Document:

EX-10.04

 

Exhibit 10.04

CARDINAL HEALTH, INC.

RESTRICTED SHARE UNITS AGREEMENT

     On [grant date] (the “Grant Date”), Cardinal Health, Inc, an Ohio corporation (the “Company”),
has awarded to [employee name] (“Awardee”) [# of shares] Restricted Share Units (the “Restricted
Share Units” or “Award”), representing an unfunded unsecured promise of the Company to deliver
common shares, without par value, of the Company (the “Shares”) to Awardee as set forth herein.
The Restricted Share Units have been granted pursuant to the Cardinal Health, Inc. 2005 Long-Term
Incentive Plan (the “Plan”) and shall be subject to all provisions of the Plan, which are
incorporated herein by reference, and shall be subject to the provisions of this Restricted Share
Units Agreement (this “Agreement”). Capitalized terms used in this Agreement which are not
specifically defined shall have the meanings ascribed to such terms in the Plan.

     1. Vesting. Subject to the provisions set forth elsewhere in this Agreement, the
Restricted Share Units shall vest [CLIFF VESTING ALTERNATIVE: on [vesting date] (the “Vesting
Date”)] [INSTALLMENT VESTING ALTERNATIVE: in accordance with the following schedule: [vesting
schedule] (each such vesting date, the “Vesting Date” with respect to the Restricted Share Units
scheduled to vest on such date)]. Notwithstanding the foregoing, in the event of a Change of
Control prior to Awardee’s Termination of Employment, the Restricted Share Units shall vest in
full.

     2. Transferability. The Restricted Share Units shall not be transferable.

     3. Termination of Employment. Except as set forth below, if a Termination of
Employment occurs prior to the vesting of a Restricted Share Unit, such Restricted Share Unit shall
be forfeited by Awardee. If a Termination of Employment occurs prior to the vesting in full of the
Restricted Share Units by reason of Awardee’s death, then any unvested Restricted Share Units shall
vest in full and shall not be forfeited.

     4. Agreement Not to Disclose or Use Confidential Information, Trade Secrets or Other
Business Sensitive Information. The parties acknowledge and agree that the Company and its
Affiliates (collectively, the “Cardinal Group”) is the sole and exclusive owner of Confidential
Information, Trade Secrets or Other Business Sensitive Information (as hereinafter defined) and
that the Cardinal Group has legitimate business interests in protecting such information. The
parties further acknowledge and agree that the Cardinal Group has invested, and continues to
invest, considerable amounts of time and money in obtaining, developing and preserving the
confidentiality of such information. Further, the parties agree that, because of the trust and
fiduciary relationship arising between Awardee and the Cardinal Group, Awardee owes the Cardinal
Group a fiduciary duty to preserve and protect such information from any and all unauthorized
disclosure and use. Accordingly, Awardee shall not, either directly or indirectly, disclose such
information to any third party whatsoever and shall not use such information in any manner, except
as authorized in the reasonable performance of Awardee’s duties while employed by the Cardinal
Group. “Confidential Information, Trade Secrets or Other Business Sensitive Information” shall
include any such information as defined by applicable law and any information about the business of
the Cardinal Group and its customers that is not generally known to, or readily ascertainable by,
the public, including, but not limited to, financial information and models, customer lists,
business plans or strategies, marketing and sales plans or strategies, the identity, compensation
and qualifications of employees of the Cardinal Group, sources of supply, pricing policies,
operational methods, product specification or technical processes, new product information,
formulation techniques, customer contacts, profit or cost information, research and development
information or other information that the Cardinal Group has developed or compiled.

 

 

     5. Delivery of Company Property. Awardee recognizes and agrees that all documents,
magnetic media, computer disks, desktop and laptop computers and other tangible items that were
provided by the Cardinal Group and/or that contain Confidential Information, Trade Secrets or Other
Business Sensitive Information as defined above are the sole and exclusive property of the Cardinal
Group. Upon request by the Cardinal Group, Awardee shall promptly and immediately return to the
Cardinal Group all such documents, media, disks, desktop and laptop computers and other tangible
items. Upon the Termination of Employment with the Cardinal Group, Awardee shall promptly and
immediately return to the Cardinal Group any and all such documents, media, disks, desktop and
laptop computers or other tangible items, without request by the Cardinal Group. Awardee shall not
take any such information or make/retain copies of such information for any purpose whatsoever
except as is necessary for the reasonable performance of Awardee’s duties while employed by the
Cardinal Group.

     6. Other Covenants. Except as modified by Paragraph 10 below, Awardee hereby
covenants and agrees that, in consideration of the grant hereunder, Awardee shall not, either
directly or indirectly, on Awardee’s own behalf or on any other’s behalf, engage in or assist
others in any of the following activities:

     (a) Awardee shall not engage in any action or conduct that is a violation of the
policies of the Cardinal Group, including conduct that would constitute a breach of any of
the Certificates of Compliance with Company Policies and/or the Certificates of Compliance
with Company Business Ethics Policies executed by Awardee;

     (b) During Awardee’s employment with the Cardinal Group and for 12 months following the
Termination of Employment for any reason, Awardee shall not, either directly or indirectly,
employ, contact concerning employment, or participate in any manner in the recruitment for
employment of (whether as an employee, officer, director, agent, consultant or independent
contractor), any person who was or is an employee, representative, officer or director of
the Cardinal Group at any time within the 12 months prior to the Termination of Employment
with the Cardinal Group;

     (c) Awardee shall not at any time during employment with the Cardinal Group nor at any
time thereafter disparage the Cardinal Group or any of its employees, officers,
representatives, services or products;

     (d) During Awardee’s employment with the Cardinal Group and for 12 months following the
Termination of Employment for any reason, Awardee shall not engage in any action or conduct
that either does or could reasonably be expected to undermine, diminish or otherwise damage
the relationship between the Cardinal Group and any of its customers, potential customers,
vendors or suppliers that were known to Awardee in the performance of Awardee’s job duties
while employed with the Cardinal Group;

     (e) During Awardee’s employment with the Cardinal Group and for 12 months following the
Termination of Employment for any reason, Awardee shall not solicit or accept business of
the same type as that in which Awardee was employed by the Cardinal Group from any customer,
potential customer, vendor or supplier of the Cardinal Group that was known to Awardee in
the performance of Awardee’s job duties while employed with the Cardinal Group, nor shall
Awardee during such time period solicit or accept such business within any geographic area
in which Awardee was assigned or for which Awardee had any managerial responsibility;

     (f) During Awardee’s employment with the Cardinal Group and for 12 months

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following the Termination of Employment for any reason, Awardee shall not accept
employment with or serve as a consultant or advisor or in any other capacity to an entity
that is in competition with the business conducted by any member of the Cardinal Group
within a geographic area in which Awardee was assigned or for which Awardee had any
managerial responsibility; and

     (g) Awardee shall not breach or violate any provision of any employment or severance
agreement that Awardee has with any member of the Cardinal Group.

     7. Inevitable Disclosure. The parties specifically acknowledge and agree that the
provisions of this Agreement are reasonable in light of the fact that, in the event that Awardee
would become employed or otherwise associated with a competitor of the Cardinal Group, it would be
inevitable that Awardee would disclose Confidential Information, Trade Secrets or Other Business
Sensitive Information as defined above to such competitor. The parties acknowledge and agree that
Awardee has been introduced by the Cardinal Group to such Confidential Information, Trade Secrets
or Other Business Sensitive Information as defined above and that such information would aid the
competitor and that the threat of such inevitable disclosure is so great that, for purposes of this
Agreement, it must be assumed that such disclosure would occur.

     8. Covenants Are Independent Elements. The parties acknowledge that the obligations
and covenants set forth in Paragraphs 4 through 7 above and, if applicable, Paragraph 10 below are
essential independent elements of this Restricted Share grant and that, but for Awardee agreeing to
comply with them, the Cardinal Group would not have granted such Restricted Share Units to Awardee.
The parties agree and acknowledge that the provisions contained in Paragraphs 4 through 7 above
and, if applicable, Paragraph 10 below are ancillary to, or part of, an otherwise enforceable
agreement at the time the agreement is made with regard to such paragraphs. The existence of any
claim by Awardee against the Cardinal Group, whether based on this Agreement or otherwise, shall
not operate as a defense to the enforcement of the covenants contained in Paragraphs 4 through 7
above and, if applicable, Paragraph 10 below. The covenants contained in Paragraphs 4 through 7
above and, if applicable, Paragraph 10 below will remain in full force and effect whether Awardee
is terminated by the Cardinal Group or voluntarily resigns.

     9. Assignment of Covenants. The rights of the Cardinal Group under this Agreement
shall inure to the benefit of, and be binding upon, its successors and assigns. Any successor or
assign of the Cardinal Group is authorized to enforce the covenants contained in this Agreement.
Any successor or assign of the Cardinal Group is authorized by the parties to enforce the covenants
contained herein as if the name of such successor or assign shall replace the Cardinal Group
throughout this Agreement and any consent and/or notice, written or otherwise, is hereby waived and
deemed unnecessary by Awardee.

     10. California Specific Modifications. This paragraph shall supercede and modify
certain of the covenants, obligations and restrictions of Awardee set forth in Paragraph 6 above in
the event that, and only during such time that, Awardee’s principal employment with the Cardinal
Group is in the State of California. In the event that any of the provisions contained in
Subparagraphs 6(d) through (f) above are inconsistent with the provisions of this Paragraph 10 with
regard to the State of California, then the provisions contained in Subparagraphs 6(d) through (f)
shall not apply and the following provisions shall apply instead:

     (a) Within the geographic area in which Awardee was assigned or for which Awardee had
any managerial responsibility, Awardee shall not, during Awardee’s employment with the
Cardinal Group and for 12 months following Termination of Employment for any reason, solicit
or actually transact business with any existing customer of the Cardinal Group of

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which Awardee’s knowledge of the existence of that customer or of that customer’s
purchasing habits, product preferences or commercial practices exists because of Awardee’s
receipt of Confidential Information, Trade Secrets or Other Business Sensitive Information
from the Cardinal Group; and

     (b) Regardless of geographic area, Awardee shall not, during the period of Awardee’s
employment with the Cardinal Group and for 12 months following Termination of Employment for
any reason, solicit business from any customers of the same type as the business of the
Cardinal Group at the time of the Termination of Employment with the Cardinal Group whose
identities are not already within the public domain if Awardee directly serviced such
customers, was assigned to such customers, was responsible for such customers or otherwise
had personal contact with such customers during the 12-month period immediately preceding
expiration of Awardee’s employment with the Cardinal Group.

In the event that Awardee is reassigned to any other state within the United States of America
other than the State of California or to any other country, then all of the provisions of Paragraph
6 above shall apply in full force and effect and the provisions of this Paragraph 10 shall not
apply.

     11. Reasonableness of Restrictions Contained in Agreement. Awardee acknowledges that
the covenants contained in this Agreement are reasonable in nature, are fundamental for the
protection of the legitimate business and proprietary interests of the Cardinal Group, are
necessary to protect the goodwill between the Cardinal Group and its customers, and do not
adversely affect Awardee’s ability to earn a living in any capacity that does not violate such
covenants. The parties further agree that in the event of any violation by Awardee of any such
covenants, the Company will suffer immediate and irreparable injury for which there is no adequate
remedy at law.

     12. Special Forfeiture/Repayment Rules. If Awardee engages in conduct that is in
violation of the covenants and restrictions contained in this Agreement, then Awardee shall be
subject to the following special forfeiture/repayment rules in addition to any other remedy that
the Cardinal Group may have:

     (a) any Restricted Share Units that have not yet vested or that vested within the Look-Back
Period (as defined below) with respect to such conduct that is in violation of the covenants and
restrictions contained in this Agreement and have not yet been settled by a payment pursuant to
Paragraph 13 hereof shall immediately and automatically terminate, be forfeited, and cease to
exist; and

     (b) Awardee shall, within 30 days following written notice from the Company, pay to the
Company an amount equal to (x) the aggregate gross gain realized or obtained by Awardee resulting
from the settlement of all Restricted Share Units pursuant to Paragraph 13 hereof (measured as of
the settlement date (i.e., the market value of the Restricted Share Units on such settlement date))
that have already been settled and that had vested at any time within three years prior to the
conduct by Awardee that is in violation of the covenants and restrictions contained in this
Agreement (the “Look-Back Period”), minus (y) $1.00.

     Awardee may be released from Awardee’s obligations under this Paragraph 12 if and only if the
Administrator (or its duly appointed designee) determines, in writing and in its sole discretion,
that such action is in the best interests of the Company. Awardee agrees to provide the Company
with at least 10 days written notice prior to directly or indirectly accepting employment with or
serving as a consultant or advisor or in any other capacity to a competitor, and further agrees to
inform any such new employer, before accepting employment, of the terms of this Agreement and
Awardee’s continuing obligations

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contained herein. No provision of this Agreement shall diminish, negate or otherwise impact
any separate noncompete or other agreement to which Awardee may be a party, including, but not
limited to, any of the Certificates of Compliance with Company Policies and/or the Certificates of
Compliance with Company Business Ethics Policies; provided, however, that to the extent that any
provisions contained in any other agreement are inconsistent in any manner with the restrictions
and covenants of Awardee contained in this Agreement, the provisions of this Agreement shall take
precedence and such other inconsistent provisions shall be null and void. Awardee acknowledges and
agrees that the restrictions and covenants of Awardee contained in this Agreement are being made
for the benefit of the Company in consideration of Awardee’s receipt of the Restricted Share Units,
in consideration of employment, in consideration of exposing Awardee to the Company’s business
operations and confidential information, and for other good and valuable consideration, the
adequacy of which consideration is hereby expressly confirmed. Awardee further acknowledges that
the receipt of the Restricted Share Units and execution of this Agreement are voluntary actions on
the part of Awardee and that the Company is unwilling to provide the Restricted Share Units to
Awardee without including the restrictions and covenants of Awardee contained in this Agreement.
Further, the parties agree and acknowledge that the provisions contained in Paragraph 6 and, if
applicable, Paragraph 10 are ancillary to, or part of, an otherwise enforceable agreement at the
time the agreement is made.

     13. Payment. Subject to the provisions of Paragraphs 4 through 7 and, if applicable,
Paragraph 10, and unless Awardee makes an effective election to defer receipt of the Shares
represented by the Restricted Share Units, on the date of vesting of any Restricted Share Unit,
Awardee shall be entitled to receive from the Company (without any payment on behalf of Awardee
other than as described in Paragraph 17) the Shares represented by such Restricted Share Unit;
provided, however, that, subject to the next sentence, in the event that such Restricted Share
Units vest prior to the applicable Vesting Date as a result of the death of Awardee or as a result
of a Change of Control, Awardee shall be entitled to receive the corresponding Shares from the
Company on the date of such vesting. Notwithstanding the proviso of the preceding sentence, if
Restricted Share Units vest as a result of the occurrence of a Change of Control under
circumstances where such occurrence would not qualify as a permissible date of distribution under
Section 409A(a)(2)(A) of the Code, and the regulations thereunder, and where Code Section 409A
applies to such distribution, such proviso shall not apply and Awardee shall be entitled to receive
the corresponding Shares from the Company on the date that would have applied absent such proviso.
Elections to defer receipt of the Shares beyond the date of settlement provided herein may be
permitted in the discretion of the Administrator pursuant to procedures established by the
Administrator in compliance with the requirements of Section 409A of the Code.

     14. Dividends. Awardee shall not receive cash dividends on the Restricted Share Units
but instead shall, with respect to each Restricted Share Unit, receive a cash payment from the
Company on each cash dividend payment date with respect to the Shares with a record date between
the Grant Date and the earlier of the forfeiture of such unit in accordance with the terms hereof
or the settlement of such unit pursuant to Paragraph 13 hereof, such cash payment to be in an
amount equal to the dividend that would have been paid on the Common Share represented by such
unit.

     15. Right of Set-Off. By accepting these Restricted Share Units, Awardee consents to
a deduction from, and set-off against, any amounts owed to Awardee by any member of the Cardinal
Group from time to time (including, but not limited to, amounts owed to Awardee as wages, severance
payments or other fringe benefits) to the extent of the amounts owed to the Cardinal Group by
Awardee under this Agreement.

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     16. No Shareholder Rights. Awardee shall have no rights of a shareholder with respect
to the Restricted Share Units, including, without limitation, Awardee shall not have the right to
vote the Shares represented by the Restricted Share Units.

     17. Withholding Tax.

     (a) Generally. Awardee is liable and responsible for all taxes owed in connection
with the Restricted Share Units (including taxes owed with respect to the cash payments described
in Paragraph 14 hereof), regardless of any action the Company takes with respect to any tax
withholding obligations that arise in connection with the Restricted Share Units. The Company does
not make any representation or undertaking regarding the tax treatment or the treatment of any tax
withholding in connection with the grant or vesting of the Restricted Share Units or the subsequent
sale of Shares issuable pursuant to the Restricted Share Units. The Company does not commit and is
under no obligation to structure the Restricted Share Units to reduce or eliminate Awardee’s tax
liability.

     (b) Payment of Withholding Taxes. Prior to any event in connection with the
Restricted Share Units (e.g., vesting or settlement) that the Company determines may result in any
domestic or foreign tax withholding obligation, whether national, federal, state or local,
including any employment tax obligation (the “Tax Withholding Obligation”), Awardee is required to
arrange for the satisfaction of the minimum amount of such Tax Withholding Obligation in a manner
acceptable to the Company. Unless Awardee elects to satisfy the Tax Withholding Obligation by an
alternative means that is then permitted by the Company, Awardee’s acceptance of this Agreement
constitutes Awardee’s instruction and authorization to the Company to withhold on Awardee’s behalf
the number of Shares from those Shares issuable to Awardee at the time when the Restricted Share
Units become vested and payable as the Company determines to be sufficient to satisfy the Tax
Withholding Obligation. In the case of any amounts withheld for taxes pursuant to this provision
in the form of Shares, the amount withheld shall not exceed the minimum required by applicable law
and regulations. The Company shall have the right to deduct from all cash payments paid pursuant
to Paragraph 14 hereof the amount of any taxes which the Company is required to withhold with
respect to such payments.

     18. Beneficiary Designation. Awardee may designate a beneficiary to receive any
Shares to which Awardee is entitled with respect to the Restricted Share Units which vest as a
result of Awardee’s death. Notwithstanding the foregoing, if Awardee engages in conduct that is in
violation of the covenants and restrictions contained in this Agreement, the Restricted
Share Units subject to such beneficiary designation shall be subject to the Special
Forfeiture/Repayment Rules and the Company’s Right of Set-Off or other right of recovery set forth
in this Agreement, and all rights of the beneficiary shall be subordinated to the rights of the
Company pursuant to such provisions of this Agreement. Awardee acknowledges that the Company may
exercise all rights under this Agreement and the Plan against Awardee and Awardee’s estate, heirs,
lineal descendants and personal representatives and shall not be limited to exercising its rights
against Awardee’s beneficiary.

     19. Governing Law/Venue. This Agreement shall be governed by the laws of the State of
Ohio, without regard to principles of conflicts of law, except to the extent superseded by the laws
of the United States of America. The parties agree and acknowledge that the laws of the State of
Ohio bear a substantial relationship to the parties and/or this Agreement and that the Restricted
Share Units and benefits granted herein would not be granted without the governance of this
Agreement by the laws of the State of Ohio. In addition, all legal actions or proceedings relating
to this Agreement shall be brought in state or federal courts located in Franklin County, Ohio, and
the parties executing this Agreement hereby consent to the personal jurisdiction of such courts.
In the event of any violation or attempted violations of the restrictions and covenants of Awardee
contained in this Agreement, the Cardinal Group shall be

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entitled to specific performance and injunctive relief or other equitable relief, including
the issuance ex parte of a temporary restraining order, without any showing of irreparable harm or
damage, such irreparable harm being acknowledged and admitted by Awardee, and Awardee hereby waives
any requirement for the securing or posting of any bond in connection with such remedy, without
prejudice to the rights and remedies afforded the Cardinal Group hereunder or by law. In the event
that it becomes necessary for the Cardinal Group to institute legal proceedings under this
Agreement, Awardee shall be responsible to the Company for all costs and reasonable legal fees
incurred by the Company with regard to such proceedings.

     20. Severability. It is the desire and intent of the parties that the provisions of
this Agreement shall be enforced to the fullest extent permissible under the laws and public
policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any
particular provision or portion of this Agreement shall be determined by a court of competent
jurisdiction to be invalid or unenforceable as written, it is the intent and desire of the parties
that the court shall modify the language of such provision or portion of this Agreement to the
extent necessary to make it valid and enforceable. If no such modification by the court is
possible, this Agreement shall be deemed amended to delete therefrom only the provision or portion
thus determined to be invalid or unenforceable. Such modification or deletion is to apply only
with respect to the operation of such provision in the particular jurisdiction in which such court
determination is made.

     21. Action by the Administrator. The parties agree that the interpretation of this
Agreement shall rest exclusively and completely within the sole discretion of the Administrator.
The parties agree to be bound by the decisions of the Administrator with regard to the
interpretation of this Agreement and with regard to any and all matters set forth in this
Agreement. The Administrator may delegate its functions under this Agreement to an officer of the
Cardinal Group designated by the Administrator (hereinafter the “Designee”). In fulfilling its
responsibilities hereunder, the Administrator or its Designee may rely upon documents, written
statements of the parties or such other material as the Administrator or its Designee deems
appropriate. The parties agree that there is no right to be heard or to appear before the
Administrator or its Designee and that any decision of the Administrator or its Designee relating
to this Agreement, including, without limitation, whether particular conduct constitutes a
violation of the covenants, obligations and restrictions of Awardee set forth in Paragraphs 4
through 6 and, if applicable, Paragraph 10 above, shall be final and binding unless such decision
is arbitrary and capricious.

     22. Prompt Acceptance of Agreement. The Restricted Share Unit grant evidenced by this
Agreement shall, at the discretion of the Administrator, be forfeited if this Agreement is not
manually executed and returned to the Company, or electronically executed by Awardee by indicating
Awardee’s acceptance of this Agreement in accordance with the acceptance procedures set forth on
the Company’s third-party equity plan administrator’s web site, within 90 days of the Grant Date.

     23. Electronic Delivery and Consent to Electronic Participation. The Company may, in
its sole discretion, decide to deliver any documents related to the Restricted Share Unit grant
under and participation in the Plan or future Restricted Share Units that may be granted under the
Plan by electronic means or to request Awardee’s consent to participate in the Plan by electronic
means. Awardee hereby consents to receive such documents by electronic delivery and to participate
in the Plan through an on-line or electronic system established and maintained by the Company or
another third party designated by the Company, including the acceptance of restricted share unit
grants and the execution of restricted share unit agreements through electronic signature.

     24. Notices. All notices, requests, consents and other communications required or
provided under this Agreement to be delivered by Awardee to the Company will be in writing and will
be deemed

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sufficient if delivered by hand, facsimile, nationally recognized overnight courier, or
certified or registered mail, return receipt requested, postage prepaid, and will be effective upon
delivery to the Company at the address set forth below:

Cardinal Health, Inc.

7000 Cardinal Place

Dublin, Ohio 43017

Attention: Chief Legal Officer

Facsimile: (614) 757-6813

All notices, requests, consents and other communications required or provided under this Agreement
to be delivered by the Company to Awardee may be delivered by e-mail or in writing and will be
deemed sufficient if delivered by e-mail, hand, facsimile, nationally recognized overnight courier,
or certified or registered mail, return receipt requested, postage prepaid, and will be effective
upon delivery to the Awardee.

	 	 	 	 	 
	 	 	CARDINAL HEALTH, INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Its:	 	 
	 

	 	 	 	 

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ACCEPTANCE OF AGREEMENT

     Awardee hereby: (a) acknowledges that he or she has received a copy of the Plan, a copy of
the Company’s most recent annual report to shareholders and other communications routinely
distributed to the Company’s shareholders, and a copy of the Plan Description dated [date of Plan
Description] pertaining to the Plan; (b) accepts this Agreement and the Restricted Share Units
granted to him or her under this Agreement subject to all provisions of the Plan and this
Agreement, including the obligations and covenants set forth in paragraphs 4 through 7 above and,
if applicable, paragraph 10 above; (c) represents that he or she understands that the acceptance of
this Agreement through an on-line or electronic system, if applicable, carries the same legal
significance as if he or she manually signed the Agreement; (d) represents and warrants to the
Company that he or she is purchasing the Restricted Share Units for his or her own account, for
investment, and not with a view to or any present intention of selling or distributing the
Restricted Share Units either now or at any specific or determinable future time or period or upon
the occurrence or nonoccurrence of any predetermined or reasonably foreseeable event; and (e)
agrees that no transfer of the Shares delivered in respect of the Restricted Share Units shall be
made unless the Shares have been duly registered under all applicable Federal and state securities
laws pursuant to a then-effective registration which contemplates the proposed transfer or unless
the Company has received a written opinion of, or satisfactory to, its legal counsel that the
proposed transfer is exempt from such registration.

	 	 	 
	 

	 	[
	 

	 	 
	 

	 	Awardee’s Signature
	 
	 	 
	 

	 	 
	 

	 	Awardee’s Social Security Number
	 
	 	 
	 

	 	 
	 

	 	Date]

9Exhibit 4.1

    

    EXHIBIT
      4.1

    

    

    

    NATIONAL
      PENN BANCSHARES, INC.

    NITTANY
      FINANCIAL CORP.

    SUBSTITUTE
      STOCK OPTION PLAN

    

    

    

    

    Effective
      January 26, 2006, the Nittany Financial Corp. 1998 Stock Option Plan (the
“Plan”) has been assumed by National Penn Bancshares, Inc. (“National Penn”) in
      accordance with the provisions of the Agreement dated as of September 6, 2005
      (the “Agreement”) between Nittany Financial Corp. (“Nittany”) and National
      Penn.

    

    All
      stock
      options outstanding under the Plan as of January 26, 2006, have been converted
      into stock options exercisable for shares of common stock of National Penn,
      each
      option covering such number of shares and having such exercise price as is
      provided in the Agreement. All such substitute National Penn stock options
      are
      fully vested as of January 26, 2006 and have such other terms and conditions,
      including expiration dates, as provided in the Agreement, the Plan and the
      original grant agreements.

    

    No
      additional stock options may be granted under the Plan.

    

    All
      references in the Plan to the Board, Directors, Committee and Common Stock
      shall
      mean the Board, Directors, Compensation Committee and common stock of National
      Penn, respectively. All references in the Plan to the Corporation shall mean
      National Penn.

    

    Subject
      to the foregoing, the text of the Plan follows.

    

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    NITTANY
      FINANCIAL CORP.

     

    1998
      STOCK OPTION PLAN 

     

    1.
       Purpose
      of the Plan.The
      Plan
      shall be known as the NITTANY FINANCIAL CORP. ("Corporation") 1998 Stock Option
      Plan (the "Plan"). The purpose of the Plan is to attract and retain qualified
      personnel for positions of substantial responsibility and to provide additional
      incentive to officers, directors, key employees and other persons providing
      services to the Corporation, or any present or future parent or subsidiary
      of
      the Corporation to promote the success of the business. The purpose of the
      Plan
      is also to reward persons who organized the Corporation and its wholly-owned
      subsidiary bank. The Plan is intended to provide for the grant of "Incentive
      Stock Options," within the meaning of Section 422 of the Internal Revenue Code
      of 1986, as amended (the "Code") and Non-Incentive Stock Options, options that
      do not so qualify. The provisions of the Plan relating to Incentive Stock
      Options shall be interpreted to conform to the requirements of Section 422
      of
      the Code. 

     

    2.
       Definitions.The
      following words and phrases when used in this Plan with an initial capital
      letter , unless the context clearly indicates otherwise, shall have the meaning
      as set forth below. Wherever appropriate, the masculine pronoun shall include
      the feminine pronoun and the singular shall include the plural. 

     

    (a)
       "A
      ward"
      means the grant by the Committee of an Incentive Stock Option or a Non-Incentive
      Stock Option, or any combination thereof, as provided in the Plan. 

     

    (b)
       "Board"
      shall mean the Board of Directors of the Corporation, or any successor or parent
      corporation thereto. 

     

    (c)
       "Change
      in Control" shall mean: (i) the sale of all, or a material portion, of the
      assets of the Corporation; (ii) the merger or recapitalization of the
      Corporation whereby the Corporation is not the surviving entity; (Hi) a change
      in control of the Corporation, as otherwise defined or determined by the Office
      of Thrift Supervision or regulations promulgated by it; or (iv) the acquisition,
      directly or indirectly, of the beneficial ownership (within the meaning of
      that
      term as it is used in Section 13(d) of the Securities Exchange Act of 1934
      and
      the rules and regulations promulgated thereunder) of twenty-five percent (25%)
      or more of the outstanding voting securities of the Corporation by any person,
      trust, entity or group. This limitation shall not apply to the purchase of
      shares by underwriters in connection with a public offering of Corporation
      stock, or the purchase of shares of up to 25 % of any class of securities of
      the
      Corporation by a tax-qualified employee stock benefit plan which is exempt
      from
      the approval requirements, set forth under 12 C.F.R. §574.3(c)(I)(vi) as now in
      effect or as may hereafter be amended. The term "person" refers to an individual
      or a corporation, partnership, trust, association, joint venture, pool,
      syndicate, sole proprietorship, unincorporated organization or any other form
      of
      entity not specifically listed herein. The decision of the Committee as to
      whether a Change in Control has occurred shall be conclusive and binding.

    

    (d) "Code"
      shall mean the Internal Revenue Code of 1986, as amended, and 

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    

    regulations
      promulgated thereunder. 

     

    (e)
       "Committee"
      shall mean the Board or the Stock Option Committee appointed by the Board in
      accordance with Section 5(a) of the Plan. 

     

    (f)
       "Common
      Stock" shall mean common stock of the Corporation, or any successor or parent
      corporation thereto. 

     

    (g)
       "Continuous
      Employment" or "Continuous Status as an Employee" shall mean the absence of
      any
      interruption or termination of employment with the Corporation or any present
      or
      future Parent or Subsidiary of the Corporation. Employment shall not be
      considered interrupted in the case of sick leave, military leave or any other
      leave of absence approved by the Corporation or in the case of transfers between
      payroll locations, of the Corporation or between the Corporation, its Parent,
      its Subsidiaries or a successor. 

     

    (h)
       "Corporation"
      shall mean the NITTANY FINANCIAL CORP., the parent corporation of the Savings
      Bank, or any successor or Parent thereof. 

     

    (i)
       "Director"
      shall mean a member of the Board of the Corporation, or any successor or parent
      corporation thereto. 

     

    (j)
       "Director
      Emeritus" shall mean a person serving as a director emeritus, advisory director,
      consulting director or other similar position as may be appointed by the Board
      of Directors of the Savings Bank or the Corporation from time to time.

     

    (k)
       "Disability"
      means (a) with respect to Incentive Stock Options, the "permanent and total
      disability" of the Employee as such term is defined at Section 22(e)(3) of
      the
      Code; and (b) with respect to Non-Incentive Stock Options, any physical or
      mental impairment which renders the Participant incapable of continuing in
      the
      employment or service of the Savings Bank or the Parent in his then current
      capacity as determined by the Committee. 

     

    (l)
       "Effective
      Date" shall mean the date specified in Section 15 hereof. 

     

    (m)
       "Employee"
      shall mean any person employed by the Corporation or any present or future
      Parent or Subsidiary of the Corporation. 

     

    (n)
       "Fair
      Market Value" shall mean: (i) if the Common Stock is traded otherwise than
      on a
      national securities exchange, then the Fair Market Value per Share shall be
      equal to the mean between the last bid and ask price of such Common Stock on
      such date or, if there is no bid and ask price on said date, then on the
      immediately prior business day on which there was a bid and ask price. If no
      such bid and ask price is available, then the Fair Market Value shall be
      determined by the Committee in good faith; or (ii) if the Common Stock is listed
      on a national securities exchange, then the Fair Market Value per Share shall
      be
      not less than the 

     

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    average
      of the highest and lowest selling price of such Common Stock on such exchange
      on
      such date, or if there were no sales on said date, then the Fair Market Value
      shall be not less than the mean between the last bid and ask price on such
      date.

     

    (o) "Incentive
      Stock Option" or "ISO" shall mean an option to purchase Shares granted by the
      Committee pursuant to Section 8 hereof which is subject to the limitations
      and
      restrictions of Section 8 hereof and is intended to qualify as an incentive
      stock option under Section 422 of the Code. 

     

    (p) "Non-Incentive
      Stock Option" or "Non-ISO" shall mean an option to purchase Shares granted
      pursuant to Section 9 hereof, which option is not
      intended
      to qualify under Section 422 of the Code. 

     

    (q)
       "Option"
      shall mean an Incentive Stock Option or Non-Incentive Stock Option granted
      pursuant to this Plan providing the holder of such Option with the right to
      purchase Common Stock. 

     

    (r) "Optioned
      Stock" shall mean stock subject to an Option granted pursuant to the Plan.
      

     

    (s) "Optionee"
      shall mean any person who receives an Option or Award pursuant to the Plan.
      

     

    (t) "Parent"
      shall mean any present or future corporation which would be a "parent
      corporation" as defined in Sections 424(e) and (g) of the Code. 

     

    (u) "Participant"
      means any Director, Director Emeritus, officer or key employee of the
      Corporation or any Parent or Subsidiary of the Corporation or any other person
      providing a service to the Corporation who is selected by the Committee to
      receive an Award, or who by the express terms of the Plan is granted an Award.
      

     

    (v)
       "Plan"
      shall mean the NITTANY FINANCIAL CORP. 1998 Stock Option Plan. 

     

    (w) "Savings
      Bank" shall mean Nittany Bank, or any successor corporation thereto.

     

    (x) "Share"
      shall mean one share of the Common Stock. 

     

    (y) "Subsidiary"
      shall mean any present or future corporation which constitutes a "subsidiary
      corporation" as defined in Sections 424(t) and (g) of the Code. 

     

    3.
       Shares
      Subject to the Plan.
      Except
      as otherwise required by the provisions of 

     

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    Section
      13 hereof, the aggregate number of Shares with respect to which A wards may
      be
      made pursuant to the Plan shall not exceed 214,805 Shares. Such Shares may
      either be from authorized but unissued shares, treasury shares or shares
      purchased in the market for Plan purposes. If an Award shall expire, become
      unexercisable, or be forfeited for any reason prior to its exercise, new Awards
      may be granted under the Plan with respect to the number of Shares as to which
      such expiration has occurred. 

     

    4.
       Six
      Month Holding Period.
      

     

    Subject
      to vesting requirements, if applicable, except in the event of death or
      disability of the Optionee, a minimum of six months must elapse between the
      date
      of the grant of an Option and the date of the sale of the Common Stock received
      through the exercise of such Option. 

     

    5.
       Administration
      of the Plan.
      

     

    (a)
       Composition
      of the Committee. The Plan shall be administered by the Board of Directors
      of
      the Corporation or a Committee which shall consist of not less than two
      Directors of the Corporation appointed by the Board and serving at the pleasure
      of the Board. All persons designated as members of the Committee shall meet
      the
      requirements of a "Non-Employee Director" within the meaning of Rule 16b-3
      under
      the Securities Exchange Act of 1934, as amended, as found at 17 CPR §240.16b-3.

     

    (b)
       Powers
      of
      the Committee. The Committee is authorized (but only to the extent not contrary
      to the express provisions of the Plan or to resolutions adopted by the Board)
      to
      interpret the Plan, to prescribe, amend and rescind rules and regulations
      relating to the Plan, to determine the form and content of A wards to be issued
      under the Plan and to make other determinations necessary or advisable for
      the
      administration of the Plan, and shall have and may exercise such other power
      and
      authority as may be delegated to it by the Board from time to time. A majority
      of the entire Committee shall constitute a quorum and the action of a majority
      of the members present at any meeting at which a quorum is present shall be
      deemed the action of the Committee. In no event may the Committee revoke
      outstanding Awards without the consent of the Participant. 

     

    The
      President of the Corporation and such other officers as shall be designated
      by
      the Committee are hereby authorized to execute written agreements evidencing
      Awards on behalf of the Corporation and to cause them to be delivered to the
      Participants. Such agreements shall set forth the Option exercise price, the
      number of shares of Common Stock subject to such Option, the expiration date
      of
      such Options, and such other terms and restrictions applicable to such Award
      as
      are determined in accordance with the Plan or the actions of the Committee.
      

     

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    (c)
       Effect
      of
      Committee's Decision. All decisions, determinations and interpretations of
      the
      Committee shall be final and conclusive on all persons affected thereby.

     

    6.
       Eligibility
      for Awards and Limitations.
      

     

    (a)
       The
      Committee shall from time to time determine the officers, Directors, Directors
      Emeritus, key employees and other persons who shall be granted Awards under
      the.
      Plan, the number of Awards to be granted to each such persons, and whether
      Awards granted to each such Participant under the Plan shall be Incentive and/or
      Non-Incentive Stock Options. In selecting Participants and in determining the
      number of Shares of Common Stock to be granted to each such Participant, the
      Committee may consider the nature of the prior and anticipated future services
      rendered by each such Participant, each such Participant's current and potential
      contribution to the Corporation and such other factors as the Committee may,
      in
      its sole discretion, deem relevant. Participants who have been granted an Award
      may, if otherwise eligible, be granted additional Awards. 

     

    (b)
       The
      aggregate Fair Market Value (determined as of the date the Option is granted)
      of
      the Shares with respect to which Incentive Stock Options are exercisable for
      the
      first time by each Employee during any calendar year (under all Incentive Stock
      Option plans, as defined in Section 422 of the Code, of the Corporation or
      any
      present or future Parent or Subsidiary of the Corporation) shall not exceed
      $100,000. Notwithstanding the prior provisions of this Section 6, the Committee
      may grant Options in excess of the foregoing limitations, provided said Options
      shall be clearly and specifically designated as not being Incentive Stock
      Options. 

     

    7.
       Term
      of the Plan.
      The
      Plan shall continue in effect for a term of ten (10) years from the Effective
      Date, unless sooner terminated pursuant to Section 18 hereof. No Option shall
      be
      granted under the Plan after ten (10) years from the Effective Date.

     

    8.
       Terms
      and Conditions of Incentive Stock Options.
      Incentive Stock Options may be granted only to Participants who are Employees.
      Each Incentive Stock Option granted pursuant to the Plan shall be evidenced
      by
      an instrument in such form as the Committee shall from time to time approve.
      Each Incentive Stock Option granted pursuant to the Plan shall comply with,
      and
      be subject to, the following terms and conditions: 

     

    (a)
       Option
      Price. 

     

    (i)
       The
      price
      per Share at which each Incentive Stock Option granted by the Committee under
      the Plan may be exercised shall not, as to any particular Incentive Stock
      Option, be less than the Fair Market Value of the Common Stock on the date
      that
      such Incentive Stock Option is granted. 

     

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    (ii)
       In
      the
      case of an Employee who owns Common Stock representing more than ten percent
      (10%) of the outstanding Common Stock at the time the Incentive Stock Option
      is
      granted, the Incentive Stock Option exercise price shall not be less than one
      hundred and ten percent (110 %) of the Fair Market Value of the Common Stock
      on
      the date that the Incentive Stock Option is granted. 

     

    (b)
       Payment.
      Full payment for each Share of Common Stock purchased upon the exercise of
      any
      Incentive Stock Option granted under the Plan shall be made at the time of
      exercise of each such Incentive Stock Option and shall be paid in cash (in
      United States Dollars), Common Stock or a combination of cash and Common Stock.
      Common Stock utilized in full or partial payment of the exercise price shall
      be
      valued at the Fair Market Value at the date of exercise. The Corporation shall
      accept full or partial payment in Common Stock only to the extent permitted
      by
      applicable law. No Shares of Common Stock shall be issued until full payment
      has
      been received by the Corporation, and no Optionee shall have any of the rights
      of a stockholder of the Corporation until Shares of Common Stock are issued
      to
      the Optionee. 

     

    (c)
       Term
      of
      Incentive Stock Option. The term of exercisability of each Incentive Stock
      Option granted pursuant to the Plan shall be not more than ten (10) years from
      the date each such Incentive Stock Option is granted, provided that in the
      case
      of an Employee who owns stock representing more than ten percent (10
%)
      of
      the
      Common Stock outstanding at the time the Incentive Stock Option is granted,
      the
      term of exercisability of the Incentive Stock Option shall not exceed five
      (5)
      years. 

     

    (d)
       Exercise
      Generally. Except as otherwise provided in Section 10 hereof, no Incentive
      Stock
      Option may be exercised unless the Optionee shall have been in the employ of
      the
      Corporation at all times during the period beginning with the date of grant
      of
      any such Incentive Stock Option and ending on the date three (3) months prior
      to
      the date of exercise of any such Incentive Stock Option. The Committee may
      impose additional conditions upon the right of an Optionee to exercise any
      Incentive Stock Option granted hereunder which are not inconsistent with the
      terms of the Plan or the requirements for qualification as an Incentive Stock
      Option. 

     

    (e)
       Cashless
      Exercise. Subject to vesting requirements, if applicable, an Optionee who has
      held an Incentive Stock Option for at least six months may engage in the
      "cashless exercise" of the Option. Upon a cashless exercise, an Optionee gives
      the Corporation written notice of the exercise of the Option together with
      an
      order to a registered broker-dealer or equivalent third party, to sell part
      or
      all of the Optioned Stock and to deliver enough of the proceeds to the
      Corporation to pay the Option exercise price and any applicable withholding
      taxes. If the Optionee does not sell the Optioned Stock through a registered
      broker-dealer or equivalent third party, the Optionee can give the Corporation
      written notice of the exercise of the Option and the third party purchaser
      of
      the Optioned Stock shall pay the Option exercise price plus any applicable
      withholding taxes to the Corporation. 

     

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    (f)
       Transferability.
      An Incentive Stock Option granted pursuant to the Plan shall be exercised during
      an Optionee's lifetime only by the Optionee to whom it was granted and shall
      not
      be assignable or transferable otherwise than by will or by the laws of descent
      and distribution. 

     

    9.
       Terms
      and
      Conditions of Non-Incentive
      Stock Options.
      Each
      Non-Incentive Stock Option granted pursuant to the Plan shall be evidenced
      by an
      instrument in such form as the Committee shall from time to time approve. Each
      Non-Incentive Stock Option granted pursuant to the Plan shall comply with and
      be
      subject to the following terms and conditions. 

     

    (a)
       Options
      Granted to Directors. Non-Incentive Stock Options to purchase shares of Common
      Stock may be granted to each Director who is not an Employee on or after the
      Effective Date, at an exercise price equal to the Fair Market Value of the
      Common Stock on such date of grant. The Options will be first become exercisable
      as determined by the Committee or the Board of Directors. Upon the death or
      Disability of the Director or Director Emeritus, such Option shall be deemed
      immediately 100% exercisable. Such Options shall continue to be exercisable
      for
      a period of ten years following the date of grant without regard to the
      continued services of such Director as a Director or Director Emeritus. In
      the
      event of the Optionee's death, such Options may be exercised by the personal
      representative of his estate or person or persons to whom his rights under
      such
      Option shall have passed by will or by the laws of descent and distribution.
      Options may be granted to newly appointed or elected non-employee Directors
      within the sole discretion of the Committee. The exercise price per Share of
      such Options granted shall be equal to the Fair Market Value of the Common
      Stock
      at the time such Options are granted. All outstanding Awards shall become
      immediately exercisable in the event of a Change in Control of the Savings
      Bank
      or the Company. Unless otherwise inapplicable, or inconsistent with the
      provisions of this paragraph, the Options to be granted to Directors hereunder
      shall be subject to all other provisions of this Plan. 

     

    (b)
       Option
      Price. The exercise price per Share of Common Stock for each Non-Incentive
      Stock
      Option granted pursuant to the Plan shall be at such price as the Committee
      may
      determine in its sole discretion, but in no event less than the Fair Market
      Value of such Common Stock on the date of grant as determined by the Committee
      in good faith. 

     

    (c)
       Payment.
      Full payment for each Share of Common Stock purchased upon the exercise of
      any
      Non-Incentive Stock Option granted under the Plan shall be made at the time
      of
      exercise of each such Non-Incentive Stock Option and shall be paid in cash
      (in
      United States Dollars), Common Stock or a combination of cash and Common Stock.
      Common Stock utilized in full or partial payment of the exercise price shall
      be
      valued at its Fair Market Value at the date of exercise. The Company shall
      accept full or partial payment in Common Stock only to the extent permitted
      by
      applicable law. No Shares of Common Stock shall be issued until full payment
      has
      been received by the Company and no Optionee shall have any of the rights of
      a
      stockholder of the Company until the Shares of Common Stock are issued to the
      Optionee. 

     

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    (d)
       Term.
      The
      term of exercisability of each Non-Incentive Stock Option granted pursuant
      to
      the Plan shall be not more than ten (10) years from the date each such
      Non-Incentive Stock Option is granted. 

     

    (e)
       Exercise
      Generally. The Committee may impose additional conditions upon the right of
      any
      Participant to exercise any Non-Incentive Stock Option granted hereunder which
      is not inconsistent with the terms of the Plan. 

     

    (f)
       Cashless
      Exercise. Subject to vesting requirements, if applicable, an Optionee who has
      held a Non-Incentive Stock Option for at least six months may engage in the
      "cashless exercise" of the Option. Upon a cashless exercise, an Optionee gives
      the Company written notice of the exercise of the Option together with an order
      to a registered broker-dealer or equivalent third party, to sell part or all
      of
      the Optioned Stock and to deliver enough of the proceeds to the Company to
      pay
      the Option exercise price and any applicable withholding taxes. If the Optionee
      does not sell the Optioned Stock through a registered broker-dealer or
      equivalent third party, the Optionee can give the Company written notice of
      the
      exercise of the Option and the third party purchaser of the Optioned Stock
      shall
      pay the Option exercise price plus any applicable withholding taxes to the
      Company. 

     

    (g)
       Transferability.
      Any Non-Incentive Stock Option granted pursuant to the Plan shall be exercised
      during an Optionee's lifetime only by the Optionee to whom it was granted and
      shall not be assignable or transferable otherwise than by will or by the laws
      of
      descent and distribution. 

    

    

    10.
       Effect
      of Termination of Employment, Disability or Death on Incentive Stock
      Options.

    

    (a)
       Termination
      of Employment. In the event that any Optionee's employment with the Company
      shall terminate for any reason, other than Disability or death, all of any
      such
      Optionee's Incentive Stock Options, and all of any such Optionee's rights to
      purchase or receive Shares of Common Stock pursuant thereto, shall automatically
      terminate on (A) the earlier of (i) or (ii): (i) the respective expiration
      dates
      of any such Incentive Stock Options, or (ii) the expiration of not more than
      three (3) months after the date of such termination of employment; or (B) at
      such later date as is determined by the Committee at the time of the grant
      of
      such A ward based upon the Optionee's continuing status as a Director or
      Director Emeritus of the Savings Bank or the Company, but only if, and to the
      extent that, the Optionee was entitled to exercise any such Incentive Stock
      Options at the date of such termination of employment, and further that such
      Award shall thereafter be deemed a Non-Incentive Stock Option. In the event
      that
      a Subsidiary ceases to be a Subsidiary of the Company, the employment of all
      of
      its employees who are not immediately thereafter employees of the Company shall
      be deemed to terminate upon the date such Subsidiary so ceases to be a
      Subsidiary of the Company. 

     

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    (b)
       Disability.
      In the event that any Optionee's employment with the Company shall terminate
      as
      the result of the Disability of such Optionee, such Optionee may exercise any
      Incentive Stock Options granted to the Optionee pursuant to the Plan at any
      time
      prior to the earlier of (i) the respective expiration dates of any such
      Incentive Stock Options or (ii) the date which is one (1) year after the date
      of
      such termination of employment, but only if, and to the extent that, the
      Optionee was entitled to exercise any such Incentive Stock Options at the date
      of such termination of employment. 

     

    (c)
       Death.
      In
      the event of the death of an Optionee, any Incentive Stock Options granted
      to
      such Optionee may be exercised by the person or persons to whom the Optionee’s
      rights under any such Incentive Stock Options pass by will or by the laws of
      descent . and distribution (including the Optionee's estate during the period
      of
      administration) at any time prior to the earlier of (i) the respective
      expiration dates of any such Incentive Stock Options or (ii) the date which
      is
      two (2) years after the date of death of such Optionee but only if, and to
      the
      extent that, the Optionee was entitled to exercise any such Incentive Stock
      Options at the date of death. For purposes of this Section 10(c), any Incentive
      Stock Option held by an Optionee shall be considered exercisable at the date
      of
      his death if the only unsatisfied condition precedent to the exercisability
      of
      such Incentive Stock Option at the date of death is the passage of a specified
      period of time. At the discretion of the Committee, upon exercise of such
      Options the Optionee may receive Shares or cash or a combination thereof. If
      cash shall be paid in lieu of Shares, such cash shall be equal to the difference
      between the Fair Market Value of such Shares and the exercise price of such
      Options on the exercise date. 

     

    (d)
       Incentive
      Stock Options Deemed Exercisable. For purposes of Sections 10(a), 10(b) and
      10(c) above, any Incentive Stock Option held by any Optionee shall be considered
      exercisable at the date of termination of employment if any such Incentive
      Stock
      Option would have been exercisable at such date of termination of employment
      without regard to the Disability or death of the Participant. 

     

    (e)
       Termination
      of Incentive Stock Options. Except as may be specified by the Committee at
      the
      time of grant of an Option, to the extent that any Incentive Stock Option
      granted under the Plan to any Optionee whose employment with the Company
      terminates shall not have been exercised within the applicable period set forth
      in this Section 10, any such Incentive Stock Option, and all rights to purchase
      or receive Shares of Common Stock pursuant thereto, as the case may be, shall
      terminate on the last day of the applicable period. 

     

    11.
       Effect
      of Termination of Employment, Disability or Death on Non-Incentive Stock
      Options.
      The
      terms and conditions of Non-Incentive Stock Options relating to the effect
      of
      the termination of an Optionee's employment or service, Disability of an
      Optionee or his death shall be such terms and conditions as the Committee shall,
      in its sole discretion, determine at the time of termination of service, unless
      specifically provided for by the terms of the Agreement at the time of grant
      of
      the award. 

     

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    12.
       Withholding
      Tax.
      The
      Company shall have the right to deduct from all amounts paid in cash with
      respect to the cashless exercise of Options any taxes required by law to be
      withheld with respect to such cash payments. Where a Participant or other person
      is entitled to receive Shares pursuant to the exercise of an Option, the Company
      shall have the right to require the Participant or such other person to pay
      the
      Company the amount of any taxes which the Company is required to withhold with
      respect to such Shares, or, in lieu thereof, to retain, or to sell without
      notice, a number of such Shares sufficient to cover the amount required to
      be
      withheld. 

     

    13.
       Recapitalization,
      Merger, Consolidation, Change in Control and Other Transactions.
      

     

    (a)
       Adjustment.
      Subject to any required action by the stockholders of the Company, within the
      sole discretion of the Committee, the aggregate number of Shares of Common
      Stock
      for which Options may be granted hereunder, the number of Shares of Common
      Stock
      covered by each outstanding Option, and the exercise price per Share of Common
      Stock of each such Option, shall all be proportionately adjusted for any
      increase or decrease in the number of issued and outstanding Shares of Common
      Stock resulting from a subdivision or consolidation of Shares (whether by reason
      of merger, consolidation, recapitalization, reclassification, split-up,
      combination of shares, or otherwise) or the payment of a stock dividend (but
      only on the Common Stock) or any other increase or decrease in the number of
      such Shares of Common Stock effected without the receipt or payment of
      consideration by the Company (other than Shares held by dissenting
      stockholders). 

     

    (b)
       Change
      in
      Control. All outstanding Awards shall become immediately exercisable in the
      event of a Change in Control of the Company, as determined by the Committee.
      In
      the event of such a Change in Control, the Committee and the Board of Directors
      will take one or more of the following actions to be effective as of the date
      of
      such Change in Control: 

     

    (i)
      provide that such Options shall be assumed, or equivalent options shall be
      substituted ("Substitute Options") by the acquiring or succeeding corporation
      (or an affiliate thereof), provided that: (A) any such Substitute Options
      exchanged for Incentive Stock Options shall meet the requirements of Section
      424(a) of the Code, and (B) the shares of stock issuable upon the exercise
      of
      such Substitute Options shall constitute securities registered in accordance
      with the Securities Act of 1933, as amended, (“1933
      Act") or such securities shall be exempt from such registration in accordance
      with Sections 3 (a) (2) or 3(a)(5) of the 1933 Act (collectively, "Registered
      Securities "), or in the alternative, if the securities issuable upon the
      exercise of such Substitute Options shall not constitute Registered Securities,
      then the Optionee will receive upon consummation of the Change in Control
      transaction a cash payment for each Option surrendered equal to the difference
      between (1) the Fair Market Value of the consideration to be received for each
      share of Common Stock in the Change in Control transaction times the number
      of
      shares of Common Stock subject to such surrendered Options, and (2) the
      aggregate exercise price of all such surrendered Options, or 

     

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    (ii)
      in
      the event of a transaction under the terms of which the holders of the Common
      Stock of the Company will receive upon consummation thereof a cash payment
      (the
      "Merger Price") for each share of Common Stock exchanged in the Change in
      Control transaction, to make or to provide for a cash payment to the Optionees
      equal to the difference between (A) the Merger Price times the number of shares
      of Common Stock subject to such Options held by each Optionee (to the extent
      then exercisable at prices not in excess of the Merger Price) and (B) the
      aggregate exercise price of all such surrendered Options in exchange for such
      surrendered Options. 

     

    (c)
       Extraordinary
      Corporate Action. Notwithstanding any provisions of the Plan to the contrary,
      subject to any required action by the stockholders of the Company, in the event
      of any Change in Control, recapitalization, merger, consolidation, exchange
      of
      Shares, spin-off, reorganization, tender offer, partial or complete liquidation
      or other extraordinary corporate action or event, the Committee, in its sole
      discretion, shall have the power, prior or subsequent to such action or event
      to: 

     

    (i)
       appropriately
      adjust the number of Shares of Common Stock subject to each Option, the Option
      exercise price per Share of Common Stock, and the consideration to be given
      or
      received by the Company upon the exercise of any outstanding Option;

     

    (ii)
       cancel
      any or all previously granted Options, provided that appropriate consideration
      is paid to the Optionee in connection therewith; and/or 

     

    (iii)
       make
      such
      other adjustments in connection with the Plan as the Committee, in its sole
      discretion, deems necessary, desirable, appropriate or advisable; provided,
      however, that no action shall be taken by the Committee which would cause
      Incentive Stock Options granted pursuant to the Plan to fail to meet the
      requirements of Section 422 of the Code without the consent of the Optionee.
      

     

    (d)
       Acceleration.
      The Committee shall at all times have the power to accelerate the exercise
      date
      of Options previously granted under the Plan. 

     

    Except
      as
      expressly provided in Sections 13(a) and 13(b), no Optionee shall have any
      rights by reason of the occurrence of any of the events described in this
      Section 13. 

     

    14.
       Time
      of Granting Options.
      The
      date of grant of an Option under the Plan shall, for all purposes, be the date
      on which the Committee makes the determination of granting such Option. Notice
      of the grant of an Option shall be given to each individual to whom an Option
      is
      so granted within a reasonable time after the date of such grant in a form
      determined by the Committee. 

    

    

    

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    15.
       Effective
      Date.
      The
      Plan shall become effective upon the date of approval of the Plan by the
      stockholders of the Corporation. The Committee may make a determination related
      to A wards prior to the Effective Date with such A wards to be effective upon
      the date of stockholder approval of the Plan. 

     

    16.
       Approval
      by Stockholders.
      The
      Plan shall be approved by stockholders of the Company within twelve (12) months
      before or after the date the Plan is approved by the Board. 

     

    17.
       Modification
      of Options.
      At any
      time and from time to time, the Board may authorize the Committee to direct
      the
      execution of an instrument providing for the modification of any outstanding
      Option, provided no such modification, extension or renewal shall confer on
      the
      holder of said Option any right or benefit which could not be conferred on
      the
      Optionee by the grant of a new Option at such time, or shall not materially
      decrease the Optionee's benefits under the Option without the consent of the
      holder of the Option, except as otherwise permitted under Section 18 hereof.
      

     

    18.
       Amendment
      and Termination of the Plan.
      

     

    (a)
       Action
      by
      the Board. The Board may alter, suspend or discontinue the Plan, except that
      no
      action of the Board may increase (other than as provided in Section 13 hereof)
      the maximum number of Shares permitted to be optioned under the Plan, materially
      increase the benefits accruing to Participants under the Plan or materially
      modify the requirements for eligibility for participation in the Plan unless
      such action of the Board shall be subject to approval or ratification by the
      stockholders of the Company. 

     

    (b)
       Change
      in
      Applicable Law. Notwithstanding any other provision contained in the Plan,
      in
      the event of a change in any federal or state law, rule or regulation which
      would make the exercise of all or part of any previously granted Option unlawful
      or subject the Company to any penalty, the Committee may restrict any such
      exercise without the consent of the Optionee or other holder thereof in order
      to
      comply with any such law, rule or regulation or to avoid any such penalty.
      

     

    19.
       Conditions
      Upon Issuance of Shares: Limitations on Option Exercise: Cancellation of Option
      Rights.
      

     

    (a)
       Shares
      shall not be issued with respect to any Option granted under the Plan unless
      the
      issuance and delivery of such Shares shall comply with all relevant provisions
      of applicable law, including, without limitation, the Securities Act of 1933,
      as
      amended, the rules and regulations promulgated thereunder, any applicable state
      securities laws and the requirements of any stock exchange upon which the Shares
      may then be listed. 

     

    

     

    

     

    

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    (b)
       The
      inability of the Company to obtain any necessary authorizations, approvals
      or
      letters of non-objection from any regulatory body or authority deemed by the
      Company's counsel to be necessary to the lawful issuance and sale of any Shares
      issuable hereunder shall relieve the Company of any liability with respect
      to
      the non-issuance or sale of such Shares. 

     

    (c)
       As
      a
      condition to the exercise of an Option, the Company may require the person
      exercising the Option to make such representations and warranties as may be
      necessary to assure the availability of an exemption from the registration
      requirements of federal or state securities law. 

     

    (d)
       Notwithstanding
      anything herein to the contrary, upon the termination of employment or service
      of an Optionee by the Company or its Subsidiaries for "cause" as defined at
      12
      C.F.R. 563.39(b)(I) as determined by the Board of Directors, all Options held
      by
      such Participant shall cease to be exercisable as of the date of such
      termination of employment or service. 

     

    (e)
       Upon
      the
      exercise of an Option by an Optionee (or the Optionee's personal
      representative), the Committee, in its sole and absolute discretion, may make
      a
      cash payment to the Optionee, in whole or in part, in lieu of the delivery
      of
      shares of Common Stock. Such cash payment to be paid in lieu of delivery of
      Common Stock shall be equal to the difference between the Fair Market Value
      of
      the Common Stock on the date of the Option exercise and the exercise price
      per
      share of the Option. Such cash payment shall be in exchange for the cancellation
      of such Option. Such cash payment shall not be made in the event that such
      transaction would result in liability to the Optionee or the Company under
      Section 16(b) of the Securities Exchange Act of 1934, as amended, and
      regulations promulgated thereunder. 

     

    20.
       Reservation
      of Shares.
      During
      the term of the Plan, the Company will reserve and keep available a number
      of
      Shares sufficient to satisfy the requirements of the Plan. 

     

    21.
       Unsecured
      Obligation.
      No
      Participant under the Plan shall have any interest in any fund or special asset
      of the Company by reason of the Plan or the grant of any Option under the Plan.
      No trust fund shall be created in connection with the Plan or any grant of
      any
      Option hereunder and there shall be no required funding of amounts which may
      become payable to any Participant. 

     

    22.
       No
      Employment Rights.
      No
      Director, Employee or other person shall have a right to be selected as a
      Participant under the Plan. Neither the Plan nor any action taken by the
      Committee in administration of the Plan shall be construed as giving any person
      any rights of employment or retention as an Employee, Director or in any other
      capacity with the Company, the Savings Bank or other Subsidiaries. 

    

    

    

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    23.
       Governing
      Law.
      The
      Plan shall
      be
      governed by and construed in accordance with the laws of the Commonwealth of
      Pennsylvania, except to the extent that federal law shall be deemed to apply.
      

    

    

    

    -14-

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