Document:

Exhibit
10.1

 

INDEMNIFICATION
AGREEMENT

 

This Agreement made and
entered into this 4th day of November, 2008, (the “Agreement”), by
and between Mac-Gray Corporation, a Delaware corporation (the “Company,” which
term shall include, where appropriate, any Entity (as hereinafter defined)
controlled directly or indirectly by the Company) and                         
(the “Indemnitee”):

 

WHEREAS, it is essential
to the Company that it be able to retain and attract as directors the most
capable persons available;

 

WHEREAS, increased
corporate litigation has subjected directors to litigation risks and expenses,
and the limitations on the availability of directors and officers liability
insurance have made it increasingly difficult for the Company to attract and
retain such persons;

 

WHEREAS, the Company’s
Certificate of Incorporation and Amended
and Restated By-laws (the “Certificate of Incorporation” and “By-laws,”
respectively) require it to indemnify its  directors to the fullest extent permitted by law and permit
it to make other indemnification arrangements and agreements;

 

WHEREAS, the Company
desires to provide Indemnitee with specific contractual assurance of Indemnitee’s
rights to full indemnification against litigation risks and expenses
(regardless, among other things, of any amendment to or revocation of the
Company’s Certificate of Incorporation or By-laws or any change in the ownership of the Company or the
composition of its Board of Directors);

 

WHEREAS, the Company
intends that this Agreement provide Indemnitee with greater protection than
that which is provided by the Company’s Certificate of Incorporation and By-laws; and

 

WHEREAS, Indemnitee is
relying upon the rights afforded under this Agreement in continuing as  a director of the Company.

 

NOW, THEREFORE, in
consideration of the promises and the covenants contained herein, the Company
and Indemnitee do hereby covenant and agree as follows:

 

1.             Definitions.

 

(a)           “Corporate
Status” describes the status of a person who is serving or has served (i) as
a director of the Company,  (ii) in
any capacity with respect to any employee benefit plan of the Company, or (iii) as
a director, partner, trustee, officer, employee, or agent of any other Entity
at the request of the Company.  For
purposes of subsection (iii) of this Section 1(a), if Indemnitee  is serving or has served as a director,
partner, trustee, officer, employee or agent of a Subsidiary, Indemnitee shall
be deemed to be serving at the request of the Company.

 

 

(b)           “Entity”
shall mean any corporation, partnership, limited liability company, joint
venture, trust, foundation, association, organization or other legal entity.

 

(c)           “Expenses”
shall mean all fees, costs and expenses incurred by Indemnitee in connection
with any Proceeding (as defined below), including, without limitation,
attorneys’ fees, disbursements and retainers (including, without limitation,
any such fees, disbursements and retainers incurred by Indemnitee pursuant to
Sections 11 and 12(c) of this Agreement), fees and disbursements of
expert witnesses, private investigators and professional advisors (including,
without limitation, accountants and investment bankers), court costs,
transcript costs, fees of experts, travel expenses, duplicating, printing and
binding costs, telephone and fax transmission charges, postage, delivery
services, secretarial services, and other disbursements and expenses.

 

(d)           “Indemnifiable
Expenses,” “Indemnifiable Liabilities” and “Indemnifiable Amounts” shall have
the meanings ascribed to those terms in Section 3(a) below.

 

(e)           “Liabilities”
shall mean judgments, damages, liabilities, losses, penalties, excise taxes,
fines and amounts paid in settlement.

 

(f)            “Proceeding”
shall mean any threatened, pending or completed claim, action, suit,
arbitration, alternate dispute resolution process, investigation,
administrative hearing, appeal, or any other proceeding, whether civil,
criminal, administrative, arbitrative or investigative, whether formal or
informal, including a proceeding initiated by Indemnitee pursuant to Section 11
of this Agreement to enforce Indemnitee’s rights hereunder.

 

(g)           “Subsidiary” shall mean
any corporation, partnership, limited liability company, joint venture, trust
or other Entity of which the Company owns (either directly or through or
together with another Subsidiary of the Company) either (i) a general
partner, managing member or other similar interest or (ii) (A) 50% or
more of the voting power of the voting capital equity interests of such
corporation, partnership, limited liability company, joint venture or other
Entity, or (B) 50% or more of the outstanding voting capital stock or
other voting equity interests of such corporation, partnership, limited
liability company, joint venture or other Entity.

 

2.             Services of
Indemnitee.  In consideration of the
Company’s covenants and commitments hereunder, Indemnitee agrees to serve or
continue to serve as a director of the Company. 
However, this Agreement shall not impose any obligation on Indemnitee or
the

 

 

Company to continue Indemnitee’s service to the Company beyond any
period otherwise required by law or by other agreements or commitments of the
parties, if any.

 

3.             Agreement to
Indemnify.  The Company agrees to
indemnify Indemnitee as follows:

 

(a)           Proceedings
Other Than By or In the Right of the Company.  Subject to the exceptions contained in Section 4(a) below,
if Indemnitee was or is a party or is threatened to be made a party to any
Proceeding (other than an action by or in the right of the Company) by reason
of Indemnitee’s Corporate Status, Indemnitee shall be indemnified by the
Company against all Expenses and Liabilities incurred or paid by Indemnitee in
connection with such Proceeding (referred to herein as “Indemnifiable Expenses”
and “Indemnifiable Liabilities,” respectively, and collectively as “Indemnifiable
Amounts”).

 

(b)           Proceedings
By or In the Right of the Company. 
Subject to the exceptions contained in Section 4(b) below, if
Indemnitee was or is a party or is threatened to be made a party to any
Proceeding by or in the right of the Company by reason of Indemnitee’s
Corporate Status, Indemnitee shall be indemnified by the Company against all
Indemnifiable Expenses.

 

(c)           Conclusive
Presumption Regarding Standard of Care. 
In making any determination required to be made under Delaware law with
respect to entitlement to indemnification hereunder, the person, persons or
entity making such determination shall presume that Indemnitee is entitled to
indemnification under this Agreement if Indemnitee submitted a request therefor
in accordance with Section 5 of this Agreement, and the Company shall have
the burden of proof to overcome that presumption in connection with the making
by any person, persons or entity of any determination contrary to that
presumption.

 

4.             Exceptions to
Indemnification.  Indemnitee shall be
entitled to indemnification under Sections 3(a) and 3(b) above
in all circumstances other than with respect to any specific claim, issue or
matter involved in the Proceeding out of which Indemnitee’s claim for indemnification
has arisen, as follows:

 

(a)           Proceedings
Other Than By or In the Right of the Company.  If indemnification is requested under Section 3(a) and
it has been finally adjudicated by a court of competent jurisdiction that, in
connection with such specific claim, issue or matter, Indemnitee failed to act (i) in
good faith and (ii) in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, or, with respect to any
criminal Proceeding, Indemnitee had reasonable

 

 

cause to believe that Indemnitee’s conduct was
unlawful, Indemnitee shall not be entitled to payment of Indemnifiable Amounts
hereunder.

 

(b)           Proceedings
By or In the Right of the Company. 
If indemnification is requested under Section 3(b) and

 

(i) it has been
finally adjudicated by a court of competent jurisdiction that, in connection
with such specific claim, issue or matter, Indemnitee failed to act (A) in
good faith and (B) in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, Indemnitee shall not be
entitled to payment of Indemnifiable Expenses hereunder; or

 

(ii) it has been
finally adjudicated by a court of competent jurisdiction that Indemnitee is
liable to the Company with respect to such specific claim, Indemnitee shall not
be entitled to payment of Indemnifiable Expenses hereunder with respect to such
claim, issue or matter unless the Court of Chancery or another court in which
such Proceeding was brought shall determine upon application that, despite the
adjudication of liability, but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnification for such
Indemnifiable Expenses which such court shall deem proper; or

 

(iii) it has been
finally adjudicated by a court of competent jurisdiction that Indemnitee is
liable to the Company for an accounting of profits made from the purchase or
sale by the Indemnitee of securities of the Company pursuant to the provisions
of Section 16(b) of the Securities Exchange Act of 1934, the rules and
regulations promulgated thereunder and amendments thereto or similar provisions
of any federal, state or local statutory law, Indemnitee shall not be entitled
to payment of Indemnifiable Expenses hereunder.

 

(c)           Insurance
Proceeds.  To the extent payment is
actually made to the Indemnitee under a valid and collectible insurance policy
in respect of Indemnifiable Amounts in connection with such specific claim,
issue or matter, Indemnitee shall not be entitled to payment of Indemnifiable
Amounts hereunder except in respect of any excess beyond the amount of payment
under such insurance.

 

5.             Procedure for
Payment of Indemnifiable Amounts. 
Indemnitee shall submit to the Company a written request specifying the
Indemnifiable Amounts for which Indemnitee seeks payment under Section 3
of this Agreement and the basis for the claim. 
The Company shall pay

 

 

such Indemnifiable Amounts to Indemnitee promptly upon receipt of its
request.  At the request of the Company,
Indemnitee shall furnish such documentation and information as are reasonably
available to Indemnitee and necessary to establish that Indemnitee is entitled
to indemnification hereunder.

 

6.             Indemnification
for Expenses of a Party Who is Wholly or Partly Successful.  Notwithstanding
any other provision of this Agreement, and without limiting any such provision,
to the extent that Indemnitee is, by reason of Indemnitee’s Corporate Status, a
party to and is successful, on the merits or otherwise, in any Proceeding, Indemnitee
shall be indemnified against all Expenses reasonably incurred by Indemnitee or
on Indemnitee’s behalf in connection therewith. 
If Indemnitee is not wholly successful in such Proceeding but is
successful, on the merits or otherwise, as to one or more but less than all
claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses reasonably incurred by Indemnitee or on
Indemnitee’s behalf in connection with each successfully resolved claim, issue
or matter.  For purposes of this
Agreement, the termination of any claim, issue or matter in such a Proceeding
by dismissal, with or without prejudice, by reason of settlement, judgment,
order or otherwise, shall be deemed to be a successful result as to such claim,
issue or matter.

 

7.             Effect of
Certain Resolutions.  Neither the
settlement or termination of any Proceeding nor the failure of the Company to
award indemnification or to determine that indemnification is payable shall
create a presumption that Indemnitee is not entitled to indemnification
hereunder.  In addition, the termination
of any proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent shall not create a presumption that
Indemnitee did not act in good faith and in a manner which Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company or, with respect to any criminal Proceeding, had reasonable cause to
believe that Indemnitee’s action was unlawful.

 

8.             Agreement to Advance
Expenses; Undertaking.  The Company
shall advance all Expenses incurred by or on behalf of Indemnitee in connection
with any Proceeding, including a Proceeding by or in the right of the Company,
in which Indemnitee is involved by reason of such Indemnitee’s Corporate Status
within ten (10) calendar days after the receipt by the Company of a
written statement from Indemnitee requesting such advance or advances from time
to time, whether prior to or after final disposition of such Proceeding.  To the extent required by Delaware law,
Indemnitee hereby undertakes to repay any and all of the amount of
Indemnifiable Expenses paid to Indemnitee if it is finally determined by a
court of competent jurisdiction that Indemnitee is not entitled under this Agreement
to indemnification with respect to such Expenses.  This 
undertaking is an unlimited general obligation of Indemnitee.

 

9.             Procedure for
Advance Payment of Expenses. 
Indemnitee shall submit to the Company a written request specifying the
Indemnifiable Expenses for which Indemnitee seeks an advancement under Section 8
of this Agreement, together with documentation evidencing that Indemnitee has
incurred such Indemnifiable Expenses. 
Payment of Indemnifiable Expenses under Section 8 shall be made no
later than ten (10) calendar days after the Company’s receipt of such
request.

 

 

10.          Indemnification
for Expenses of a Witness. 
Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporate Status, a witness in any
Proceeding to which Indemnitee is not a party, he shall be indemnified against
all Expenses actually and reasonably by incurred by him or on his behalf in
connection therewith.

 

11.          Remedies of
Indemnitee.

 

(a)           Right
to Petition Court.  In the event that
Indemnitee makes a request for payment of Indemnifiable Amounts under Sections
3 and 5 above or a request for an advancement of Indemnifiable Expenses
under Sections 8 and 9 above and the Company fails to make such payment or
advancement in a timely manner pursuant to the terms of this Agreement,
Indemnitee may petition the Court of Chancery to enforce the Company’s
obligations under this Agreement.

 

(b)           Burden
of Proof.  In any judicial proceeding
brought under Section 11(a) above, the Company shall have the burden
of proving that Indemnitee is not entitled to payment of Indemnifiable Amounts
hereunder.

 

(c)           Expenses.  The Company agrees to reimburse Indemnitee in
full for any Expenses incurred by Indemnitee in connection with investigating,
preparing for, litigating, defending or settling any action brought by
Indemnitee under Section 11(a) above, or in connection with any claim
or counterclaim brought by the Company in connection therewith, whether or not
Indemnitee is successful in whole or in part in connection with any such
action.

 

(d)           Failure
to Act Not a Defense.  The failure of
the Company (including its Board of Directors or any committee thereof,
independent legal counsel, or stockholders) to make a determination concerning
the permissibility of the payment of Indemnifiable Amounts or the advancement
of Indemnifiable Expenses under this Agreement shall not be a defense in any
action brought under Section 11(a) above, and shall not create a
presumption that such payment or advancement is not permissible.

 

12.          Defense of the
Underlying Proceeding.

 

(a)           Notice by Indemnitee.  Indemnitee agrees to notify the Company
promptly upon being served with any summons, citation, subpoena, complaint,
indictment, information, or other document relating to any Proceeding which may
result in the payment of Indemnifiable Amounts or the advancement of
Indemnifiable Expenses hereunder; provided, however, that the failure to give
any such notice shall not disqualify Indemnitee from the right, or otherwise
affect in any manner any right of Indemnitee, to receive payments of
Indemnifiable Amounts or

 

 

advancements of
Indemnifiable Expenses unless the Company’s ability to defend in such
Proceeding is materially and adversely prejudiced thereby.

 

(b)           Defense by Company.  Subject to the provisions of the last
sentence of this Section 12(b) and of Section 12(c) below,
the Company shall have the right to defend Indemnitee in any Proceeding which
may give rise to the payment of Indemnifiable Amounts hereunder; provided,
however that the Company shall notify Indemnitee of any such decision to defend
within ten (10) calendar days of receipt of notice of any such Proceeding
under Section 12(a) above.  The
Company shall not, without the prior written consent of Indemnitee, consent to
the entry of any judgment against Indemnitee or enter into any settlement or
compromise which (i) includes an admission of fault of Indemnitee or (ii) does
not include, as an unconditional term thereof, the full release of Indemnitee
from all liability in respect of such Proceeding, which release shall be in
form and substance reasonably satisfactory to Indemnitee.  This Section 12(b) shall not apply
to a Proceeding brought by Indemnitee under Section 11(a) above or
pursuant to Section 20 below.

 

(c)           Indemnitee’s Right
to Counsel.  Notwithstanding the
provisions of Section 12(b) above, if in a Proceeding to which
Indemnitee is a party by reason of Indemnitee’s Corporate Status, (i) Indemnitee
reasonably concludes that he or she may have separate defenses or counterclaims
to assert with respect to any issue which may not be consistent with the
position of other defendants in such Proceeding, (ii) a conflict of
interest or potential conflict of interest exists between Indemnitee and the
Company, or (iii) if the Company fails to assume the defense of such
proceeding in a timely manner, Indemnitee shall be entitled to be represented
by separate legal counsel of Indemnitee’s choice at the expense of the
Company.  In addition, if the Company
fails to comply with any of its obligations under this Agreement or in the
event that the Company or any other person takes any action to declare this
Agreement void or unenforceable, or institutes any action, suit or proceeding
to deny or to recover from Indemnitee the benefits intended to be provided to
Indemnitee hereunder, Indemnitee shall have the right to retain counsel of
Indemnitee’s choice, at the expense of the Company, to represent Indemnitee in
connection with any such matter.

 

13.          Representations
and Warranties of the Company.  The
Company hereby represents and warrants to Indemnitee as follows:

 

(a)           Authority.  The Company has all necessary power and
authority to enter into, and be bound by the terms of, this Agreement, and the
execution, delivery and performance of the undertakings contemplated by this
Agreement have been duly authorized by the Company.

 

(b)           Enforceability.  This Agreement, when executed and delivered
by the Company in accordance with the provisions hereof, shall be a legal,
valid and binding obligation of the Company, enforceable against the Company in

 

 

accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting the
enforcement of creditors’ rights generally.

 

14.          Insurance.  The Company shall, from time to time, make
the good faith determination whether or not it is practicable for the Company
to obtain and maintain a policy or policies of insurance with a reputable
insurance company providing the Indemnitee with coverage for losses from
wrongful acts.  For so long as Indemnitee
shall remain a director of the Company and with respect to any such prior
service, in all policies of director and officer liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company’s officers and directors.  Notwithstanding the foregoing, the Company
shall have no obligation to obtain or maintain such insurance if the Company
determines in good faith that such insurance is not reasonably available, if
the premium costs for such insurance are disproportionate to the amount of
coverage provided, or if the coverage provided by such insurance is limited by
exclusions so as to provide an insufficient benefit. The Company shall promptly
notify Indemnitee of any good faith determination not to provide such coverage.

 

15.          Contract Rights
Not Exclusive.  The rights to payment
of Indemnifiable Amounts and advancement of Indemnifiable Expenses provided by
this Agreement shall be in addition to, but not exclusive of, any other rights
which Indemnitee may have at any time under applicable law, the Company’s
Certificate of Incorporation or By-laws, or any other agreement, vote of
stockholders or directors (or a committee of directors), or otherwise, both as
to action in Indemnitee’s official capacity and as to action in any other
capacity as a result of Indemnitee’s serving as a  director of the Company.

 

16.          Successors.  This Agreement shall be (a) binding upon
all successors and assigns of the Company (including any transferee of all or a
substantial portion of the business, stock and/or assets of the Company and any
direct or indirect successor by merger or consolidation or otherwise by
operation of law) and (b) binding on and shall inure to the benefit of the
heirs, personal representatives, executors and administrators of
Indemnitee.  This Agreement shall
continue for the benefit of Indemnitee and such heirs, personal
representatives, executors and administrators after Indemnitee has ceased to
have Corporate Status.

 

17.          Subrogation.  In the event of any payment of Indemnifiable
Amounts under this Agreement, the Company shall be subrogated to the extent of
such payment to all of the rights of contribution or recovery of Indemnitee
against other persons, and Indemnitee shall take, at the request of the
Company, all reasonable action necessary to secure such rights, including the
execution of such documents as are necessary to enable the Company to bring
suit to enforce such rights.

 

18.          Change in Law.  To the extent that a change in Delaware law
(whether by statute or judicial decision) shall permit broader indemnification
or advancement of expenses  than is
provided under the terms of the By-laws and this Agreement, Indemnitee shall be
entitled to such broader indemnification and advancements, and this Agreement
shall be deemed to be amended to such extent.

 

 

19.          Severability.  Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement, or any clause
thereof, shall be determined by a court of competent jurisdiction to be
illegal, invalid or unenforceable, in whole or in part, such provision or
clause shall be limited or modified in its application to the minimum extent
necessary to make such provision or clause valid, legal and enforceable, and
the remaining provisions and clauses of this Agreement shall remain fully
enforceable and binding on the parties.

 

20.          Indemnitee as
Plaintiff.  Except as provided in Section 10(c) of
this Agreement and in the next sentence, Indemnitee shall not be entitled to
payment of Indemnifiable Amounts or advancement of Indemnifiable Expenses with
respect to any Proceeding brought by Indemnitee against the Company, any Entity
which it controls, any director or officer thereof, or any third party, unless
the Board of Directors of the Company has consented to the initiation of such
Proceeding.  This Section shall not
apply to counterclaims or affirmative defenses asserted by Indemnitee in an
action brought against Indemnitee.

 

21.          Modifications and
Waiver.  Except as provided in Section 18
above with respect to changes in Delaware law which broaden the right of
Indemnitee to be indemnified by the Company, no supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by each
of the parties hereto.  No waiver of any
of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions of this Agreement (whether or not similar), nor
shall such waiver constitute a continuing waiver.

 

22.          General Notices.  All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (a) when delivered by hand, (b) when transmitted by
facsimile and receipt is acknowledged, (c) when delivered by recognized
overnight courier or (d) if mailed by certified or registered mail with
postage prepaid, on the third business day after the date on which it is so
mailed:

 

 

	
   

  	
  (i)

  	
  If to Indemnitee, to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (ii)

  	
  If to the Company, to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Mac-Gray
  Corporation

  
	
   

  	
   

  	
  404 Wyman
  Street, Suite 400

  
	
   

  	
   

  	
  Waltham, MA
  02451

  
	
   

  	
   

  	
  Attn: General
  Counsel

  
	
   

  	
   

  	
  Facsimile: (781)
  290-5358

  

 

or to such other address
as may have been furnished in the same manner by any party to the others.

 

23.          Governing Law;
Consent to Jurisdiction; Service of Process.  This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard
to its rules of conflict of laws. 
Each of the Company and the Indemnitee hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the Court
of Chancery of the State of Delaware and the courts of the United States of
America located in the State of Delaware (the “Delaware Courts”) for any
litigation arising out of or relating to this Agreement and the transactions contemplated
hereby (and agrees not to commence any litigation relating thereto except in
such courts), waives any objection to the laying of venue of any such
litigation in the Delaware Courts and agrees not to plead or claim in any
Delaware Court that such litigation brought therein has been brought in an
inconvenient forum.  Each of the parties
hereto agrees, (a) to the extent such party is not otherwise subject to
service of process in the State of Delaware, to appoint and maintain an agent
in the State of Delaware as such party’s agent for acceptance of legal process,
and (b) that service of process may also be made on such party by prepaid
certified mail with a proof of mailing receipt validated by the United States
Postal Service constituting evidence of valid service.  Service made pursuant to (a) or (b) above
shall have the same legal force and effect as if served upon such party
personally within the State of Delaware. 
For purposes of implementing the parties’ agreement to appoint and
maintain an agent for service of process in the State of Delaware, each such
party does hereby appoint The Corporation Trust Company, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801, as such agent and each such
party hereby agrees to complete all actions necessary for such appointment.

 

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK]

 

 

IN WITNESS WHEREOF, the
parties hereto have executed this Agreement as of the day and year first above
written.

 

 

	
   

  	
  MAC-GRAY CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
   

  
	
   

  	
   

  	
  Name: Stewart G. MacDonald

  
	
   

  	
   

  	
  Title: Chief Executive
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  INDEMNITEE

  
	
   

  	
   

  
	
   

  	
   

  

 

[Signature Page to Director Indemnification
Agreement]EXHIBIT 10.3

 

THIS DOCUMENT IS PROVIDED TO ASSIST YOUR LEGAL COUNSEL
IN DOCUMENTING YOUR SPECIFIC ARRANGEMENT. IT IS NOT A FORM TO BE SIGNED,
NOR IS IT TO BE CONSTRUED AS LEGAL ADVICE. FAILURE TO ACCURATELY DOCUMENT YOUR
ARRANGEMENT COULD RESULT IN SIGNIFICANT LOSSES, WHETHER FROM CLAIMS OF THOSE
PARTICIPATING IN THE ARRANGEMENT, FROM THE HEIRS AND BENEFICIARIES OF
PARTICIPANTS, OR FROM REGULATORY AGENCIES SUCH AS THE INTERNAL REVENUE SERVICE
AND THE DEPARTMENT OF LABOR. LICENSE IS HEREBY GRANTED TO YOUR LEGAL COUNSEL TO
USE THESE MATERIALS IN DOCUMENTING SOLELY YOUR ARRANGEMENT.

 

ADAMS
COUNTY NATIONAL BANK

 

EXECUTIVE
SUPPLEMENTAL LIFE INSURANCE PLAN

 

THIS AGREEMENT, hereby made and entered into this 1st
day of January 2001, by and between Adams County National Bank, a Bank
located in Gettysburg, Pennsylvania (the “Company”) and the executive selected
to participate in this Plan.

 

INTRODUCTION

 

The Company wishes to attract and retain highly
qualified executives. To further this objective, the Company is willing to
divide the death proceeds of certain life insurance policies which are owned by
the Company on the lives of the participating executives with the designated
beneficiary of each insured participating executive. The Company will pay life
insurance premiums from its general assets.

 

ARTICLE
1

 

GENERAL
DEFINITIONS

 

The following terms shall have the meanings specified:

 

1.1 “COMPENSATION COMMITTEE” means either the
Compensation Committee designated from time to time by the Company’s Board of
Directors or a majority of the Company’s Board of Directors, either of which
shall hereinafter be referred to as the Compensation Committee.

 

1.2 “DISABILITY” means the Executive’s inability to
perform substantially all normal duties of a Participant, as determined by the
Company’s Board of Directors in its sole discretion. As a condition to any
benefits, the Company may require the Executive to submit to such physical or
mental evaluations and tests, as the Board of Directors deems appropriate.

 

1.3 “INSURED” means the individual whose life is
insured.

 

1.4 “INSURER” means the insurance company issuing the
life insurance policy on the life of the insured.

 

1.5 “OTHER GROUP TERM COVERAGE” means group term life
insurance maintained on a Participant’s life owned by the Company that is in
addition to the Policies covered under this Plan.

 

1.6 “PARTICIPANT” means the executive who is
designated by the Compensation Committee as eligible to participate in the
Plan, elects .in writing to participate in the Plan using the form attached
hereto as Exhibit A, and signs a Split Dollar Endorsement for the Policy
in which he or she is the Insured.

 

 

1.7 “POLICY” or “POLICIES” means the individual
insurance policy (or policies) adopted by the Compensation Committee for
purposes of insuring a Participant’s life under this Plan.

 

1.8 “PLAN” means this instrument, including all
amendments thereto.

 

1.9 “TERMINATED FOR CAUSE” means that the Company has
terminated the Insured’s employment for any of the following reasons:

 

1.9.1 Gross negligence or gross neglect of duties;

 

1.9.2 Commission of a felony or of a gross misdemeanor
involving moral turpitude; or

 

1.9.3 Fraud, disloyalty, dishonesty or willful
violation of any law or significant Company policy committed in connection with
the Executive’s employment.

 

1.10 “TWO TIMES BASE ANNUAL SALARY” means the current
base annual salary of the Participant at the earliest of: (1) the date of
the Participant’s death;  (2) the
date of the Participant’s Disability; or (3) the Participant’s date of termination
of employment multiplied by a factor of Two (2).

 

ARTICLE
2

 

PARTICIPATION

 

2.1 ELIGIBILITY TO PARTICIPATE. The Compensation
Committee in its sole discretion shall designate from time to time executives
that are eligible to participate in this Plan.

 

2.2 PARTICIPATION. The eligible executive may
participate in this Plan by executing an Election to Participate and a Split
Dollar Endorsement. The Split Dollar Endorsement shall bind the executive and
his or her beneficiaries, assigns and transferees, to the terms and conditions
of this Plan. An executive’s participation is limited to only Policies where he
or she is the Insured. Exhibit B attached hereto sets forth the original
Participants and their corresponding Policies.

 

2.3 TERMINATION OF PARTICIPATION. A Participant’s
rights under this Plan shall cease and his or her participation in this Plan
shall terminate if the Insured’s employment with the Company is Terminated for
Cause.

 

In the event that the Company decides to maintain the
Policy after the Participant’s termination of participation in the Plan, the
Company shall be the direct beneficiary of the entire death proceeds of the
Policy.

 

ARTICLE
3

 

POLICY
OWNERSHIP/INTERESTS

 

3.1 PARTICIPANT’S INTEREST. With respect to each
Policy, the Participant, or the Participant’s assignee, shall have the right to
designate the beneficiary of an amount of death proceeds equal to: (i) Two
Times Base Annual Salary of the Insured/Participant; or (ii) the maximum
dollar amount of the Participant’s Interest set forth in the Participant’s
individual split dollar endorsement and based upon the vesting schedule
attached (to) their individual Split Dollar Endorsement. The Participant shall
also have the right to elect and change settlement options with the consent of
the Company and the Insurer.

 

 

3.2 COMPANY’S INTEREST. The Company shall own the
Policies and shall have the right to exercise all incidents of ownership. With
respect to each Policy, the Company shall be the direct beneficiary of the
remaining (after the Participant’s Interest is determined) death proceeds of
the Policy.

 

ARTICLE
4

 

PREMIUMS

 

4.1 PREMIUM PAYMENT. The Company shall pay all
premiums due on all Policies.

 

4.2 IMPUTED INCOME. The Company shall impute income to
the Participant in an amount equal to the current term rate for the Participant’s
age multiplied by the aggregate death benefit payable to the Participant’s
beneficiary. The “current term rate” is the minimum amount required to be
imputed under Revenue Rulings 64-328 and 66-110, or any subsequent applicable
authority.

 

ARTICLE
5

 

ASSIGNMENT

 

Any Participant may assign without consideration all
interests in his or her Policy and in this Plan to any person, entity or trust.
In the event a Participant shall transfer all of his/her interest in the
Policy, then all of that Participant’s interest in his or her Policy and in the
Plan shall be vested in his/her transferee, who shall be substituted as a party
hereunder, and that Participant shall have no further interest in his or her
Policy or in this Plan.

 

ARTICLE
6

 

INSURER

 

The Insurer shall be bound only by the terms of their
corresponding Policy. Any payments the Insurer makes or actions it takes in
accordance with a Policy shall fully discharge it from all claims, suits and
demands of all persons relating to that Policy. The Insurer shall not be bound
by the provisions of this Plan. The Insurer shall have the right to rely on the
Company’s representations with regard to any definitions, interpretations, or
Policy interests as specified under this Plan.

 

ARTICLE
7

 

CLAIMS
PROCEDURE

 

7.1 CLAIMS PROCEDURE. The Company shall notify any
person or entity that makes a claim against this Plan (the “Claimant”), in
writing, within ninety (90) days of Claimant’s written application for
benefits, of Claimant’s eligibility or ineligibility for benefits under this
Plan. If the Company determines that Claimant is not eligible for benefits or
full benefits, the notice shall set forth (1) the specific reasons for
such denial, (2) a specific reference to the provisions of this Plan on
which the denial is based, (3) a description of any additional information
or material necessary for the Claimant to perfect Claimant’s claim, and a
description of why it is needed, and (4) an explanation of this Plan’s
claims review procedure and other appropriate information as to the steps to be
taken if the Claimant wishes to have the claim reviewed. If the Company
determines that there are special circumstances requiring additional time to
make a decision, the Company shall notify the Claimant of the special
circumstances and the date by which a decision is expected to be made, and may
extend the time for up to an additional ninety-day period.

 

 

7.2 REVIEW PROCEDURE. If a Claimant is determined by
the Company not to be eligible for benefits, or if the Claimant believes that
Claimant is entitled to greater or different benefits, the Claimant shall have
the opportunity to have such claim reviewed by the Company by filing a petition
for review with the Company within sixty (60) days after receipt of the notice
issued by the Company. Said petition shall state the specific reasons which the
Claimant believes entitle Claimant to benefits or to greater or different
benefits. Within sixty (60) days after receipt by the Company of the petition,
the Company shall afford the Claimant (and counsel, if any) an opportunity to
present Claimant’s position to the Company verbally or in writing, and the
Claimant (or counsel) shall have the right to review the pertinent documents.
The Company shall notify the Claimant of its decision in writing within the
sixty-day period, stating specifically the basis of its decision, written in a
manner calculated to be understood by the Claimant and the specific provisions
of this Plan on which the decision is based. If, because of the need for a
hearing, the sixty-day period is not sufficient, the decision may be deferred
for up to another sixty-day period at the election of the Company, but notice
of this deferral shall be given to the Claimant.

 

ARTICLE
8

 

AMENDMENTS
AND TERMINATION

 

This Agreement may be amended or terminated at the
discretion of the bank. However, each Participant shall be entitled to the
benefits in Section 3.1 calculated at the date of termination of the Plan.

 

ARTICLE
9

 

MISCELLANEOUS

 

9.1 BINDING EFFECT. This Plan in conjunction with each
Split Dollar Endorsement shall bind each Participant and the Company, their
beneficiaries, survivors, executors, administrators and transferees and any
Policy beneficiary.

 

9.2 NO GUARANTEE OF EMPLOYMENT. This Plan is not an
employment policy or contract. It does not give a Participant the right to
remain an employee of the Company, nor does it interfere with the Company’s
right to discharge a Participant. It also does not require a Participant to
remain an employee nor interfere with a Participant’s right to terminate
employment at any time.

 

9.3 REORGANIZATION. The Company shall not merge or
consolidate into or with another company, or reorganize, or sell substantially
all of its assets to another company, firm, or person unless such succeeding or
continuing company, firm, or person agrees to assume and discharge the
obligations of the Company under this Agreement.

 

9.4 NAMED FIDUCIARY. For purposes of the Employee
Retirement Income Security Act of 1974, if applicable, the Company shall be the
named fiduciary and plan administrator under the Agreement. The named fiduciary
may delegate to others certain aspects of the management and operation
responsibilities of the plan including the employment of advisors and the
delegation of ministerial duties to qualified individuals.

 

9.5 APPLICABLE LAW. The Plan and all rights hereunder
shall be governed by and construed according to the laws of the State of
Pennsylvania, except to the extent preempted by the laws of the United States
of America.

 

9.6 NOTICE. Any notice, consent or demand required or
permitted to be given under the provisions of this Plan by one party to another
shall be in writing, shall be signed by the party giving or making the same,
and may be given either by delivering the same to such other party personally,
or by mailing the same, by United States certified mail, postage prepaid, to
such party, addressed to his/her last known address as shown on the records of
the Company. The date of such mailing shall be deemed the date of such mailed
notice, consent or demand.

 

9.7 ENTIRE AGREEMENT. This Plan constitutes the entire
agreement between the Company and the Participant as to the subject matter
hereof. No rights are granted to the Participant by virtue of this Plan other
than those specifically set forth herein.

 

 

9.8 ADMINISTRATION. The Company shall have powers
which are necessary to administer this Plan, including but not limited to:

 

9.8.1 Interpreting the provisions of the Plan;

 

9.8.2 Establishing and revising the method of
accounting for the Plan;

 

9.8.3 Maintaining a record of benefit payments; and

 

9.8.4 Establishing rules and prescribing any
forms necessary or desirable to administer the Plan.

 

IN WITNESS WHEREOF, the Company executes this Plan as
of the date indicated above.

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  Adams County National Bank

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Thomas A. Ritter

  
	
   

  	
   

  	
   

  
	
   

  	
  TITLE 

  	
  President

  
				

 

 

EXHIBIT
A

 

ELECTION
TO PARTICIPATE

 

I,                                                                             ,
an eligible Participant of the Adams County National Bank Group Term
Replacement Plan (the “Plan”) dated                                       2000,
hereby elect to become a Participant of the Plan.

 

Executed this                                                             
day of                           
, 2000.

 

	
  Witness

  	
   

  	
  Participant

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

 

 

SPLIT
DOLLAR POLICY ENDORSEMENT

 

Policy No.                                         
Insured:

 

Supplementing and amending the application of Adams
County National Bank on                                       ,
2000 to                                                                                                       
(“Insurer”), the applicant requests and directs that:

 

BENEFICIARIES

 

1. The beneficiary designated by the Insured, or
his/her transferee shall be the beneficiary (based on the attached vesting
schedule) of the lesser of:

(i) Two Times Base Annual Salary of the Insured/Participant or (ii) $                              .

 

2. The beneficiary of any remaining death proceeds
shall be Adams County National Bank, a banking association located in
Gettysburg, Pennsylvania (the “Company”).

 

OWNERSHIP

 

3. The Owner of the policy shall be the Company. The
Owner shall have all ownership rights in the Policy except as may be
specifically granted to the Insured or his/her transferee in paragraph (4) of
this endorsement.

 

4. The Insured or his/her transferee shall have the
right to assign all rights and interests in the policy with respect to that
portion of the death proceeds designated in paragraph (1) of this
endorsement, and to exercise all settlement options with respect to such death
proceeds.

 

 

MODIFICATION
OF ASSIGNMENT PROVISIONS OF THE POLICY

 

Upon the death of the Insured, the interest of any collateral
assignee of the Owner of the policy designated in paragraph (3) above
shall be limited to the portion of the proceeds described in paragraph (2) above.

 

OWNER’S
AUTHORITY

 

The Insurer is hereby authorized to recognize the
Owner’s claim to rights hereunder without investigating the reason for any
action taken by the Owner, including its statement of the amount of premiums it
has paid on the policy. The signature of the Owner shall be sufficient for the
exercise of any rights under this Endorsement and the receipt of the Owner for
any sums received by it shall be a full discharge and release to the Insurer.
Any transferee’s rights shall be subject to this Endorsement.

 

Signed at                               ,
PENNSYLVANIA, this                 
day of                               ,
2000.

 

	
   

  	
  COMPANY

  
	
   

  	
   

  
	
   

  	
  Adams County National Bank

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Its

  	
   

  

 

Acceptance
and Beneficiary Designation

 

The Insured accepts and agrees to the foregoing and,
subject to the rights of the Owner as stated above, designates                                                               
as direct beneficiary and                                                     
as contingent beneficiary of the portion of the proceeds described in paragraph
(1) above.

 

Signed at                                         ,
Pennsylvania, this               
day of                         ,
2000.

 

	
   

  	
  INSURED

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (print name)

  

 

 

The following table details the participants vested
benefit upon termination of service:

 

VESTING
SCHEDULE

 

	
  End of Plan Year 1

  	
  20% vesting in benefit

  
	
  End of Plan Year 2

  	
  40% vesting in benefit

  
	
  End of Plan Year 3

  	
  60% vesting in benefit

  
	
  End of Plan Year 4

  	
  80% vesting in benefit

  
	
  End of Plan Year 5

  	
  100% vesting in benefit

  

 

Upon termination of service due to disability, the
participant’s vested percentage is 100%.

 

If a change of control occurs while employed by the
bank, the participant’s vested percentage is 100%.

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