Document:

Exhibit 10.7

HOWARD BANCORP, INC.

2004 INCENTIVE STOCK OPTION PLAN

1.           Establishment, Purpose and Types of Awards.  Howard Bancorp, Inc. (the “Company”) hereby establishes the HOWARD BANCORP, INC. 2004 INCENTIVE STOCK OPTION PLAN (the “Plan”).  The purpose of the Plan is to promote the long-term growth and profitability of the Company by (i) providing key officers and employees with incentives to improve stockholder value and to contribute to the growth and financial success of the Company through their future services, and (ii) enabling the Company to attract, retain and reward the best-available officers and employees.

The Plan permits only the granting of incentive stock options within the meaning of Code section 422.  Awards shall be limited to employees of the Company or of any current or hereafter existing “parent corporation” or “subsidiary corporation,” as defined in Code sections 424(e) and (f), respectively, of the Company.

The Plan does not cover the stock options granted prior to the adoption of the Plan to certain senior executive officers of Howard Bank, a subsidiary of the Company (the “Bank”), pursuant to their respective employment agreements with the Bank, nor does it cover awards issued pursuant to the Howard Bancorp, Inc. 2004 Stock Incentive Plan.

2.           Definitions.  Under the Plan, except where the context otherwise indicates, the following definitions apply:

“Administrator” means the Board or the committee(s) or officer(s) appointed by the Board that have authority to administer the Plan as provided in Section 3 hereof.

“Affiliate” means any entity, whether now or hereafter existing, which controls, is controlled by, or is under common control with, the Company (including, but not limited to, joint ventures, limited liability companies, and partnerships).  For this purpose, “control” shall mean ownership of 50% or more of the total combined voting power or value of all classes of stock or interests of the entity.

“Award” means an award of incentive stock options within the meaning of Code section 422 pursuant to the Plan.

“Board” means the Board of Directors of the Company.

Revised December 9, 2005

 

  

  

  

“Change of Control” means:  (i) the acquisition by any Person, as defined below, of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) of 50% or more of (A) the then outstanding shares of the securities of the Company, or (B) the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the “Company Voting Stock”); (ii) the closing of a sale or other conveyance of all or substantially all of the assets of the Company; or (iii) the effective time of any merger, share exchange, consolidation, or other business combination involving the Company if, immediately after such transaction, persons who hold a majority of the outstanding voting securities entitled to vote generally in the election of directors of the surviving entity (or the entity owning 100% of such surviving entity) are not persons who, immediately prior to such transaction, held the Company Voting Stock; provided, however, that a Change of Control shall not include (Y) a public offering of capital stock of the Company, or (Z) a Holding Company Reorganization.  For purposes of this Section 2(e), a “person” means any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended, other than: employee benefit plans sponsored or maintained by the Company and corporations controlled by the Company.

“Code” means the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder.

“Common Stock” means the Company’s common stock, par value $0.01 per share.

“Fair Market Value” means, with respect to a share of Common Stock for any purpose on a particular date, the value determined by the Administrator in good faith; provided, however, that if the Common Stock is publicly traded, “Fair Market Value” shall be determined by reference to, as applicable: (i) either the closing price or the average of the high and low sale price on the relevant date, as determined in the Administrator’s sole discretion, quoted on the New York Stock Exchange, the American Stock Exchange, or the Nasdaq National Market; (ii) either the last sale price or the average of the high and low sale price on the relevant date, as determined in the Administrator’s sole discretion, quoted on the Nasdaq SmallCap Market; (iiii) the average of the high bid and low asked prices on the relevant date quoted on the OTC Bulletin Board Service or by Pink Sheets LLC or a comparable service as determined in the Administrator’s sole discretion; or (iv) if the Common Stock is not listed or quoted by any of the above, the average of the closing bid and asked prices on the relevant date furnished by a professional market maker for the Common Stock selected by the Administrator in its sole discretion.  If the Common Stock is listed or quoted as described in clause (i), clause (ii), clause (iii), or clause (iv) above, as applicable, but no public trading of the Common Stock occurs on the relevant date, then Fair Market Value shall be determined as of the nearest preceding date on which trading of the Common Stock occurred.  For all purposes under the Plan, the term “relevant date” as used in this definition means either the date as of which Fair Market Value is to be determined or the nearest preceding date on which public trading of the Common Stock occurred, as determined in the Administrator’s sole discretion.

“Grant Agreement” means a written document memorializing the terms and conditions of an Award granted pursuant to the Plan.  Each Grant Agreement shall incorporate the terms of the Plan.

 

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“Holding Company Reorganization” means any transaction described in Section 3(a)(12) of the Securities Act pursuant to which the Company or the Bank becomes a subsidiary of a holding company as provided in Section 3(a) of the Bank Holding Company Act of 1956, as amended.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder at the time of reference thereto.

3.           Administration.

(a)           Administration of the Plan.  The Plan shall be administered by the Administrator.  Unless otherwise determined by the Board, the Administrator shall be the Governance, Nominating and Compensation Committee of the Board.  To the extent allowed by applicable state or federal law, the Board by resolution may authorize an officer or officers to grant Awards to other officers and employees of the Company and its Affiliates, and, to the extent of such authorization, such officer or officers shall be the Administrator.

(b)           Powers of the Administrator.  The Administrator shall have all the powers vested in it by the terms of the Plan, such powers to include authority, in its sole discretion, to grant Awards under the Plan, prescribe Grant Agreements evidencing such Awards and establish programs for granting Awards.

The Administrator shall have full power and authority to take all other actions necessary to carry out the purpose and intent of the Plan, including, but not limited to, the authority to:  (i) determine the eligible persons to whom, and the time or times at which, Awards shall be granted; (ii) determine the number of shares to be covered by each Award; (iii) impose such terms, limitations, restrictions and conditions (not inconsistent with the Plan) upon any such Award as the Administrator shall deem appropriate; (iv) modify, amend, extend or renew outstanding Awards, or accept the surrender of outstanding Awards and substitute new Awards (provided however, that, except as provided in Section 6 or 7(d) of the Plan, any modification that would materially adversely affect any outstanding Award shall not be made without the consent of the holder); (v) accelerate or otherwise change the time in which an Award may be exercised and to waive or accelerate the lapse, in whole or in part, of any restriction or condition with respect to such Award, including, but not limited to, any restriction or condition with respect to the vesting or exercisability of an Award following termination of any grantee’s employment or other relationship with the Company; (vi) establish objectives and conditions (including, without limitation, vesting criteria), if any, for earning Awards and determining whether such objectives and conditions have been satisfied; (vii) determine the Fair Market Value of the Common Stock from time to time in accordance with the Plan; and (viii) for any purpose, including but not limited to, qualifying for preferred tax treatment under foreign tax laws or otherwise complying with the regulatory requirements of local or foreign jurisdictions, to establish, amend, modify, administer or terminate sub-plans, and prescribe, amend and rescind rules and regulations relating to such sub-plans.

   

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The Administrator shall have full power and authority, in its sole discretion, to administer and interpret the Plan, Grant Agreements and all other documents relevant to the Plan and Awards issued thereunder, and to adopt and interpret such rules, regulations, agreements, guidelines and instruments for the administration of the Plan and for the conduct of its business as the Administrator deems necessary or advisable.

(c)           Non-Uniform Determinations.  The Administrator’s determinations under the Plan (including, without limitation, determinations of the persons to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards and the Grant Agreements evidencing such Awards) need not be uniform and may be made by the Administrator selectively among persons who receive, or are eligible to receive, Awards under the Plan, whether or not such persons are similarly situated.

(d)           Limited Liability.  To the maximum extent permitted by law, no member of the Administrator shall be liable for any action taken or decision made in good faith relating to the Plan or any Award thereunder.

(e)           Indemnification.  To the maximum extent permitted by law and by the Company’s charter and by-laws, the members of the Administrator shall be indemnified by the Company in respect of all their activities under the Plan.

(f)           Effect of Administrator’s Decision.  All actions taken and decisions and determinations made by the Administrator on all matters relating to the Plan pursuant to the powers vested in it hereunder shall be in the Administrator’s sole discretion and shall be conclusive and binding on all parties concerned, including the Company, its stockholders, any participants in the Plan and any other employee of the Company, and their respective successors in interest.

4.           Shares Available for the Plan; Maximum Awards.  Subject to adjustments as provided in Section 7(d) of the Plan, the shares of Common Stock that may be issued with respect to Awards granted under the Plan shall not exceed an aggregate of 300,000 shares of Common Stock over the life of the Plan as described in Section 7(l) below.  The Company shall reserve such number of shares for Awards under the Plan, subject to adjustments as provided in Section 7(d) of the Plan.  If any Award, or portion of an Award, under the Plan expires or terminates unexercised, becomes unexercisable or is forfeited or otherwise terminated, surrendered or canceled as to any shares, or if any shares of Common Stock are repurchased by or surrendered to the Company in connection with any Award (whether or not such surrendered shares were acquired pursuant to any Award), or if any shares are withheld by the Company, the shares subject to such Award and the repurchased, surrendered and withheld shares shall thereafter be available for further Awards under the Plan, but only to the extent permitted by applicable law.

 

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5.           Participation.  Awards shall be limited to such employees of the Company or of any current or hereafter existing “parent corporation” or “subsidiary corporation,” as defined in Code sections 424(e) and (f), respectively, of the Company, as may be selected by the Administrator from time to time.  No Awards may be made to non-employee directors or consultants of the Company, or any Affiliate of the Company, under the Plan.

6.           Awards.  The Administrator, in its sole discretion, shall establish the terms of all Awards granted under the Plan.  Each Award shall be evidenced by a Grant Agreement, and each Award shall be subject to the terms and conditions provided in the applicable Grant Agreement.  The Administrator may permit or require a recipient of an Award to defer such individual’s receipt of the delivery of Common Stock that would otherwise be due to such individual by virtue of the exercise of any Award.  If any such deferral is required or permitted, the Administrator shall, in its sole discretion, establish rules and procedures for such deferral.  All Awards must have an exercise price at least equal to Fair Market Value as of the date of grant (or such greater amount as may be required by the Code).  All Awards shall be designated as incentive stock options by the Administrator at the time of grant or in the Grant Agreement evidencing such Award.

7.           Miscellaneous.

(a)           Withholding of Taxes. Grantees and holders of Awards shall pay to the Company or its Affiliate, or make provision satisfactory to the Administrator for payment of, any taxes required to be withheld in respect of Awards under the Plan no later than the date of the event creating the tax liability.  The Company or its Affiliate may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to the grantee or holder of an Award.  In the event that payment to the Company or its Affiliate of such tax obligations is made in shares of Common Stock, such shares shall be valued at Fair Market Value on the applicable date for such purposes and shall not exceed in amount the minimum statutory tax withholding obligation.

(b)           Loans.  To the extent otherwise permitted by law, the Company or its Affiliate may make loans to grantees to assist grantees in exercising Awards and satisfying any withholding tax obligations.

(c)           Transferability.  No award granted under the Plan shall be transferable by a grantee otherwise than by will or the laws of descent and distribution.  An award may be exercised during the lifetime of the grantee, only by the grantee or, during the period the grantee is under a legal disability, by the grantee’s guardian or legal representative.

 

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(d)           Adjustments for Corporate Transactions and Other Events.

(i)           Stock Dividend, Stock Split and Reverse Stock Split.  In the event of a stock dividend of, or stock split or reverse stock split affecting, the Common Stock, (A) the maximum number of shares of such Common Stock as to which Awards may be granted under the Plan, and (B) the number of shares covered by and the exercise price and other terms of outstanding Awards, shall, without further action of the Board, be appropriately adjusted to reflect such event.  The Administrator may make adjustments, in its sole discretion, to address the treatment of fractional shares and fractional cents that arise with respect to outstanding Awards as a result of the stock dividend, stock split or reverse stock split.

(ii)           Non-Change of Control Transactions.  Except with respect to the transactions set forth in Section 7(d)(i), in the event of any change affecting the Common Stock, the Company or its capitalization, by reason of a spin-off, split-up, dividend, recapitalization, merger, consolidation or share exchange, other than any such change that is part of a transaction resulting in a Change of Control of the Company or a Holding Company Reorganization, the Administrator, in its sole discretion and without the consent of the holders of the Awards, may make (A) appropriate adjustments to the maximum number and kind of shares reserved for issuance or with respect to which Awards may be granted under the Plan, in the aggregate, as provided in Section 4 of the Plan; and (B) any adjustments in outstanding Awards, including but not limited to modifying the number, kind and price of securities subject to Awards.

(iii)           Change of Control Transactions.  In the event of any transaction resulting in a Change of Control of the Company, (A) outstanding Awards will terminate upon the effective time of such Change of Control unless provision is made in connection with the transaction for the continuation or assumption of such Awards by, or for the substitution of the equivalent awards of, the surviving or successor entity or a parent thereof; (B) all outstanding Awards automatically shall vest and become exercisable immediately prior to the effective time of such Change of Control, and (C) the holders of Awards under the Plan will be permitted, immediately before the Change of Control, to exercise all portions of Awards under the Plan that are then exercisable or convertible or which become exercisable or convertible upon or prior to the effective time of the Change of Control.  If, immediately before the Change of Control, no stock of the Company is readily tradable on an established securities market or otherwise, and the vesting of an Award or Awards pursuant to this Section 7(d)(iii) would be treated as a “parachute payment” (as defined in section 280G of the Code), then such Award or Awards shall not vest unless the requirements of the stockholder approval exemption of section 280G(b)(5) of the Code have been satisfied with respect to such Award or Awards.  In addition, payments in respect of Awards are subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R. Part 359, Golden Parachute and Indemnification Payments.

 

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(iv)           Unusual or Nonrecurring Events.  The Administrator is authorized to make, in its sole discretion and without the consent of holders of Awards, adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events affecting the Company, or the financial statements of the Company or any Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Administrator determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan; provided, however, that except as expressly provided in the Grant Agreement, no such adjustment shall materially adversely affect an outstanding Award without the consent of the grantee.

(v)           Holding Company Reorganization.  In connection with any Holding Company Reorganization, provision shall be made for the continuation or assumption of all outstanding Awards by, or for the substitution of the equivalent awards of, the surviving or successor entity in such Holding Company Reorganization (the “Holding Company”).  Following any such Holding Company Reorganization, the Holding Company shall not be required to sell or issue shares of Common Stock pursuant to an Award unless the Holding Company has received from the grantee (A) evidence satisfactory to it that the grantee may acquire such shares pursuant to an exemption from registration under the Securities Act, and (B) a written statement satisfactory to legal counsel for the Holding Company pursuant to which such grantee (1) represents and warrants, among other things, that the purchase of such Common Stock pursuant to such Award shall be for investment purposes and not with a view to resale, distribution, offering, transferring, mortgaging, pledging, hypothecating or otherwise disposing of any such Common Stock under the circumstances which would constitute a public offering or distribution under the Securities Act or the securities laws of any state, (2) acknowledges that the certificates representing such shares of Common Stock may bear a legend restricting their transfer, and (3) acknowledges that the Holding Company’s transfer agent or agents may be given instructions to stop transfer of any certificate bearing such legend.  The foregoing representation and restrictions shall not be required if (aa) an effective registration statement for such shares under the Securities Act and any applicable state laws has been filed with the Securities and Exchange Commission and with the appropriate agency or commission of any state whose laws apply to the transaction, or (bb) an opinion of counsel satisfactory to the Holding Company has been delivered to the Holding Company to the effect that registration is not required under the Securities Act or under the applicable securities laws of any state.  Any determination by the Holding Company regarding the foregoing shall be final, binding, and conclusive. The Holding Company shall not be obligated to take any affirmative action in order to cause the exercise of an Award or the issuance of shares pursuant thereto to comply with any law or regulation or any governmental authority.  The provisions of this Section 7(d)(v) are in addition to, and not in limitation of, the provisions of Section 7(i) and Section 7(m) below.

 

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(e)           Substitution of Awards in Mergers and Acquisitions.  Awards may be granted under the Plan from time to time in substitution for awards held by employees or officers of entities who become or are about to become employees or officers of the Company or an Affiliate as the result of a merger or consolidation of the employing entity with the Company or an Affiliate, or the acquisition by the Company or an Affiliate of the assets or stock of the employing entity.  The terms and conditions of any substitute Awards so granted may vary from the terms and conditions set forth herein to the extent that the Administrator deems appropriate at the time of grant to conform the substitute Awards to the provisions of the awards for which they are substituted.

(f)           Other Agreements.  As a condition precedent to the grant of any Award under the Plan, the exercise of any such Award, or the delivery of certificates for shares issued pursuant to the exercise of any such Award, the Administrator may require the grantee or the grantee’s successor or permitted transferee, as the case may be, to become a party to a stock restriction agreement, stockholders’ agreement, voting trust agreement or other agreements regarding the Common Stock of the Company in such form(s) as the Administrator may determine from time to time.

(g)          Termination, Amendment and Modification of the Plan.  The Board may terminate, amend or modify the Plan or any portion thereof at any time, but no amendment or modification shall be made which would impair the rights of any grantee under any Award theretofore made, without his or her consent.  Notwithstanding anything to the contrary contained in the Plan, the Board may not amend or modify the Plan or any portion thereof without stockholder approval where such approval is required by applicable law or by the rules of any securities exchange or quotation system (e.g., Nasdaq) on which the Common Stock is listed or traded.  Furthermore, notwithstanding anything to the contrary contained in the Plan, the Administrator may not amend or modify any Award if such amendment or modification would require the approval of the stockholders if the amendment or modification were made to the Plan.

(h)          Non-Guarantee of Employment.  Nothing in the Plan or in any Grant Agreement thereunder shall confer any right on an individual to continue in the service of the Company or an Affiliate, or shall interfere in any way with the right of the Company or an Affililate to terminate such service at any time with or without cause or notice and whether or not such termination results in (i) the failure of any Award to vest; (ii) the forfeiture of any unvested or vested portion of any Award; and/or (iii) any other adverse effect on the individual’s interests under the Plan.

(i)           Compliance with Securities Laws.  If at any time the Administrator determines that the delivery of Common Stock under the Plan is or may be unlawful under the laws of any applicable jurisdiction, or Federal, state or foreign securities laws, the right to exercise an Award or receive shares of Common Stock pursuant to an Award shall be suspended until the Administrator determines that such delivery is lawful.  The Company shall have no obligation to effect any registration or qualification of the Common Stock under Federal, state or foreign laws.

 

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The Company may require that a grantee, as a condition to exercise of an Award, and as a condition to the delivery of any share certificate, make such written representations (including, without limitation, representations to the effect that such Common Stock is being acquired solely for investment and that such person will not dispose of the Common Stock so acquired in violation of Federal, state or foreign securities laws) and furnish such information as may, in the opinion of counsel for the Company, be appropriate to permit the Company to issue the Common Stock in compliance with applicable Federal, state or foreign securities laws.  The stock certificates for any shares of Common Stock issued pursuant to the Plan may bear a legend restricting transferability of the shares of Common Stock unless such shares are registered or an exemption from registration is available under the Securities Act and applicable state or foreign securities laws.

(j)            No Trust or Fund Created.  Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company and a grantee or any other person.  To the extent that any grantee or other person acquires a right to receive payments from the Company pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company.

(k)           Governing Law.  The validity, construction and effect of the Plan, of Grant Agreements entered into pursuant to the Plan, and of any rules, regulations, determinations or decisions made by the Administrator relating to the Plan or such Grant Agreements, and the rights of any and all persons having or claiming to have any interest therein or thereunder, shall be determined exclusively in accordance with applicable federal laws and the laws of the State of Maryland without regard to its conflict of laws principles.  Any suit with respect to the Plan shall be brought in the federal or state courts in the districts which include the city and state in which the principal offices of the Company are located.

(l)            Effective Date; Termination Date.  The Plan is effective as of the date on which the Plan is adopted by the Board, subject to approval of the stockholders within twelve months before or after such date, and shall continue in effect for a term of ten (10) years, unless earlier terminated pursuant to Section 7(g) hereof.  No Award shall be granted under the Plan after the close of business on the day immediately preceding the tenth anniversary of the effective date of the Plan, or if earlier, the tenth anniversary of the date the Plan is approved by the stockholders, and no Award under the Plan shall have a term of more than ten (10) years.  Subject to other applicable provisions of the Plan, all Awards made under the Plan prior to such termination of the Plan shall remain in effect until such Awards expire or have been satisfied or terminated in accordance with the Plan and the terms of such Awards; provided, however, that no Award that contemplates exercise or conversion may be exercised or converted, and no Award that defers vesting, shall remain outstanding and unexercised, unconverted or unvested, in each case, for more than ten years after the date such Award was initially granted.

 

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(m)          Regulatory Restrictions.  The Plan and the Company’s obligations under the Plan and any Grant Agreement shall be subject to all applicable federal and state laws, rules and regulations, and to such approvals by any regulatory or governmental agency as may be required.  Without limiting the generality of the foregoing, (i) the Company shall not be required to sell or issue any shares of Common Stock pursuant to any Award if the sale or issuance of such shares would constitute a violation by the individual exercising the Award or the Company of any provision of any law or regulation of any governmental authority, including without limitation any federal or state securities laws or regulations, and (ii) the inability of the Company to obtain any necessary authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful exercise or payment of any Award hereunder, shall relieve the Company of any liability in respect of the exercise or payment of such Award to the extent such requisite authority shall have been deemed necessary and shall not have been obtained.

PLAN APPROVAL:

Date Approved by the Board: ___October 13, 2004__________

Date Approved by the Stockholders: __May 18, 2005___________

RESTATED AS THE “HOWARD BANCORP, INC. 2004 INCENTIVE STOCK OPTION PLAN”

RESTATEMENT APPROVAL:

Date Restatement Approved by the Board:      December 14, 2005__________

Effective Date of the Restatement: _ _December 15, 2005___________

 

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10Grant No: _____

HOWARD BANCORP, INC.

Stock Option Certificate

THIS CERTIFIES THAT Howard Bancorp, Inc. (the “Company”) has awarded to ____________________ (“Optionee”) under the Howard Bancorp, Inc 2004 Incentive Stock Option Plan (the “Plan”), incentive stock options (each an “Option”; collectively, the “Options”) to purchase _______ shares of Company’s common stock, par value $0.01 per share (“Common Stock”), at a price of $_______ per share (the “Exercise Price”).  This Stock Option Certificate constitutes part of and is subject to the terms and provisions of the attached Incentive Stock Option Grant Agreement, which is incorporated by reference herein.

Grant Date: _______________

Expiration Date:  The Options expire at 5:00 p.m. (Ellicott City, Maryland time) on the last business day prior to the tenth anniversary of the Grant Date (the “Expiration Date”), unless fully exercised or terminated earlier.

Vesting Schedule:  The Options vest and become exercisable in accordance with the vesting schedule set forth below, subject to the terms and conditions described in the attached Incentive Stock Option Grant Agreement:

	
  

	
(a)

	
1/3 of the Options will vest and become exercisable on the first anniversary of the Grant Date;

	
  

	
(b)

	
1/3 of the Options will vest and become exercisable on the second anniversary of the Grant Date; and

	
  

	
(c)

	
1/3 of the Options will vest and become exercisable on the third anniversary of the Grant Date.

The extent to which the Options are vested and exercisable as of a particular vesting date is rounded down to the nearest whole share.  However, vesting is rounded up to the nearest whole share on the third anniversary of the Grant Date.

IN WITNESS WHEREOF, the Company has caused this Stock Option Certificate to be executed by its duly authorized officer on this _____ day of __________________ , 20__.

	
Howard Bancorp, Inc.

	  	  
	
By: 

	 	
   

	  	
Name:

	 	 
	  	
Title:

	 	 

The undersigned hereby acknowledges that he/she has carefully read the attached Incentive Stock Option Grant Agreement and the Plan and agrees to be bound by all of the provisions set forth in such documents.

	
OPTIONEE:

	  
	
 

	
Name:

	   

Date: __________________

Enclosures:                      Incentive Stock Option Grant Agreement

     Howard Bancorp, Inc. 2004 Incentive Stock Option Plan

  

Revised December 9, 2005

 

  

  

  

Incentive Stock Option Grant Agreement

Under The

Howard Bancorp, Inc. 2004 Incentive Stock Option Plan

1.           Terminology.  All capitalized terms that are not defined in this Incentive Stock Option Grant Agreement (this “Agreement”) have the respective meanings specified in the Plan or the attached Stock Option Certificate.  For purposes of this Agreement, the terms below have the following meanings:

“Cause” has the meaning ascribed to such term or words of similar import in Optionee’s written employment or service contract with Company (which for purposes of this agreement shall include any affiliate) and, in the absence of such agreement or definition, means Optionee’s (i) conviction of, or plea of guilty or nolo contendere to, a felony or crime involving moral turpitude; (ii) fraud on or misappropriation of any funds or property of Company, any affiliate, customer or vendor; (iii) personal dishonesty, incompetence, willful misconduct, willful violation of any law, rule or regulation (other than minor traffic violations or similar offenses), or breach of fiduciary duty which involves personal profit; (iv) willful misconduct in connection with Optionee’s duties or willful failure to perform Optionee’s responsibilities in the best interests of Company; (v) illegal use or distribution of drugs; (vi) violation of any Company rule, regulation, procedure or policy; or (vii) breach of any provision of any employment, non-disclosure, non-competition, non-solicitation or other similar agreement executed by Optionee for the benefit of Company, all as determined by the Administrator, which determination will be conclusive.

“Option Shares” mean the shares of Common Stock underlying the Options.

“Total and Permanent Disability” means the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months.  The Administrator may require such proof of Total and Permanent Disability as the Administrator in its sole discretion deems appropriate and the Administrator’s good faith determination as to whether Optionee is totally and permanently disabled will be final and binding on all parties concerned.

2.           Vesting.

(a)        The Options shall vest in accordance with the vesting schedule identified in the Stock Option Certificate which is attached hereto and constitutes a part of the Agreement (the “Vesting Schedule”), so long as Optionee is in the continuous employ of, or in a service relationship with, the Company from the Grant Date through the applicable date upon which vesting is scheduled to occur.  No vesting will accrue with respect to any Options after Optionee ceases to be in either an employment or other service relationship with the Company.

(b)        Except to the extent that the Options have earlier terminated, upon a Change of Control the Options shall vest in the manner and to the extent provided in the Plan.  Any payments made to Optionee pursuant to this Agreement or otherwise are subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R. Part 359, Golden Parachute and Indemnification Payments.

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(c)        Unless the Options have earlier terminated, if before Optionee has vested in any Options, his or her employment or other service relationship with the Company terminates due to death or Total and Permanent Disability, then those Options that are scheduled to vest on the next vesting date succeeding the date of death or Total and Permanent Disability shall become fully vested as of the date of such termination.

3.           Exercise of Options.

(a)        Right to Exercise.  Optionee may exercise the Options to the extent vested at any time on or before the Expiration Date or the earlier termination of the Options, unless otherwise provided in this Agreement.  Section 4 below describes certain limitations on exercise of the Options that apply in the event of Optionee’s death, Total and Permanent Disability, or termination of employment or other service relationship with the Company.  The Options may be exercised only in multiples of whole shares and may not be exercised at any one time as to fewer than one hundred shares (or such lesser number of shares as to which the Options are then exercisable).  No fractional shares will be issued under the Options.

(b)        Exercise Procedure.  In order to exercise the Options, the following items must be delivered to the Secretary of the Company before the expiration or termination of the Options: (i) an exercise notice, in such form as the Administrator may require from time to time, specifying the number of Option Shares to be purchased, (ii) full payment of the Exercise Price for such Option Shares or properly executed, irrevocable instructions, in such form as the Administrator may require from time to time, to effectuate a broker-assisted cashless exercise, each in accordance with Section 3(c) of this Agreement, and (iii) an executed copy of any other agreements requested by the Administrator pursuant to Section 7(f) of the Plan.  An exercise will not be effective until all of the foregoing items are received by the Secretary of the Company.

(c)        Method of Payment.  Payment of the Exercise Price may be made by delivery of cash, certified or cashier’s check, money order, or other cash equivalent acceptable to the Administrator in its sole discretion.  In addition, payment of the Exercise Price may be made by a broker-assisted cashless exercise in accordance with Regulation T of the Board of Governors of the Federal Reserve System through a brokerage firm approved by the Administrator or such other payment method as may be acceptable to the Administrator from time to time in its sole discretion.

(d)        Issuance of Shares upon Exercise.  Upon exercise of the Options in accordance with the terms of this Agreement and the Plan, the Company will issue to Optionee or such other person exercising the Options, as the case may be, the number of shares of Common Stock so paid for, in the form of fully paid and nonassessable stock.  The Company will deliver stock certificates for the Option Shares as soon as practicable after exercise, which certificates will, unless such Option Shares are registered or an exemption from registration is available under applicable federal and state law, bear a legend restricting transferability of such shares and referencing any applicable stock restriction agreement or similar agreement.

 

Revised December 9, 2005

 

  

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(e)        Regulatory Restrictions.  If the Company’s state or primary federal regulator determines that the Company’s capital fails to meet the then-current federal or state minimum capital requirements, then the Company’s primary federal regulator may require Optionee to exercise or forfeit the Options.

4.           Termination of Employment or Service.

(a)        Exercise Period Following Cessation of Employment or Other Service Relationship, In General.  If Optionee ceases to be employed by, or in a service relationship with, the Company for any reason other than death, Total and Permanent Disability, or discharge for Cause, (i) the unvested Options, after giving effect to the provisions of Section 2 of this Agreement, shall terminate immediately upon such cessation, and (ii) the vested Options shall remain exercisable during the 30-day period following such cessation, but in no event after the Expiration Date.  Unless sooner terminated, the vested Options shall terminate upon the expiration of such 30-day period.

(b)        Disability of Optionee.  Notwithstanding the provisions of Section 4(a) above, if Optionee ceases to be employed by, or in a service relationship with, the Company as a result of Optionee’s Total and Permanent Disability, (i) the unvested Options, after giving effect to the provisions of Section 2 of this Agreement, shall terminate immediately upon such cessation, and (ii) the vested Options shall remain exercisable during the one-year period following such cessation, but in no event after the Expiration Date.  Unless sooner terminated, the vested Options shall terminate upon the expiration of such one-year period.

(c)        Death of Optionee.  If Optionee dies prior to the expiration or other termination of the Options, (i) the unvested Options, after giving effect to the provisions of Section 2 of this Agreement, shall terminate immediately upon Optionee’s death, and (ii) the vested Options shall remain exercisable during the one-year period following Optionee’s death, but in no event after the Expiration Date, by Optionee’s executor, personal representative, or the person(s) to whom the Options are transferred by will or the laws of descent and distribution.  Unless sooner terminated, the vested Options shall terminate upon the expiration of such one-year period.

(d)        Misconduct.  Notwithstanding anything to the contrary in this Agreement, the Options shall terminate in their entirety, regardless of whether the Options are vested, immediately upon Optionee’s discharge of employment or other service relationship for Cause or upon Optionee’s commission of any of the following acts during any period following the cessation of Optionee’s employment or other service relationship during which the Options otherwise would be exercisable: (i) fraud on or misappropriation of any funds or property of the Company, or (ii) breach by Optionee of any provision of any employment, non-disclosure, non-competition, non-solicitation, assignment of inventions, or other similar agreement executed by Optionee for the benefit of the Company, as determined by the Administrator, which determination will be conclusive.

 

Revised December 9, 2005

  

  

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(e)        Change in Status.  If Optionee’s relationship with the Company ceases to be a “common law employee” relationship, but Optionee continues to provide bona fide services to the Company following such cessation in a different capacity (including, without limitation, as a director, consultant or independent contractor), then a termination of employment or other service relationship shall not be deemed to have occurred for purposes of this Section 4 upon such change in relationship.  Notwithstanding the foregoing, the Options shall not be treated as incentive stock options within the meaning of Code section 422 with respect to any exercise that occurs more than three months after such cessation of the common law employee relationship (except as otherwise permitted under Code section 421 or 422).

5.           Market Stand-Off Agreement.  Optionee agrees that following the effective date of a registration statement of the Company filed under the Securities Act of 1933, as amended, Optionee, for the duration specified by and to the extent requested by the Company and an underwriter of Common Stock or other securities of the Company, shall not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such securities, enter into a transaction which would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of such securities, whether any such aforementioned transaction is to be settled by delivery of such securities or other securities, in cash or otherwise, or publicly disclose the intention to make any such offer, sale, pledge or disposition, or to enter into any such transaction, swap, hedge or other arrangement, in each case during the seven days prior to and the 180 days after the effectiveness of any underwritten offering of the Company’s equity securities (or such longer or shorter period as may be requested in writing by the managing underwriter and agreed to in writing by the Company) (the “Market Stand-Off Period”), except as part of such underwritten registration if otherwise permitted.  In addition, Optionee agrees to execute any further letters, agreements and/or other documents requested by the Company or its underwriters which are consistent with the terms of this Section 5.  The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Stand-Off Period.

6.           Nontransferability of Options.  The Options are nontransferable otherwise than by will or the laws of descent and distribution, and during the lifetime of Optionee, the Options may be exercised only by Optionee or, during the period Optionee is under a legal disability, by Optionee’s guardian or legal representative.  Except as provided above, the Options may not be assigned, transferred, pledged, hypothecated or disposed of in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process.

 

Revised December 9, 2005

 

  

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7.           Qualified Nature of the Options.  The Options are intended to qualify as incentive stock options within the meaning of Code section 422 (“Incentive Stock Options”), to the fullest extent permitted by Code section 422, and this Agreement shall be so construed.  Pursuant to Code section 422(d) the aggregate Fair Market Value (determined as of the Grant Date) of shares of Common Stock with respect to which all Incentive Stock Options first become exercisable by Optionee in any calendar year under the Plan or any other plan of the Company (and its parent and subsidiary corporations, within the meaning of Code section 424(e) and (f), as may exist from time to time) may not exceed $100,000 or such other amount as may be permitted from time to time under Code section 422.  To the extent that such aggregate fair market value would otherwise exceed $100,000 or other applicable amount in any calendar year, such Incentive Stock Options shall not be exercisable by Optionee during that calendar year, and shall be exercisable in the next succeeding calendar year (subject, in each case, to the provisions of Section 4 hereof), subject again to the foregoing limitations; provided, however, that this limitation shall not apply to any Option in the calendar year in which it expires or terminates under this Agreement, and to the extent the aggregate fair market value limitation is exceeded in that year the Options shall be treated as nonstatutory stock options.  For this purpose, the Incentive Stock Options will be taken into account in the order in which they were granted.  In such case, the Company may designate the shares of Common Stock that are to be treated as stock acquired pursuant to the exercise of Incentive Stock Options and the shares of Common Stock that are to be treated as stock acquired pursuant to nonstatutory stock options by issuing separate certificates for such shares and identifying the certificates as such in the stock transfer records of the Company.

Notwithstanding anything herein to the contrary, if Optionee owns, directly or indirectly through attribution, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any of its subsidiaries (within the meaning of Code section 424(f)) on the Grant Date, then (y) the Exercise Price shall be the greater of (i) the Exercise Price stated on the Stock Option Certificate which is attached hereto and constitutes a part of this Agreement or (ii) 110% of the Fair Market Value of the Common Stock on the Grant Date, and (z) the Expiration Date shall be the last business day prior to the fifth anniversary of the Grant Date.

Code section 422 provides additional limitations respecting the treatment of the Options as Incentive Stock Options.

8.           Notice of Disqualifying Disposition.  If Optionee makes a disposition (as that term is defined in Code section 424(c)) of any Option Shares acquired pursuant to the Options within two years after the Grant Date or within one year after the Option Shares are transferred to Optionee, Optionee agrees to notify the Administrator of such disposition in writing within 30 days of such disposition.

9.           Withholding of Taxes.  At the time the Options are exercised, in whole or in part, or at any time thereafter as requested by the Company, Optionee hereby authorizes withholding from payroll or any other payment of any kind due Optionee and otherwise agrees to make adequate provision for foreign, federal, state and local taxes required by law to be withheld, if any, which arise in connection with the Options (including, without limitation, upon a disqualifying disposition within the meaning of Code section 421(b)).  The Company may require Optionee to make a cash payment to cover any withholding tax obligation as a condition of exercise of the Options or issuance of share certificates representing Option Shares.

The Administrator may, in its sole discretion, permit Optionee to satisfy, in whole or in part, any withholding tax obligation which may arise in connection with the Options either by electing to have the Company withhold from the shares to be issued upon exercise that number of shares, or by electing to deliver to the Company already-owned shares, in either case having a Fair Market Value equal to the amount necessary to satisfy the statutory minimum withholding amount due.

 

Revised December 9, 2005

 

  

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10.          Representations and Warranties of Optionee.  Optionee represents and warrants to the Company that Optionee has received a copy of the Plan and this Agreement, has read and understands the terms of the Plan and this Agreement, and agrees to be bound by their respective terms and conditions.  Optionee acknowledges that there may be adverse tax consequences upon the exercise and/or disposition of the Option Shares, and that Optionee should consult a tax adviser prior to such disposition.

11.          Survival of Representations and Warranties.  All representations, warranties, covenants, and agreements contained herein or made in writing by Optionee in connection with the transactions contemplated hereby shall survive the execution and delivery of this Agreement, the exercise of any Option, and the issuance and delivery of any shares as a result of such exercise.

12.          Confidential Information.  In consideration of the Options granted to Optionee pursuant to this Agreement, Optionee agrees and covenants that, except as specifically authorized by the Company, Optionee will keep confidential any trade secrets or confidential or proprietary information of the Company or its customers which are now or which hereafter may become known to Optionee as a result of Optionee’s employment by or other service relationship with the Company, and shall not at any time, directly or indirectly, disclose any such information to any person, firm, the Company or other entity, or use the same in any way other than in connection with the business of the Company, at all times during and after Optionee’s employment or other service relationship.  The provisions of this Section 11 shall not narrow or otherwise limit the obligations and responsibilities of Optionee set forth in any agreement of similar import entered into between Optionee and the Company.

13.          Non-Guarantee of Employment or Service Relationship.  Nothing in the Plan or this Agreement shall alter the at-will or other employment status or other service relationship of Optionee, nor be construed as a contract of employment or service relationship between the Company and Optionee, or as a contractual right of Optionee to continue in the employ of, or in a service relationship with, the Company for any period of time, or as a limitation of the right of the Company to discharge Optionee at any time with or without cause or notice and whether or not such discharge results in the failure of any Options to vest or any other adverse effect on Optionee’s interests under the Plan.  Nothing contained in the Plan or this Agreement shall impair or otherwise affect the respective rights or obligations of Optionee and the Company under any employment agreement between Optionee and the Company.

14.          No Rights as a Stockholder.  Optionee shall not have any of the rights of a stockholder with respect to the Option Shares until such shares have been issued to him or her upon the due exercise of the Options.  No adjustment shall be made for dividends or distributions or other rights for which the record date is prior to the date such shares are issued.

 

Revised December 9, 2005

  

  

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15.         The Company’s Rights.

(a)        The existence of the Options shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations (including, without limitation, a Holding Company Reorganization), or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or other stocks with preference ahead of or convertible into, or otherwise affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of the Company’s assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

(b)        Without limiting the generality of Section 14(a) above, Optionee acknowledges and understands that if the Company effects a Holding Company Reorganization, then the Option Shares issuable upon exercise of the Options will be “restricted securities” within the meaning of Rule 144 promulgated under the Securities Act of 1933, as amended, and all certificates representing the Option Shares will bear a legend (in addition to such other legends as the Company may require) in substantially the following form:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE SECURITIES LAWS (THE “STATE ACTS”), AND SHALL NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED, OR OTHERWISE TRANSFERRED (WHETHER OR NOT FOR CONSIDERATION) BY THE HOLDER EXCEPT UPON THE ISSUANCE TO THE ISSUER OF A FAVORABLE OPINION OF ITS COUNSEL AND/OR SUBMISSION TO THE ISSUER OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO COUNSEL FOR THE ISSUER, TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT AND THE STATE ACTS.

16.          Optionee. Whenever the word “Optionee” is used in any provision of this Agreement under circumstances where the provision should logically be construed, as determined by the Administrator, to apply to the estate, personal representative, or beneficiary to whom the Options may be transferred by will or by the laws of descent and distribution, or another permitted transferee, the word “Optionee” shall be deemed to include such person(s).

17.          Notices.  All notices and other communications made or given pursuant to this Agreement shall be in writing and shall be sufficiently made or given if hand delivered or mailed by certified mail, addressed to Optionee at the address contained in the records of the Company, or addressed to the Administrator, care of the Company for the attention of its Corporate Secretary at its principal office or, if the receiving party consents in advance, transmitted and received via telecopy or via such other electronic transmission mechanism as may be available to the parties.

 

Revised December 9, 2005

 

  

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18.          Entire Agreement; Amendment; Waiver.  This Agreement contains the entire agreement between the parties with respect to the Options granted hereunder.  Any oral or written agreements, representations, warranties, written inducements, or other communications made prior to the execution of this Agreement with respect to the Options granted hereunder shall be void and ineffective for all purposes.  This Agreement may be amended from time to time by the Administrator in its discretion; provided, however, that  this Agreement may not be modified in a manner that would materially adversely affect the Options or Option Shares, as determined in the sole discretion of the Administrator, except as provided in the Plan or in a written document signed by each of the parties hereto. No waiver of any of the terms of this Agreement shall be valid unless in writing and signed by the party against whom enforcement of such waiver is sought.

19.          Conformity with Plan.  This Agreement is intended to conform in all respects with, and is subject to all applicable provisions of, the Plan.  Inconsistencies between this Agreement and the Plan shall be resolved in accordance with the terms of the Plan.  In the event of any ambiguity in this Agreement or any matters as to which this Agreement is silent, the Plan shall govern.  A copy of the Plan is provided to Optionee with this Agreement.

20.          Governing Law. The validity, construction and effect of this Agreement, and of any determinations or decisions made by the Administrator relating to this Agreement, and the rights of any and all persons having or claiming to have any interest under this Agreement, shall be determined exclusively in accordance with applicable federal laws and the laws of the State of Maryland, without regard to its provisions concerning the applicability of laws of other jurisdictions.  Any suit with respect hereto shall be brought in the federal or state courts in the districts which include the city and state in which the principal offices of the Company are located, and Optionee hereby agrees and submits to the personal jurisdiction and venue thereof.

21.          Headings.  The headings in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

 

Revised December 9, 2005

 

  

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