ex10_1.htm


    
      

    

    EMBASSY
BANK

    2001
OPTION PLAN

    


     The
purpose of the Embassy Bank 2001 Option Plan (the “Plan”) is to provide for the
grant of incentive stock options and non-qualified stock options to designated
officers (including officers who are also directors), other employees and
directors who are not employees (“Non-Employee Directors”) of Embassy Bank For
The Lehigh Valley (the “Company”).  The Company believes that the Plan
will cause the participants to contribute materially to the growth of the
Company, thereby benefiting the Company’s shareholders and will align the
economic interests of the participants with those of the
shareholders.

    


    1.             Administration

    


    The Plan
shall be administered and interpreted by the Board of Directors of the
Company.

    


    The Board
shall have the sole authority to determine (i) the individuals to whom options
shall be granted under the Plan, (ii) the type, size and terms of the options to
be granted to each such individual, (iii) the duration of the exercise period
and (iv) any other matter arising under the Plan.

     

    The Board
shall have full power and authority to make factual determinations and to adopt
or amend such rules, regulations, agreements and instruments for implementing
the Plan as it deems necessary or advisable, in its sole
discretion.  The Board’s interpretations of the Plan shall be
conclusive and binding on all persons having any interests in the Plan or in any
options granted hereunder.

    


    2.          
   Grants

    


     Options
under the Plan shall consist of incentive stock options and non-qualified stock
options  (hereinafter collectively referred to as
“Grants”).  All Grants shall be subject to the terms and conditions
set forth herein and to those other terms and conditions consistent with this
Plan as the Board deems appropriate and as are specified in writing to the
employee (the “Grant Letter”).  The Board shall approve the form and
provisions of each Grant Letter to an employee.  Grants need not be
uniform as among the employees.

    


    3.         
    Shares Subject to the
Plan

    


    (a)     
      Subject to the adjustment specified below,
the aggregate number of shares of common stock of the Company (“Company Stock”)
that have been or may be issued or transferred under the Plan is
300,000.  In compliance with Section 162(m) of the Internal Revenue
Code, (the “Code”) during the term of the Plan, the maximum aggregate number of
shares of Company Stock that shall be subject to options or awards under the
Plan to any single individual shall be 40% of the shares specified
above.  The shares may be authorized but unissued shares of Company
Stock or reacquired shares of Company Stock, including shares repurchased by the
Company.  If and to the extent options granted under the Plan
terminate, expire, or cancel without having been exercised, the shares subject
to such option or such award shall again be available for purposes of the
Plan.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    (b)   
        If there is any change in the
number or kind of shares of Company Stock issuable under the Plan through the
declaration of stock dividends, or through a recapitalization, stock splits, or
combinations or exchanges of such shares, or merger, reorganization or
consolidation of the Company, reclassification or change in par value or by
reason of any other extraordinary or unusual events affecting the outstanding
Company Stock as a class without the Company’s receipt of consideration, the
maximum number of shares of Company Stock available for Grants, the maximum
number of shares of Company Stock for which any one individual participating in
the Plan may be granted over the term of the Plan, the number of shares covered
by outstanding Grants and the price per share or the applicable market value of
such Grants, shall be proportionately adjusted by the Board to reflect any
increase or decrease in the number or kind of issued shares of Company Stock to
preclude the enlargement or dilution of rights and benefits under such Grants;
provided, however, that any fractional shares resulting from such adjustment
shall be eliminated.  The adjustments determined by the Board shall be
final, binding and conclusive.

    


    4.        
     Eligibility for
Participation

    


     Officers
and other employees and Non-Employee Directors of the Company shall be eligible
to participate in the Plan (hereinafter referred to individually as the
“Participant” and collectively as the “Participants”).  The Board
shall select the individuals to receive Grants (the “Grantees”) from among the
Participants and determine the number of shares of Company Stock subject to a
particular Grant in such manner as the Board determines.  Nothing
contained in this Plan shall be construed to limit the right of the Company to
grant options otherwise than under this Plan in connection with the acquisition,
by purchase, lease, merger, consolidation or otherwise, of the business or
assets of any corporation, firm or association, including options granted to
employees thereof who become employees of the Company, or for other proper
corporate purpose.

    


    5.        
     Granting of
Options

    


    (a)     
      Number of
Shares.  The Board shall grant to each Grantee a number of
stock options as the Board shall determine.

    


    (b)        
   Type
of Option and Price.  The Board may grant options qualifying as
incentive stock options (“Incentive Stock Options”) within the meaning of
Section 422 of the Code or stock options which are not intended to so qualify
(“Non-qualified Stock Options”) in accordance with the terms and conditions set
forth herein or any combination of Incentive Stock Options and Non-qualified
Stock Options (hereinafter referred to collectively as “Stock Options”);
provided, however, that Non-Employee Directors shall not be eligible to receive
grants of Incentive Stock Options.  The purchase price of Company
Stock subject to an Incentive Stock Option or a Non-qualified Stock Option shall
be the fair market value of a share of such Stock on the date such Stock Option
is granted.  Notwithstanding the foregoing, with respect to a Stock
Option other than an Incentive Stock Option, the price at which Company Stock
may be purchased may be equal to either (i) the fair market value of Company
Stock as of a date subsequent to the date of grant as specified by the Board in
the Grant Letter or (ii) the average of such fair market value over a period of
time as specified by the Board in the Grant Letter, but only when the price so
established would not result in the disallowance of the company’s expense
deduction pursuant to Section 162(m) of the Code.  During such time
that the Company Stock is not listed upon an established stock exchange or
traded in the over-the-counter-market, the “fair market value” of Company Stock
shall be determined by the Board at least annually after taking into account
such factors as it shall deem appropriate.  If the Company Stock is
listed upon an established stock exchange or other market source, as determined
by the Board, “fair market value” on any date of reference shall be the closing
price of a share of Company Stock on the stock exchange or other recognized
market source, as determined by the Board on such date, or if there is no sale
on such date, then the closing price of a share of Company Stock on the last
previous day on which a sale is reported.


    
      
         


      

      
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    (c)        
   Exercise
Period.  The Board shall determine the option exercise period
of each Stock Option.  The exercise period shall not exceed ten years
from the date of grant.  Notwithstanding any determinations by the
Board regarding the exercise period of any Stock Option, all outstanding Stock
Options shall become immediately exercisable upon a Change in Control of the
Company (as defined herein).

    


    (d)        
   Vesting of
Options.  The vesting period for Stock Options shall be not
less than three years in approximately equal percentages commencing on the date
of grant and as determined by the Board and specified in the Grant
Letter.  Notwithstanding any determinations by the Board regarding the
vesting period of any Stock Option, all outstanding Stock Options shall become
immediately exercisable upon a Change in Control of the Company (as defined
herein).

    


    (e)        
   Manner of
Exercise.  A Grantee may exercise a Stock Option by delivering
a notice of exercise to the Board with accompanying payment of the option
price.  Should a Stock Option become exercisable on and after the date
on which the initial registration of the Company Stock under Section 12(g) of
the Securities Exchange Act of 1934 (Exchange Act) becomes effective, such
notice may instruct the Company to deliver shares of Company Stock upon the
exercise of the Stock Option to any registered broker or dealer designated by
the Company (“Designated Broker”) in lieu of delivery to the
Grantee.  Such instructions must designate the account into which the
shares are to be deposited.

    


    (f)         
   Termination of Employment,
Disability or Death.

    


    (1)     
      In the event the Grantee during his lifetime
ceases to be an employee of the Company or Non-Employee Director for any reason
other than death or a termination for cause by the Company, any Stock Option
which is otherwise exercisable by the Grantee shall terminate unless exercised
within sixty (60) days of the date on which he ceases to be an employee or
Non-Employee Director, but in any event no later than the date of expiration of
the option exercise period.

    


    (2)        
   In the event the Grantee ceases to be an employee of the
Company or Non-Employee Director on account of a termination for cause by the
Company, any Stock Option held by the Grantee shall terminate as of the date he
ceases to be an employee or Non-Employee Director.  For purposes of
this Plan, a termination for cause shall mean a termination resulting from a
person’s dishonesty, theft or willful and persistent failure to follow the
lawful directions of the Board or his or her supervisors.


    
      
         


      

      
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    (3)   
        In the event of the death of the
Grantee while he is an employee or Non-Employee Director of the Company, any
Stock Option which was otherwise exercisable by the Grantee at the date of death
may be exercised by his personal representative at any time prior to the
expiration of six (6) months from the date of death, but in any event no later
than the date of expiration of the option exercise period.

    


    (g)       
    Satisfaction of Option
Price.  The Grantee shall pay the option price in cash or, with
the approval of the Board, by delivering shares of Company Stock already owned
by the Grantee for the period necessary to avoid a charge to the Company’s
earnings for financial reporting purposes and having a fair market value on the
date of exercise equal to the option price or with a combination of cash and
shares.  The Grantee shall pay the option price and the amount of
withholding tax due, if any, at the time of exercise.  Shares of
Company Stock shall not be issued or transferred upon exercise of a Stock Option
until the option price is fully paid.

    


    (h)       
    Rule 16b-3
Restrictions.  Unless a Grantee could otherwise transfer
Company Stock issued pursuant to a Stock Option granted hereunder without
incurring liability under Section 16(b) of the Exchange Act, at least six (6)
months must elapse from the date of acquisition of a Stock Option to the date of
disposition of the Company Stock issued upon exercise of such
option.

    


    (i)         
   Limits on Incentive Stock
Options.  Each Grant of an Incentive Stock Option shall provide
that the aggregate fair market value of the Company Stock on the date of the
Grant with respect to which Incentive Stock Options are exercisable for the
first time by a Grantee during any calendar year under the Plan or any other
stock option plan of the Company shall not exceed $100,000.  An
Incentive stock Option shall not be granted to any Participant who, at the time
of grant, owns stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company or parent of the Company, unless the
option price per share is not less than  110% percent of the fair
market value of Company Stock on the date of grant and the option exercise
period is not more than five (5) years from the date of grant.

    


    6.           
  Stock
Option Grants to Non-Employee Directors.

    


    (a)      
     Number of
Shares.  Each individual who becomes a Non-Employee Director
shall receive a grant of Non-qualified Stock Options in such number as shall be
determined by the Board.  In the case of the initial “founding”
Directors, such grants may take into consideration the “risk” capital provided
by such Directors to the Company during its organization.

    


    (b)         
  Option
Price and Exercise Period.  The purchase price of Company Stock
subject to such grants shall be the fair market value of a share of such stock
as of the date such Stock Option is granted and the exercise period shall not
exceed ten (10) years from the date of grant.  “Fair Market Value”
shall be determined pursuant to Section 5(b).


    
      
         


      

      
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    (c)      
     Vesting of
Options.  The vesting period for such Stock Options shall be
not less than three years in approximately equal percentages commencing on the
date of grant as determined by the Board.  Notwithstanding, any
vesting period for subsequently granted options to Board members, all
outstanding Stock Options granted pursuant to this Section shall become
immediately exercisable upon a Change in Control of the Company (as defined
herein).

    


    (d)       
    Manner of Exercise and
Satisfaction of Option Price.  A Non-Employee Director may
exercise and satisfy the option price of Stock Options granted pursuant to this
Section in accordance with the provisions of Section 5(e) and (g)
respectively.

    


    (e)       
    Termination of Relationship
with the Company, Disability or Death.

    


    (1)       
    In the event a Non-Employee Director during his or her
lifetime ceases to serve as a Non-Employee Director for any reason other than on
account of becoming an employee of the Company or death, any Stock Option
granted pursuant to this Section which is otherwise exercisable by the
Non-Employee Director shall terminate unless exercised within sixty (60) days of
the date on which he ceases to serve as a Non-Employee Director, but in any
event no later than the date of expiration of the option exercise
period.

    


    (2)      
     In the event the Non-Employee Director ceases to
be a Non-Employee Director of the Company on account of a termination for cause
by the Company, as defined above, any Stock Option held by the Grantee shall
terminate as of the date he ceases to be a Non-Employee Director.

    


    (3)      
     In the event of the death of the Non-Employee
Director while he is serving as a Non-Employee Director, any Stock Option
granted pursuant to this Section which was otherwise exercisable by the
Non-Employee Director at the date of death may be exercised by his personal
representative at any time prior to the expiration of six (6) months from the
date of death, but in any event no later than the date of expiration of the
option exercise period.

    


    (f)         
  Rule 16b-3
Restrictions.  Unless a Non-Employee Director could otherwise
transfer Company Stock issued pursuant to a stock Option granted pursuant to
this Section without incurring liability under Section 16(b) of the Exchange
Act, at least six (6) months must elapse from the date of acquisition of the
Stock Option to the date of disposition of the Company Stock issued upon
exercise of such Stock Option.

    


    7.        
     Transferability of Options
and Grants.

    


     Only
a Participant or his or her authorized legal representative may exercise rights
under a Grant.  Such persons may not transfer those rights except by
will or by the laws of descent and distribution or, if permitted under Rule
16b-3 of the Exchange Act and if permitted in any specific case by the Board in
its sole discretion, pursuant to a qualified domestic relations order as defined
under the Code or Title I of ERISA or the regulations there
under.  When a Participant dies, the personal representative or other
person entitled to succeed to the rights of the Participant (“Successor
Grantee”) may exercise such rights.  A Successor Grantee must furnish
proof satisfactory to the Company of his or her right to receive the Grant under
the Participant’s will or under the applicable laws of descent and
distribution.


    
      
         


      

      
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    8.           
  Right of
First Refusal.

    


     If
at any time a Participant desires to sell, encumber, or otherwise dispose of
shares of Company Stock acquired by him or her through the exercise of options
granted under this Plan, he or she shall first offer the same to the Company by
giving the Company written notice disclosing: (a) the name(s) of the proposed
transferee of the Company Stock; (b) the certificate number and number of shares
of Company Stock proposed to be transferred or encumbered; (c) the proposed
price; and (d) all other terms of the proposed
transfer.           Within
fourteen (14) days after receipt of such notice the Company shall have the
option to purchase all or part of such Company Stock.  If the Company
decides to exercise this option, the purchase price of the Company Stock shall
be the proposed price or the fair market value of the Stock (as determined under
Section 5(b) of the Plan) on the date such written notice is received by the
Board, whichever is less.

    


     In
the event the Company does not exercise the option to purchase Company Stock, as
provided above, the Participant shall have the right to sell, encumber, or
otherwise dispose of his shares of Company Stock on the terms of the transfer
set forth in the written notice to the Company, provided such transfer is
effected within fifteen (15) days after the expiration of the option
period.  If the transfer is not effected within such period, the
Company must again be given an option to purchase, as provided
above.

    


    9.           
  Change in
Control of the Company.

    


     As
used herein, a “Change in Control” shall be deemed to have occurred
if:

    


    (a)       
    As a result of any transaction, any one shareholder or
affiliated group of shareholders becomes a beneficial owner, as defined below,
directly or indirectly, of securities of the Company representing more than 50%
of the Common Stock of the Company or the combined voting power of the Company’s
then outstanding securities, other than (i) in connection with an initial public
offering of shares of Company Stock or (ii) a buyout transaction in which
existing shareholders or officers will control directly or indirectly more than
50% of the combined voting power of the Company’s then outstanding
securities.

    


    (b)       
    A liquidation or dissolution of the Company or the sale
of all or substantially all of the Company’s assets occurs.

    


    (c)        
   As a result of a tender offer, a stock purchase, other stock
acquisition, merger, consolidation, recapitalization, reverse split, or sale or
transfer of assets, any person or group (as such terms are used in and under
Section 13(d) of the Exchange Act) becomes the beneficial owner (as defined in
Rule 13-d under the Exchange Act), directly or indirectly, of securities of the
Company representing more than 30% of the combined voting power of the Company’s
then outstanding securities, other than in a buyout transaction in which
existing shareholders or officers will control directly or indirectly more than
50% of the combined voting power of the Company’s then outstanding securities;
or


    
      
         


      

      
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    (d)    
       During any period of two (2)
consecutive years, individuals who at the beginning of such period constitute
the board of directors cease for any reason to constitute at least a majority
thereof.

    


    10.     
      Certain Corporate
Changes.

    


    (a)        
   Sale
or Exchange of Assets, Dissolution or Liquidation, or Merger or
Consolidation Where the
Company does Not Survive.  If all or substantially all of the
assets of the Company are to be sold or exchanged, the Company is to be
dissolved or liquidated, or the Company is a party to a merger or consolidation
with another corporation in which the Company will not be the surviving
corporation, then, at least thirty (30) days prior to the effective date of such
event, the Company shall give each Grantee with any outstanding Stock Options
written notice of such event.  Each such Grantee shall thereupon have
the right to exercise in full any installments of such Grants not previously
exercised (whether or not the right to exercise such installments has accrued
pursuant to such Grants), within ten (10) days after such written notice is sent
by the Company or to require that the Company purchase such outstanding Grants
for a cash payment equal to the excess over the purchase price of the then fair
market value of the shares of company Stock subject to the Grantee’s outstanding
Grants.  Any installments or such Grants not so exercised or cashed
out shall thereafter lapse and be of no further force or effect.

    


    (b)          
 Merger or
Consolidation Where the Company Survives.  If the Company is a
party to a merger or consolidation in which the Company will be the surviving
corporation, then the Board may, in its sole discretion, elect to give each
Grantee with any outstanding Stock Options written notice of such
event.  If such notice is given, each such Grantee shall thereupon
have the right to exercise in fully any installments of such Grants not
previously exercised (whether or not the right to exercise such installments has
accrued pursuant to such Grants), within ten (10) days after such written notice
is sent by the Company or to require that the Company purchase such outstanding
Grants for a cash payment equal to the excess over the purchase price of the
then fair market value of the shares of Company Stock subject to the Grantee’s
Outstanding Grants.  Any installments of such Grants not so exercised
or cashed out shall thereafter lapse and be of no further force and
effect.

    


    11.        
   Amendment and Termination of
the Plan.

    


    (a)    
       Amendment.  The
Board of Directors by written resolution, may amend or terminate the Plan at any
time; provided, however, that any amendment that increases the aggregate number
(or individual limit for any single Grantee) of shares of Company stock that may
be issued or transferred under the Plan (other than by operation of Section
3(b)), or modifies the requirements as to eligibility for employees to receive
Incentive Stock Options under the Plan, shall be subject to approval by the
shareholders of the Company.  Notwithstanding the foregoing, the Board
of Directors shall not make any amendment to the Plan as to which, in the
opinion of counsel to the Company, shareholder approval is required to comply
with the requirements of Rule 16b-3 under the Exchange Act.


    
      
         


      

      
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    (b)       
    Termination of
Plan.  The Plan shall terminate on the tenth anniversary of its
effective date unless terminated earlier by the Board of Directors of the
Company or unless extended by the Board with the approval of the
shareholders.

    


    (c)       
    Termination and Amendment of
Outstanding Grants.  A termination or amendment of the Plan
that occurs after a Grant is made shall not result in the termination or
amendment of the Grant unless the Grantee consents.  The termination
of the Plan shall not impair the power and authority of the board with respect
to an outstanding Grant.  Whether or not the Plan has terminated, an
outstanding Grant may be terminated or amended by agreement of the Company and
the Grantee consistent with the Plan.

    


    (d)       
    Governing
Document.  This Plan shall be the controlling
document.  No other statements, representations, explanatory
materials, or examples, oral or written, may amend the Plan in any
manner.  The Plan shall be binding upon and enforceable against the
Company, its successors and assigns.

    


    12.         
  Funding of
the Plan.

    


     This
Plan shall be unfunded.  The Company shall not be required to
establish any special or separate fund or to make
any           other
segregation of assets to assure the payment of any Grants under this
Plan.  In no event shall interest be paid or accrued on any Grant,
including any unpaid installments of Grants.

    


    13.        
   Rights of
Participants.

    


     Nothing
in this Plan shall entitle any Participant or other person to any claim or right
to be granted an award under this Plan.  Neither this Plan nor any
action taken hereunder shall be construed as giving any Participant any rights
to be retained by or in the employ of the Company.

    


    14.         
  Withholding of
Taxes.

    


     The
Company shall have the right to deduct from all Grants paid in cash, or from
other wages paid to the employee of the Company, any federal, state or local
taxes required by law to be withheld with respect to any Grants or options or
the exercise thereof.  In the alternative, the Participant or other
person receiving such shares shall be required to pay to the Company the amount
of any such taxes which the Company is required to withhold.


    
      
         


      

      
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    15.        
   Agreements with
Participants.

     

     Each
Grant made under this Plan shall be evidenced by a Grant Letter containing such
terms and conditions as the Board shall approve.

    


    16.       
    Requirements for Issuance of
Shares.

    


     No
Company Stock shall be issued or transferred upon any exercise of options
hereunder unless and until all legal requirements applicable to the issuance or
transfer of such Company Stock have been complied with to the satisfaction of
the Board.  The Board shall have the right to condition any Stock
Option granted hereunder on such Participant’s undertaking in writing to comply
with such restrictions on his subsequent disposition of such shares of Company
Stock as the Board shall deem necessary or advisable as a result of any
applicable law, regulation or official interpretation thereof, and certificates
representing such shares may be legended to reflect any such
restrictions.

    


    17.        
   Headings.

    


     Section
headings are for reference only.  In the event of a conflict between a
title and the content of a Section, the content of the Section shall
control.

    


    18.        
   Effective
Date.

    


    (a)        
   Effective Date of the
Plan.  Subject to the approval of the Company’s shareholders,
this Plan shall be effective as of the date the Company’s Articles of
Incorporation are filed and accepted by the Pennsylvania Department of
State.

    


    (b)       
    Effectiveness of Section 16
Provisions.  The provisions of the Plan that refer to, or are
applicable to persons subject to, Section 16 of the Exchange Act shall be
effective, if at all, upon registration of the Company Stock under Section 12(g)
of the Exchange Act, and shall remain effective thereafter for so long as the
Company Stock is so registered.

    


    (c)       
    Effectiveness of Section
162(m) Provisions.  The provisions of the Plan that refer to,
or are applicable to persons subject to, Section 162(m) of the Code shall be
effective, if at all, upon registration of the Company Stock under Section 12(g)
of the Exchange Act, and shall remain effective thereafter for so long as the
Company Stock is so registered.

    


    19.       
    Miscellaneous.

    


    (a)        
   Compliance with
Law.  The Plan, the exercise of Grants and the obligations of
the Company to issue or transfer shares of Company Stock under Grants shall be
subject to all applicable laws and to approvals by any governmental or
regulatory agency as may be required.  In accordance with FDIC
regulations and guidelines, all option agreements shall provide that option
holders may be required to exercise or forfeit their options if the Bank’s
capital falls below minimum capital requirements.  With respect to
persons subject to Section 16 of the Exchange Act, it is the intent of the
Company that the Plan and all transactions under the Plan comply with all
applicable provisions of Rule 16b-3 or its successors under the Exchange
Act.  The Board may revoke any Grant if it is contrary to law or
modify a Grant to bring it into compliance with any valid and mandatory
government regulation.  The Board may also adopt rules regarding the
withholding of taxes on payments to Grantees.


    
      
         


      

      
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    (b)       
    All powers and authority granted to the Board herein may
be assigned by the Board to a committee of the Board, including the existing
personnel committee, consisting of not less than two (2) members of the
Board.

     

     

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