Document:

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                                                                    EXHIBIT 4(b)

                              FEE WAIVER AGREEMENT

      This Fee Waiver Agreement (the "Agreement") is made as of the 20th day of
January 2005, between The Needham Funds, Inc., a Maryland corporation (the
"Fund") and Needham Investment Management L.L.C. (the "Adviser").

      WHEREAS, the Adviser has entered into a Restated Investment Advisory
Agreement with the Fund, dated October 21, 2004 (the "Advisory Agreement"),
pursuant to which the Adviser provides investment advisory services to the Fund,
and for which it is compensated based on the average daily net assets of each
Portfolio of the Fund; and

      WHEREAS, the Fund and the Adviser have determined that it is appropriate
and in the best interests of the Fund and its shareholders to have the Adviser
waive a portion of its fee due under the Advisory Agreement as set forth below.

      NOW, THEREFORE, the parties hereto agree as follows:

      1.    Fee Waiver by the Adviser. The Adviser agrees to waive its fee for,
            and to reimburse expenses of, the Fund in an amount that operates to
            limit annual operating expenses of Needham Aggressive Growth Fund
            and Needham Small Cap Growth Fund to not more than 2.50% of average
            daily net assets.

      2.    Assignment. No assignment of this Agreement shall be made by the
            Adviser without the prior consent of the Fund.

      3.    Duration and Termination. This Agreement shall be effective for the
            period from January 1, 2005 through December 31, 2005, and shall
            continue in effect from year to year thereafter only upon mutual
            agreement of the Fund and the Adviser. This Agreement shall
            automatically terminate upon the termination of the Advisory
            Agreement.

      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first-above written.

<TABLE>
<CAPTION>
THE NEEDHAM FUNDS, INC.                                       NEEDHAM INVESTMENT MANAGEMENT L.L.C.
-----------------------                                       ------------------------------------
<S>                                                           <C>
By: /s/ Glen W. Albanese                                      By: /s/ John Michaelson
    --------------------                                          -------------------

Name: Glen W. Albanese                                        Name: John Michaelson

Title: Treasurer and Secretary                                Title: President
</TABLE>Exhibit 10.1

                        SUMMARY OF MATERIAL TERMS OF THE
                 2005 MANAGEMENT INCENTIVE COMPENSATION PROGRAM

The 2005 Management Incentive Compensation Program (the Program) provides for
the payment of annual bonuses to management and other key employees of The
Stanley Works, including The Stanley Work's Chief Executive Officer and other
four most highly compensated executive officers. The Program is designed to
achieve the following:

         o    Link company and division performance with the compensation of key
              executives;

         o    Provide significant financial incentives to exceed the Company's
              performance commitments;

         o    Promote and reward teams that are clearly focused on common goals;
              and

         o    Recognize individual achievement.

The Program provides each eligible participant an opportunity to earn an annual
cash bonus for fiscal year 2005 equal to a percentage of the participant's
annual base salary at the rate in effect on December 31, 2004. Each participant
has the opportunity to earn a threshold, target or maximum bonus amount that is
contingent upon achieving the financial and individual performance goals
established under the Program and described below. A significant percentage of
the potential 2005 bonus for participants based in specific divisions is tied to
the performance of that division, with the balance of such bonus tied to
corporate performance. 2005 Bonuses for participants fulfilling corporate, but
not divisional, functions, are dependent on achieving the established corporate
goals and will not be affected by results of particular divisions. Bonus amounts
based on results that fall between the threshold and the target level or the
target and the maximum level are prorated.

The performance criteria under the Program are based on achievement in fiscal
2005 of corporate earnings per share, sales growth and cash flow multiple
targets, as well as individual performance goals and, for participants based in
specific divisions, additional divisional performance criteria and goals.

The range of potential bonus payments for 2005 to our Chief Executive Officer
and other four most highly compensated executive officers, expressed as a
percentage of their eligible salary, for achievement of threshold performance is
25% - 50%, for achievement of target performance is 50% - 100%, and for
achievement of maximum performance is 100% - 200%.Exhibit 10.2

                       Terms and Conditions Applicable to
                          Long Term Performance Awards
       issued pursuant to the Stanley Works 2001 Long Term Incentive Plan

This document sets forth the Terms and Conditions applicable to long term
performance awards ("Performance Awards") issued to eligible Employees pursuant
to The Stanley Works 2001 Long-Term Incentive Plan (the "Plan") as described in
the Award Document.

Each Performance Award represents the right of the Participant to receive a
number of Shares to be issued if the Company achieves Performance Goals for the
Measurement Period as set forth in the Award Document.

     1.  Time and Manner of Settlement. As soon as practicable following
         completion of the applicable Measurement Period and assuming that the
         Threshold Performance Goals are achieved and employment requirements
         are satisfied, the Company shall issue a number of Shares to the
         Participant, in settlement of the Participant's Performance Award,
         equal to (i) the number of Shares specified in the Award Document to be
         issued based upon the Performance Goals achieved plus (ii) in the event
         performance falls between the Threshold and Target or Target and
         Maximum Goals as specified in the Award Document, a pro rata number of
         Shares calculated as follows (rounded to the closest whole number):

                  S = (A-L/N-L)x(SN-SL)

                  where:
                  S =the additional number of Shares to be issued
                  A =the actual EPS or ROCE achieved
                  L =the EPS or ROCE Goal reached
                  N =the next highest EPS or ROCE Goal
                  SN =the number of Shares designated for issuance at the next
                  highest EPS or ROCE Goal; and
                  SL = the number of Shares
                  designated for issuance at the EPS or ROCE Goal reached.

         If, at the time of settlement, the Participant meets or exceeds the
         Minimum Ownership Guidelines, Shares shall be issued in the form of
         Unrestricted Stock. If the Participant does not meet the applicable
         Minimum Ownership Guidelines at the time of settlement, the Shares
         shall be issued in the form of Restricted Stock to the extent necessary
         for such Participant to meet such Minimum Ownership Guidelines at the
         time of settlement. Any additional Shares shall be issued in the form
         of Unrestricted Stock.

         2.   Rights of a Shareholder. The Participant shall not have any rights
              of a shareholder with respect to the Performance Awards or any
              Shares issued in settlement thereof prior to the date of
              settlement.

         3.   Transferability. Transferability shall be as set forth in the
              Plan.

         4.   Adjustments. Notwithstanding any other provision hereof, the
              Committee shall have authority to make adjustments in the terms
              and conditions of, and the criteria included in, Performance
              Awards granted hereunder, as set forth in the Plan.

         5.   Miscellaneous. The Committee shall have full discretionary
              authority to administer the Performance Awards and to interpret
              the terms of the Award Document and this document, which authority
              includes the authority to waive certain conditions in appropriate
              circumstances. All decisions or interpretations of the Committee
              with respect to any question arising in respect of the Performance
              Awards shall be binding, conclusive and final. The waiver by
              Stanley of any provision of this document or an Award Document
              shall not operate as or be construed to be a subsequent waiver of
              the same provision or a waiver of any other provision of this
              document or any Award Document. The validity and construction of
              the terms of this document and any Award Document shall be
              governed by the laws of the State of Connecticut. The terms and
              conditions set forth in this document and any Award Document are
              subject in all respects to the terms and conditions of the Plan,
              which shall be controlling. The Participant agrees to execute such
              other agreements, documents or assignments as may be necessary or
              desirable to effect the purposes hereof.

         6.   Unfunded Arrangement. The Performance Awards represented in any
              Award Document constitute an unfunded unsecured promise of Stanley
              and the rights of the Participant in respect of the Performance
              Awards are no greater than the rights of an unsecured creditor of
              Stanley.

         7.   Capitalized Terms. The following capitalized terms shall have the
              meaning set forth below for purposes of any Award Document. All
              other capitalized terms used in this document shall have the
              meanings set forth in the Plan.

              Award Document. A letter or combination of letters to a
              Participant that advises the Participant that he or she has been
              selected to Participate in the program and sets forth the EPS
              Performance Goals, ROCE Performance Goals and Shares at the
              Threshold, Target and Maximum Levels, signed by the Chairman of
              the Committee, in the case of an Award Document to the Chief
              Executive Officer, and by the Chief Executive Officer, in the case
              of an Award Document to any other Participant.

              EPS Performance Goals. Threshold, Target and Maximum earnings per
              share ("EPS") performance to be achieved over the Measurement
              Period as set forth in the Award Document.

              Measurement Period. The period during which financial performance
              is measured against the applicable Performance Goals as set forth
              in the Award Document.

              Minimum Ownership Guidelines. Minimum levels of stock ownership
              Participants are expected to reach over time, as set forth in the
              Award Document.

              Performance Goals. EPS Performance Goals and ROCE Performance
              Goals as defined herein.

              Restricted Stock. Common Stock of the Company that confers on
              holders the right to vote and receive dividends, but that is
              subject to certain restrictions on sale and transfer. All
              restrictions on sale and transfer of such stock shall lapse on the
              date the Participant's employment with the Company or any
              Affiliate terminates, regardless of the reason for termination,
              provided, however, that a transfer of employment from the Company
              to any Affiliate or from any Affiliate to another Affiliate or to
              the Company shall not be deemed a termination of employment
              hereunder. In addition, if through the acquisition of additional
              Shares or otherwise, the total market value of shares owned by a
              Participant (restricted and unrestricted) exceeds the applicable
              Minimum Ownership Guidelines, the restrictions on the sale and
              transfer of that number of Shares of Restricted Stock in excess of
              the number required to meet the applicable Minimum Ownership
              Guidelines shall lapse.

              ROCE Performance Goals. Threshold, Target and Maximum return on
              capital employed ("ROCE") performance to be achieved over the
              Measurement Period as set forth in the Award Document.

              Shares. Shares of Restricted Stock or Unrestricted Stock to be
              issued if Performance Goals are achieved, as specified in an Award
              Document, with 50% of Shares allocated to EPS Performance Goals
              and 50% of Shares allocated to ROCE Performance Goals.

              Unrestricted Stock. Common Stock of the Company that may be sold
              at any time.

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