immediately before the grant
of the


 


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Option.  “Outstanding stock” shall not include shares
authorized for issue under outstanding Options held by the Optionee or by any
other person.


 


ARTICLE 6.  STOCK OPTIONS IN
GENERAL


 


6.1  Exercise
Price.  The exercise price of an
Option to purchase a share of Common Stock shall be, in the case of an
Incentive Stock Option, not less than 100% of the fair market value of a share
of Common Stock on the date the Option is granted, except that the exercise
price shall be not less than 110% of such fair market value in the case of an
Incentive Stock Option granted to any individual described in the second
sentence of Section 5.2.  The
exercise price of an Option to purchase a share of Common Stock shall be, in
the case of a Nonqualified Stock Option, not less than 100% of the fair market
value of a share of Common Stock on the date the Option is granted.  The exercise price shall be subject to
adjustment pursuant to the limited circumstances set forth in Article 10.


 


6.2  Limitation
on Incentive Stock Options.  The
aggregate fair market value (determined as of the date an Option is granted) of
the Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by any individual in any calendar year (under the Plan and
all other plans maintained by the Corporation and Subsidiaries) shall not
exceed $100,000.


 


6.3  Determination
of Fair Market Value.


 


(a)  If the Common Stock is not listed on an
established stock exchange or exchanges but is listed on NASDAQ, the fair
market value per share shall be the closing sale price for the Common Stock on
the day an Option is granted.  If no sale
of Common Stock has occurred on that day, the fair market value shall be
determined by reference to such price for the next preceding day on which a
sale occurred.


 


(b)  If the Common Stock is not listed on an
established stock exchange or on NASDAQ, fair market value per share shall be
the mean between the closing dealer “bid” and “asked” prices for the Common
Stock for the day an Option is granted, and if no “bid” and “asked” prices are
quoted for the day an Option is granted, the fair market value shall be
determined by reference to such prices on the next preceding day on which such
prices were quoted.


 


(c)  If the Common Stock is listed on an
established stock exchange or exchanges, the fair market value shall be deemed
to be the closing price of Common Stock on such stock exchange or exchanges on
the day an Option is granted.  If no sale
of Common Stock has been made on any stock exchange on that day, the fair
market value shall be determined by reference to such price for the next
preceding day on which a sale occurred.


 


(d)  In the event that the Common Stock is not
traded on an established stock exchange or on NASDAQ, and no closing dealer “bid”
and “asked” prices are available on the day an Option is granted, then fair
market value will be the price established by the Committee in good faith.


 


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In connection with determining the fair market value
of a share of Common Stock on any relevant day, the Committee may use any
source deemed reliable; and its determination shall be final and binding on all
affected persons, absent clear error.


 


6.4  Limitation
on Option Awards.  Awards under this
Plan (and any other plan of the Corporation or a Subsidiary providing for stock
option awards) to an Employee described in Code Section 162(m)(3) shall
not exceed, in the aggregate, Options to acquire 50,000 shares of Common
Stock during any period of 12 consecutive months.  Such limitation shall be subject to
adjustment in the manner described in Article 10.


 


6.5  Transferability
of Options.


 


(a)  Except as provided in Subsection (b), an
Option granted hereunder shall not be transferable other than by will or the
laws of descent and distribution, and such Option shall be exercisable, during
the Optionee’s lifetime, only by him or her.


 


(b)  An Optionee may, with the prior approval of
the Committee, transfer a Nonqualified Stock Option for no consideration to or
for the benefit of one or more members of the Optionee’s “immediate family”
(including a trust, partnership or limited liability company for the benefit of
one or more of such members), subject to such limits as the Committee may
impose, and the transferee shall remain subject to all terms and conditions
applicable to the Option prior to its transfer. 
The term “immediate family” shall mean an Optionee’s spouse, parents,
children, stepchildren, adoptive relationships, sisters, brothers and
grandchildren (and, for this purpose, shall also include the Optionee).


 


ARTICLE 7.  TERM, VESTING AND
EXERCISE OF OPTIONS


 


7.1  Term and
Vesting.  Each Option granted under
the Plan shall terminate on the date determined by the Committee, and specified
in the Agreement; provided, however, that (i) each intended Incentive
Stock Option granted to an individual described in the second sentence of Section 5.2
shall terminate not later than five years after the date of the grant,
(ii) each other intended Incentive Stock Option shall terminate not later
than ten years after the date of grant, and (iii) each Option granted
under the Plan which is intended to be a Nonqualified Stock Option shall
terminate not later than ten years and one month after the date of grant.  Each Option granted under the Plan shall be
fully exercisable (i.e., become 100% vested) only after the earlier of the date
on which (i) the Optionee has completed one year of continuous employment
with, or service with respect to, the Corporation or a Subsidiary immediately
following the date of the grant of the Option (or such later date as may be
specified in an Agreement, including a date that may be tied to the
satisfaction of one or more Performance Goals); (ii) unless otherwise
provided in an Agreement, a Change in Control occurs; and (iii) unless
otherwise provided in an Agreement, the Optionee’s death, being “disabled” (as
defined in the Corporation’s long term disability policy) or Retirement after
completing three or more years of service from the date of the grant of the
Option.  Except as provided in
Article 8 an Option may be exercised only during the continuance of the
Optionee’s employment, with or service with respect to, the Corporation.


 


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7.2  Exercise.


 


(a)  A person electing to exercise an Option shall
give notice to the Corporation of such election and of the number of shares he
or she has elected to purchase and shall at the time of exercise tender the
full exercise price of the shares he or she has elected to purchase.  The exercise notice shall be delivered to the
Corporation in person, by certified mail, or by such other method (including
electronic transmission) and in such form as determined by the Committee.  The exercise price shall be paid in full, in
cash, upon the exercise of the Option; provided, however, that in lieu of cash,
with the approval of the Committee at or prior to exercise, an Optionee may
exercise an Option by tendering to the Corporation shares of Common Stock owned
by him or her and having a fair market value equal to the cash exercise price
applicable to the Option (with the fair market value of such stock to be
determined in the manner provided in Section 6.3) or by delivering such
combination of cash and such shares as the Committee in its sole discretion may
approve; further provided, however, that no such manner of exercise shall be
permitted if such exercise would violate Section 402 of the Sarbanes-Oxley
Act of 2002.  Notwithstanding the
foregoing, Common Stock acquired pursuant to the exercise of an Incentive Stock
Option may not be tendered as payment unless the holding period requirements of
Code Section 422(a)(1) have been satisfied, and Common Stock not acquired
pursuant to the exercise of an Incentive Stock Option may not be tendered as
payment unless it has been held, beneficially and of record, for at least six
months (or such longer time as may be required by applicable securities law or
accounting principles to avoid adverse consequences to the Corporation or a
Participant).


 


(b)  A person holding more than one Option at any
relevant time may, in accordance with the provisions of the Plan, elect to
exercise such Options in any order.


 


(c)  At the request of the Participant and to the
extent permitted by applicable law, the Committee may, in its sole discretion,
selectively approve arrangements whereby the Participant irrevocably authorizes
a third party to sell shares of Common Stock (or a sufficient portion of the
shares) acquired upon the exercise of an Option and to remit to the Corporation
a sufficient portion of the sales proceeds to pay the entire exercise price and
any tax withholding required as a result of such exercise.


 


7.3  Deferred
Delivery of Nonqualified Stock Option Shares.  The Committee may approve an arrangement
whereby an Optionee may elect to defer receipt of Common Stock otherwise
issuable to him or her upon exercise of a Nonqualified Stock Option.  Any such arrangement, if approved at all,
shall be subject to such terms and conditions as the Committee, in its sole
discretion, may specify, which terms and conditions may (but need not) include
provision for the award of additional shares to take into account dividends
paid subsequent to exercise of the Option. 
No exercise of discretion under this section with respect to an event or
person shall create an obligation to exercise such discretion in any similar or
same circumstance.


 


ARTICLE 8.  EXERCISE OF OPTIONS
FOLLOWING TERMINATION

OF EMPLOYMENT OR SERVICE


 


8.1  Retirement;
Other Termination by Corporation or Subsidiary; Change in Control.  In the event of an Optionee’s termination of
employment or service as a Non-Employee Director


 


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(i) due to
Retirement, (ii) by the Corporation or a Subsidiary other than Termination
for Cause, or (iii) due to a Change in Control, such Optionee’s Option
shall lapse at the earlier of the expiration of the term of such Option or:


 


(a)  in the case of an Incentive Stock Option,
three months from the date of such termination of employment; and


 


(b)  in the case of a Nonqualified Stock Option,
one year from the date of such termination of employment or service as a
Non-Employee Director.


 


8.2  Death or
Total Disability.  In the event of an
Optionee’s termination of employment or service as a Non-Employee Director due
to death or being “disabled” (as defined in the Corporation’s group long term
disability policy), such Optionee’s Option shall lapse at the earlier of the
expiration of the term of such Option or:


 


(a)  in the case of an Incentive Stock Option, one
year from the date of such termination of employment; and


 


(b)  in the case of a Nonqualified Stock Option,
one year from the date of such termination of employment or service as a
Non-Employee Director.


 


8.3  Termination
or Dismissal For Cause; Other Termination by Optionee.  In the event of an Optionee’s Termination or
Dismissal For Cause, or in the event of termination of employment at the
election of an Optionee, such Optionee’s Option shall lapse upon such
termination.


 


8.4  Special
Termination Provisions for Options.


 


(a)  In the event that an Optionee’s employment or
service as a Non-Employee Director is terminated and the Committee deems it
equitable to do so, the Committee may, in its discretion and subject to the
approval of a majority of the disinterested members of the Board, waive any
continuous service requirement for vesting (but not any Performance Goal or
Goals) specified in an Agreement pursuant to Section 7.1 and permit
exercise of an Option held by such Optionee prior to the satisfaction of such
continuous service requirement.  Any such
waiver may be made with retroactive effect, provided it is made within
60 days following the Optionee’s termination of employment or service as a
Non-Employee Director.


 


(b)  In the event the Committee waives the
continuous service requirement with respect to an Option as set forth in Section 8.4(a)
above and the circumstance of an Optionee’s termination of employment or
service as a Non-Employee Director is described in Section 8.1, the
affected Option will lapse as otherwise provided in the relevant section.


 


(c)  In the event the Committee waives the
continuous service requirement with respect to an Option as set forth in
Section 8.4(a) above, such Option shall lapse at the earlier of the
expiration of the term of such Option or:


 


(i)  in the case of an Incentive Stock Option,
three months from the date of termination of employment; and


 


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(ii)  in the case of a Nonqualified Stock Option,
one year from the date of termination of employment or service as a
Non-Employee Director.


 


ARTICLE
9.  RESTRICTED STOCK


 


9.1  In
General.  Each Restricted Stock Award
shall be subject to such terms and conditions as may be specified in the
Agreement issued to a Participant to evidence the grant of such Award.  Subject to Section 3.6, a Restricted
Stock Award shall be subject to a vesting schedule or Performance Goals, or
both.


 


9.2  Minimum
Vesting Period for Certain Restricted Stock Awards.  Each Restricted Stock Award granted to a
Participant shall be fully exercisable (i.e., become 100% vested) only after
the earlier of the date on which (i) the Participant has completed one
year of continuous employment with, or service with respect to, the Corporation
or a Subsidiary immediately following the date that the Restricted Stock was
awarded (or such later date as may be specified in an Agreement, including a
date that may be tied to the satisfaction of one or more Performance Goals);
(ii) unless otherwise provided in an Agreement, a Change in Control
occurs; or (iii) unless otherwise provided in an Agreement, the
Participant’s death, being “disabled” (as defined in the Corporation’s group
long term disability policy) or Retirement after completing three or more years
of service from the date of the Award.


 


9.3  Waiver
of Vesting Period for Certain Restricted Stock Awards.  In the event that a Participant’s employment
or service as a Non-Employee Director is terminated and the Committee deems it
equitable to do so, the Committee may, in its discretion and subject to the
approval of a majority of the disinterested members of the Board, waive any
minimum vesting period (but not any Performance Goal or Goals) with respect to
a Restricted Stock Award held by such Participant.  Any such waiver may be made with retroactive
effect, provided it is made within 60 days following such Participant’s
termination of employment or service as a Non-Employee Director.


 


9.4  Limitation
on Restricted Stock Awards.  Grants
under this Plan (and any other plan of the Corporation or a Subsidiary
providing for restricted stock awards) to any Employee described in Code
Section 162(m)(3) shall not exceed, in the aggregate, Restricted Stock
Awards for 25,000 shares of Common Stock during any period of
12 consecutive months.  Such
limitation shall be subject to adjustment in the manner described in
Article 10.


 


9.5  Issuance
and Retention of Share Certificates By Corporation.  One or more share certificates shall be
issued upon the grant of a Restricted Stock Award; but until such time as the
Restricted Stock shall vest or otherwise become distributable by reason of
satisfaction of one or more Performance Goals, the Corporation shall retain
such share certificates.


 


9.6  Stock
Powers.  At the time of the grant of
a Restricted Stock Award, the Participant to whom the grant is made shall
deliver such stock powers, endorsed in blank, as may be requested by the
Corporation.


 


9.7  Release
of Shares.  Within 30 days
following the date on which a Participant becomes entitled under an Agreement
to receive shares of previously Restricted Stock, the Corporation


 


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shall deliver to
him or her a certificate evidencing the ownership of such shares, together with
an amount of cash (without interest) equal to the dividends that have been paid
on such shares with respect to record dates occurring on and after the date of
the related Award.


 


9.8  Forfeiture
of Restricted Stock Awards.  In the
event of the forfeiture of a Restricted Stock Award, by reason of a Participant’s
termination of employment or termination of service as a Non-Employee Director
prior to vesting, the failure to achieve a Performance Goal or otherwise, the
Corporation shall take such steps as may be necessary to cancel the affected
shares and return the same to its treasury.


 


9.9  Assignment,
Transfer, Etc. of Restricted Stock Rights. 
The potential rights of a Participant to shares of Restricted Stock may
not be assigned, transferred, sold, pledged, hypothecated, or otherwise
encumbered or disposed of until such time as unrestricted certificates for such
shares are received by him or her.


 


9.10  Deferred
Delivery of Formerly Restricted Stock. 
The Committee may approve an arrangement whereby a Participant may elect
to defer receipt of Restricted Stock beyond the date on which a restriction
terminates or a Performance Goal is satisfied with respect thereto.  Any such arrangement, if approved at all,
shall be subject to such terms and conditions as the Committee, in its sole
discretion, may specify, including terms covering the accumulation or distribution
of dividends previously paid with respect to the subject shares and those that
may thereafter be paid.


 


ARTICLE 10.  ADJUSTMENT PROVISIONS


 


10.1  Share
Adjustments.


 


(a)  In the event that the shares of Common Stock
of the Corporation, as presently constituted, shall be changed into or
exchanged for a different number or kind of shares of stock or other securities
of the Corporation, or if the number of such shares of Common Stock shall be
changed through the payment of a stock dividend, stock split or reverse stock
split, then (i) the shares of Common Stock authorized hereunder to be made
the subject of Awards, (ii) the shares of Common Stock then subject to
outstanding Awards and the exercise price thereof (where relevant),
(iii) the maximum number of Awards that may be granted within a 12-month
period and (iv) the nature and terms of the shares of stock or securities
subject to Awards hereunder shall be increased, decreased or otherwise changed
to such extent and in such manner as may be necessary or appropriate to reflect
any of the foregoing events.


 


(b)  If there shall be any other change in the
number or kind of the outstanding shares of the Common Stock of the
Corporation, or of any stock or other securities into which such Common Stock
shall have been changed, or for which it shall have been exchanged, and if a
majority of the disinterested members of the Board shall, in its sole
discretion, determine that such change equitably requires an adjustment in any
Award which was theretofore granted or which may thereafter be granted under
the Plan, then such adjustment shall be made in accordance with such
determination.


 


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(c)  The grant of an Award pursuant to the Plan
shall not affect in any way the right or power of the Corporation to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure, to merge, to consolidate, to dissolve, to liquidate or to
sell or transfer all or any part of its business or assets.


 


10.2  Corporate
Changes.  A liquidation or
dissolution of the Corporation, a merger or consolidation in which the
Corporation is not the surviving Corporation or a sale of all or substantially
all of the Corporation’s assets, shall cause each outstanding Award to
terminate, except to the extent that another corporation may and does, in the
transaction, assume and continue the Award or substitute its own awards.


 


10.3  Fractional
Shares.  Fractional shares resulting
from any adjustment in Awards pursuant to this article may be settled as the
Committee shall determine.


 


10.4  Binding
Determination.  To the extent that
the foregoing adjustments relate to stock or securities of the Corporation,
such adjustments shall be made by a majority of the disinterested members of
the Board, whose determination in that respect shall be final, binding and
conclusive.  Notice of any adjustment
shall be given by the Corporation to each holder of an Award which shall have
been so adjusted.


 


ARTICLE 11.  GENERAL PROVISIONS


 


11.1  Effective
Date.  The Plan shall become
effective upon the approval of the Plan by the shareholders of the Corporation
within 12 months of adoption by the Board.


 


11.2  Termination
of the Plan.  Unless previously
terminated by the Board, the Plan shall terminate on, and no Award shall be
granted after, the day immediately preceding the tenth anniversary of its
adoption by the Board.


 


11.3  Limitation
on Termination, Amendment or Modification.


 


(a)  The Board
may at any time terminate, amend, modify or suspend the Plan, provided that,
without the approval of the shareholders of the Corporation, no amendment or
modification shall be made solely by the Board which:


 


(i)  increases the maximum number of shares of
Common Stock as to which Awards may be granted under the Plan (except as
provided in Section 10.1);


 


(ii)  changes the class of eligible Participants;
or


 


(iii)  otherwise requires the approval of
shareholders under applicable state law or under applicable federal law to
avoid potential liability or adverse consequences to the Corporation or a
Participant.


 


(b)  No amendment, modification, suspension or
termination of the Plan shall in any manner affect any Award theretofore
granted under the Plan without the consent of the Participant or any person validly
claiming under or through the Participant.


 


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11.4  No
Right to Grant of Award or Continued Employment or Service.  Nothing contained in this Plan or otherwise
shall be construed to (a) require the grant of an Award to an individual
who qualifies as an Employee or Non-Employee Director, or (b) confer upon
a Participant any right to continue in the employ or service of the Corporation
or any Subsidiary or limit in any respect the right of the Corporation or of
any Subsidiary to terminate the Participant’s employment or service at any time
and for any reason.


 


11.5  No
Obligation.  No exercise of
discretion under this Plan with respect to an event or person shall create an
obligation to exercise such discretion in any similar or same circumstance,
except as otherwise provided or required by law.


 


11.6  Withholding
Taxes.


 


(a)  Subject to the provisions of
Subsection (b), the Corporation will require, where sufficient funds are
not otherwise available, that a Participant who is an Employee pay or reimburse
to it any withholding taxes at such time as withholding is required by law.


 


(b)  With the permission of the Committee, a
Participant who is an Employee may satisfy the withholding obligation described
in Subsection (a), in whole or in part, by electing to have the
Corporation withhold shares of Common Stock (otherwise issuable to him or her)
having a fair market value equal to the amount required to be withheld.  An election by a Participant who is an Employee
to have shares withheld for this purpose shall be subject to such conditions as
may then be imposed thereon by any applicable securities law.


 


11.7  Listing
and Registration of Shares.


 


(a)  No Option granted pursuant to the Plan shall
be exercisable in whole or in part, and no share certificate shall be
delivered, if at any relevant time the Committee determines in its discretion
that the listing, registration or qualification of the shares of Common Stock
subject to an Award on any securities exchange or under any applicable law, or
the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, such Award, until such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee.


 


(b)  If a registration statement under the
Securities Act with respect to the shares issuable under the Plan is not in
effect at any relevant time, as a condition of the issuance of the shares, a
Participant (or any person claiming through a Participant) shall give the
Committee a written or electronic statement, satisfactory in form and substance
to the Committee, that he or she is acquiring the shares for his or her own account
for investment and not with a view to their distribution.  The Corporation may place upon any stock
certificate for shares issued under the Plan the following legend or such other
legend as the Committee may prescribe to prevent disposition of the shares in
violation of the Securities Act or other applicable law:


 


‘THE SHARES REPRESENTED
BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (“ACT”) AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED OR OFFERED FOR SALE IN THE ABSENCE OF AN


 


15





















 


EFFECTIVE REGISTRATION
STATEMENT WITH RESPECT TO THEM UNDER THE ACT OR A WRITTEN OPINION OF COUNSEL
FOR THE CORPORATION THAT REGISTRATION IS NOT REQUIRED.’


 


11.8  Disinterested
Director.  For purposes of this Plan,
a director shall be deemed “disinterested” if such person could qualify as a
member of the Committee under Section 3.1.


 


11.9  Gender;
Number.  Words of one gender,
wherever used herein, shall be construed to include each other gender, as the
context requires.  Words used herein in
the singular form shall include the plural form, as the context requires, and vice
versa.


 


11.10  Applicable
Law.  Except to the extent preempted
by federal law, this Plan document, and the Agreements issued pursuant hereto,
shall be construed, administered, and enforced in accordance with the domestic
internal law of the Commonwealth of Pennsylvania.


 


11.11  Headings.  The headings of the several articles and
sections of this Plan document have been inserted for convenience of reference
only and shall not be used in the construction of the same.


 


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