Document:

Employment Agreement Richard Lochen, Jr.

    EXHIBIT
      10.13

     

    AGREEMENT

    

    

    THIS
      AGREEMENT ("Agreement") made in February, 2007, between PEOPLES FINANCIAL
      SERVICES CORP., a Pennsylvania corporation ("Peoples"), Peoples National Bank
      (the “Bank”) and RICHARD S. LOCHEN, JR. (the "Executive").

    

    WITNESSETH:

    

    WHEREAS,
      Peoples is engaged in the business of a bank holding company and is the owner
      of
      all the issued and outstanding capital stock of the Bank; and 

    

    WHEREAS,
      Peoples, the Bank and the Executive desire to enter into an agreement regarding,
      among other things, the employment of the Executive by Peoples.

    

    AGREEMENT:

    

    NOW,
      THEREFORE, the parties hereto, intending to be legally bound hereby, agree
      as
      follows:

    

    1. Employment.
      Peoples
      hereby employs the Executive, and the Executive hereby accepts employment with
      Peoples, on the terms and conditions set forth in this Agreement.

    

    2. Duties
      of Executive.
      The
      Executive shall perform and discharge well and faithfully such duties as an
      executive officer of Peoples and the Bank as may be assigned to the Executive
      from time to time by the Board of Directors of Peoples. The Executive shall
      be
      employed as President and Chief Executive Officer of Peoples and the Bank,
      and
      shall hold such additional titles as may be given to him from time to time
      by
      the Board of Directors of Peoples, the Bank, and any companies affiliated with
      Peoples. The Executive shall devote his full time, attention and energies to
      the
      business of Peoples and its affiliated companies and shall not, during the
      Employment Period (as defined in Section 3 hereof), be employed or involved
      in
      any other business activity, whether or not such activity is pursued for gain,
      profit or other pecuniary advantage; provided, however, that this Section 2
      shall not be construed as preventing the Executive from (a) investing the
      Executive's personal assets, (b) acting as a member of the Board of Directors
      of
      any other corporation or as a member of the Board of Trustees of any other
      organization, provided no such corporation or organization is a direct or
      indirect competitor of Peoples or any of its affiliated companies, or (c) being
      involved in any other activity with the prior approval of the Board of Directors
      of Peoples. In the event of any reduction in title or a reduction in the
      Executive's responsibilities or authority, including such responsibilities
      and
      authority as the same may be increased at any time during the term of this
      Agreement, or the assignment to the Executive of duties inconsistent with the
      Executive's status as President and Chief Executive Officer of Peoples, then
      the
      Executive may resign at any time thereafter during the term of this Agreement
      and prior to the occurrence of a Change in Control, in which case Executive
      shall be entitled to receive the amounts and benefits set forth in Section
      7
      hereof.

    

    3. Term
      of Employment.
      The
      Executive's employment under this Agreement shall be for a period (the
      "Employment Period") commencing upon the date of this Agreement and ending
      at
      the end of the term of this Agreement pursuant to Section 17 hereof, unless
      the
      Executive's employment sooner terminates in accordance with Section 5 hereof
      or
      one of the following provisions:

    

    (a) The
      Executive's employment under this Agreement may be terminated at any time during
      the Employment Period for "Cause" (as herein defined), by action of the Board
      of
      Directors of Peoples. As used in this Agreement, "Cause" means any of the
      following events:

    

    (i) the
      Executive is convicted of or enters a plea of guilty or nolo contendere to
      a
      felony, a crime of falsehood, or a crime involving fraud or moral turpitude,
      or
      the actual incarceration of the Executive;

    

    (ii) the
      Executive willfully fails to follow the lawful, good faith instructions of
      the
      Board of Directors of Peoples after the Executive's receipt of written notice
      of
      such instructions, other than a failure resulting from the Executive's
      incapacity because of physical or mental illness; or

    

    (iii) any
      government regulatory agency orders that Peoples terminate the employment of
      the
      Executive or relieve him of his duties.

    

    Notwithstanding
      the foregoing, the Executive's employment under this Agreement shall not be
      deemed to have been terminated for "Cause" under Section 3(a)(i) or 3(a)(ii)
      above if such termination took place solely as a result of:

    

    (i) questionable
      judgment on the part of the Executive;

    

    (ii) any
      act
      or omission believed by the Executive, in good faith, to have been in, or not
      opposed to, the best interests of Peoples or its affiliated companies;
      or

    

    (iii) any
      act
      or omission in respect of which a determination could properly be made that
      the
      Executive met the applicable standard of conduct prescribed for indemnification
      or reimbursement or payment of expenses under the Charter or Bylaws of Peoples
      (or its affiliates) or the directors' and officers' liability insurance of
      Peoples (or its affiliates), in each case as in effect at the time of such
      act
      or omission.

    

    If
      the
      Executive's employment is terminated under the provisions of this Section 3(a),
      then all rights of the Executive under Section 4 hereof shall cease as of the
      effective date of such termination.

    

    (b) The
      Executive's employment under this Agreement may be terminated at any time during
      the Employment Period without "Cause" (as defined in Section 3(a) hereof),
      by
      action of the Board of Directors of Peoples, upon giving notice of such
      termination to the Executive at least thirty (30) days prior to the date upon
      which such termination shall take effect. If the Executive's employment is
      terminated under the provisions of this Section 3(b), then the Executive shall
      be entitled to receive the compensation and benefits set forth in Section 6
      or
      Section 7 hereof, whichever shall be applicable.

    

    (c) If
      the
      Executive retires or dies, the Executive's employment under this Agreement
      shall
      be deemed terminated as of the date of the Executive's retirement or death,
      and
      all rights of the Executive under Section 4 hereof shall cease as of the date
      of
      such termination. Any benefits thereafter payable to the Executive shall be
      determined in accordance with the retirement, insurance and benefit programs
      of
      Peoples (and its affiliates) then in effect. Notwithstanding the preceding
      two
      sentences, if the Executive dies after a Notice of Termination (as defined
      in
      Section 5(a) hereof) is delivered by the Executive, he shall be entitled to
      the
      termination benefits otherwise provided herein, and the provisions of Section
      16(b) hereof shall apply.

    

    (d) If
      the
      Executive is incapacitated by accident, sickness, or otherwise so as to render
      the Executive mentally or physically incapable of performing the services
      required of the Executive under Section 2 of this Agreement for a continuous
      period of six (6) months, then, upon the expiration of such period or at any
      time thereafter, by action of the Board of Directors of Peoples, the Executive's
      employment under this Agreement may be terminated immediately upon giving the
      Executive notice to that effect. If the Executive's employment is terminated
      under the provisions of this Section 3(d), then all rights of the Executive
      under Section 4 hereof shall cease as of the last business day of the week
      in
      which such termination occurs. Any benefits thereafter payable to the Executive
      shall be determined in accordance with the retirement, insurance and benefit
      programs of Peoples (and its affiliates) then in effect.

    

    4. Employment
      Period Compensation.

    

    (a) Salary.
      For services performed by the Executive under this Agreement, Peoples shall
      pay
      (or cause to be paid) to the Executive a salary, during the Employment Period,
      at the rate of One Hundred Thousand Dollars ($110,000.00) per year, payable
      at
      the same times as salaries are payable to other executive employees of Peoples.
      Peoples may, from time to time, increase the Executive's salary, and any and
      all
      such increases shall be deemed to constitute amendments to this Section 4(a)
      to
      reflect the increased amounts, effective as of the dates established for such
      increases by the Board of Directors of Peoples in the resolutions authorizing
      such increases.

    

    (b) Bonus.
      For services performed by the Executive under this Agreement, Peoples shall
      pay
      (or cause to be paid) to the Executive a bonus, during the Employment Period,
      in
      such amounts and at such times, annually, as is provided in such executive
      incentive plan for the Executive as shall be approved by the Board of Directors
      of Peoples and in effect from time to time and which shall be based on the
      goals
      and objectives set forth in Peoples’ strategic plan. In addition, Peoples may,
      from time to time, pay such other bonus or bonuses to the Executive as Peoples,
      in its sole discretion, deems appropriate. The payment of any such bonuses
      shall
      not reduce or otherwise affect any other obligation of Peoples to the Executive
      provided for in this Agreement.

    

    (c) Automobile.
      During the term of this Agreement, Peoples shall provide the Executive with
      an
      automobile allowance in the amount of $1,000 per month. Peoples also shall
      pay
      or reimburse the Executive for the cost of gasoline incurred for business use
      of
      the automobile.

    

    (d) Country
      Club Dues. During the term of this Agreement, Peoples shall pay or reimburse
      Executive for annual dues associated with a golf membership at a country club
      of
      Executive’s choosing.

    

    (e) Other
      Benefits. Peoples will provide (or cause to be provided) the Executive, during
      the Employment Period, with insurance, vacation, pension, and other fringe
      benefits in the aggregate not less favorable than those received by other
      executive employees of Peoples or the Bank. In addition, during the term of
      this
      Agreement, Executive shall be entitled to participate in or receive the benefits
      of any employee benefit plan currently in effect at the Bank, subject to the
      terms of such plans as to eligibility and vesting.

    

    5. Resignation
      of the Executive for Good Reason.

    

    (a) The
      Executive may resign for "Good Reason" (as herein defined) during the two-year
      period following a "Change in Control" (as defined in Section 5(b) hereof),
      as
      hereinafter set forth. As used in this Agreement, "Good Reason" means any of
      the
      following:

    

    (i) any
      reduction in title or a reduction in the Executive's responsibilities or
      authority with respect to Peoples or the Bank, including such responsibilities
      and authority as the same may be increased at any time during the term of this
      Agreement, or the assignment to the Executive of duties inconsistent with the
      Executive's status as President and Chief Executive Officer of Peoples and
      the
      Bank;

    

    (ii) any
      reassignment of the Executive which requires the Executive to move his principal
      residence;

    

    (iii) any
      removal of the Executive from office or any adverse change in the terms and
      conditions of the Executive's employment, except for any termination of the
      Executive's employment under the provisions of Section 3(a) hereof;

    

    (iv) any
      reduction in the Executive's annual base salary as in effect on the date hereof
      or as the same may be increased from time to time;

    

    (v) any
      failure of Peoples to provide the Executive with benefits at least as favorable
      as those enjoyed by the Executive under any of the pension, life insurance,
      medical, health, accident, disability or other employee benefit plans of Peoples
      (or any affiliated company) in which the Executive participated at the time
      of
      the Change in Control, or the taking of any action that would materially reduce
      any of such benefits in effect at the time of the Change in Control, unless
      such
      reduction is part of a reduction applicable to all employees;

    

    (vi) any
      failure to obtain a satisfactory agreement from any successor to assume and
      agree to perform under this Agreement, as contemplated in Section 16(a)
      hereof;

    

    (vii) any
      material change in the legal relationship between Peoples and the Bank;
      or

    

    (viii) any
      material breach of this Agreement on the part of Peoples or the
      Bank.

    

    At
      the
      option of the Executive, exercisable by the Executive within one hundred twenty
      (120) days after the occurrence of each and every of the foregoing events of
      "Good Reason" (or within ninety (90) days after the occurrence of a Change
      in
      Control if such event occurs before such Change in Control), the Executive
      may
      resign from employment under this Agreement by delivering a notice in writing
      (the "Notice of Termination") to Peoples, and the provisions of Section 6 hereof
      shall thereupon apply.

    

    (b) As
      used
      in this Agreement, "Change in Control" means a change of control of a nature
      that would be required to be reported in response to Item 6(e) of Schedule
      14A
      of Regulation 14A promulgated under the Securities Exchange Act of 1934, as
      amended (the "Exchange Act"), as enacted and in force on the date hereof,
      whether or not Peoples is then subject to such reporting requirement; provided,
      however, that, without limitation, such a Change in Control shall be deemed
      to
      have occurred if:

    

    (i) any
      "person" (including a group acting in concert, as the term "person" is defined
      in Section 13(d) of the Exchange Act, as enacted and in force on the date
      hereof) becomes the "beneficial owner" (as that term is defined in Rule 13d-3,
      as enacted and in force on the date hereof, under the Exchange Act) of
      securities of Peoples representing more than 19.9% of the combined voting power
      of Peoples' securities then outstanding;

    

    (ii) there
      occurs a merger, consolidation or other business combination or reorganization
      to which Peoples or the Bank is a party, whether or not approved in advance
      by
      the Board of Directors of Peoples or the Bank (as the case may be) in which
      the
      members of the Board of Directors of Peoples or the Bank (as the case may be)
      immediately preceding the consummation of such transaction do not constitute
      a
      majority of the members of the Board of Directors of the resulting corporation
      and of any parent corporation thereof immediately after the consummation of
      such
      transaction;

    

    (iii) there
      occurs a sale, exchange, transfer, or other disposition of substantially all
      of
      the assets of Peoples or the Bank to another entity, which is not approved
      in
      advance by the Board of Directors of Peoples;

    

    (iv) there
      occurs a contested proxy solicitation of the stockholders of Peoples that
      results in the contesting party obtaining the ability to elect candidates to
      a
      majority of the positions on Peoples' Board of Directors next up for election;
      or

    

    (v) there
      occurs a tender offer for the shares of voting securities of Peoples that
      results in the tender offeror obtaining securities representing more than 19.9%
      of the combined voting power of Peoples' securities then
      outstanding.

    

    6. Rights
      in Event of Certain Termination of Employment After Change in
      Control.
      In the
      event that Executive resigns from employment for Good Reason following a Change
      in Control, by delivery of a Notice of Termination to Peoples, or Executive's
      employment is involuntarily terminated by Peoples without Cause after a Change
      in Control, Peoples shall pay (or cause to be paid) to the Executive in cash,
      within twenty (20) days following termination, an amount equal to 2.99 times
      his
      "base amount" (within the meaning of Section 280G(b)(3) of the Internal Revenue
      Code of 1986, as amended (the "Code")), calculated as though the occurrence
      of
      the Change in Control were an event described in Code Section 280G(b)(2)(A)(i).
      Notwithstanding the preceding sentence, in the event the lump sum payment
      described in the preceding sentence, when added to all other amounts or benefits
      provided to or on behalf of the Executive in connection with his termination
      of
      employment, would result in the imposition of an excise tax under Code Section
      4999, such lump sum shall be reduced to the extent necessary to avoid such
      imposition.

    

    7  Rights
      in Event of Certain Termination of Employment in Absence of Change in
      Control.
      In the
      event that Executive's employment is involuntarily terminated by Peoples without
      Cause or Executive resigns from employment for Good Reason and no Change in
      Control shall have occurred at the date of such termination or resignation,
      Peoples shall pay (or cause to be paid) to the Executive in cash, within twenty
      (20) days following termination or resignation, an amount equal to 2.0 times
      the
      highest sum of (i) his taxable federal compensation reported on Form W-2 during
      each of the immediately preceding three (3) calendar years, and (ii) all amounts
      excluded from such compensation during the relevant calendar year by reason
      of
      Section 4(d) hereof, Code Section 125, and Code Section 401(k). 

    

    8. Covenant
      Not to Compete.

    

    (a) The
      Executive hereby acknowledges and recognizes the highly competitive nature
      of
      the business of Peoples and the Bank and accordingly agrees that, during and
      for
      the applicable period set forth in Section 8(c) hereof, the Executive shall
      not:

    

    (i) Be
      engaged, directly or indirectly, either for his own account or as agent,
      consultant, employee, partner, officer, director, proprietor, investor (except
      as an investor owning less than 5% of the stock of a publicly owned company)
      or
      otherwise of any person, firm, corporation, or enterprise engaged, in (1) the
      banking (including bank holding company) or financial services industry, or
      (2)
      any other activity in which Peoples or any of its subsidiaries is engaged during
      the Employment Period, in any county in which, at any time during the Employment
      Period or at the date of termination of the Executive's employment, a branch,
      office or other facility of Peoples or any of its subsidiaries is located,
      or in
      any county contiguous to such a county, including contiguous counties located
      outside of the Commonwealth of Pennsylvania (the "Non-Competition Area");
      or

    

    (ii) Provide
      financial or other assistance to any person, firm, corporation, or enterprise
      engaged in (1) the banking (including bank holding company) or financial
      services industry, or (2) any other activity in which Peoples or any of its
      subsidiaries is engaged during the Employment Period, in the Non-Competition
      Area.

    

    (b) It
      is
      expressly understood and agreed that, although the Executive and Peoples
      consider the restrictions contained in Section 8(a) hereof reasonable for the
      purpose of preserving for Peoples and its subsidiaries their good will and
      other
      proprietary rights, if a final judicial determination is made by a court having
      jurisdiction that the time or territory or any other restriction contained
      in
      Section 8(a) hereof is an unreasonable or otherwise unenforceable restriction
      against the Executive, the provisions of Section 8(a) hereof shall not be
      rendered void but shall be deemed amended to apply as to such maximum time
      and
      territory and to such other extent as such court may judicially determine or
      indicate to be reasonable.

    

    (c) The
      provisions of this Section 8 shall be applicable commencing on the date of
      this
      Agreement and ending on one of the following dates, as applicable:

    

    (i)
      if
      the Executive's employment terminates in accordance with the provisions of
      Section 3 (other than Section 3(a)) or Section 17 hereof, the effective date
      of
      termination of employment;

    

    (ii)
      if
      the Executive's employment terminates in accordance with the provisions of
      Section 3(a) hereof or the Executive voluntarily terminates his employment
      other
      than in accordance with the provisions of Section 5 hereof (or the last sentence
      of Section 2 or Section 7), the first anniversary date of the effective date
      of
      termination of employment; or

    

    (iii)
      if
      the Executive voluntarily terminates his employment in accordance with the
      provisions of Section 5 hereof (or the last sentence of Section 2 or Section
      7),
      the effective date of termination of employment.

    

    9. Arbitration.
      Peoples, the Bank and the Executive recognize that in the event a dispute should
      arise between them concerning the interpretation or implementation of this
      Agreement, lengthy and expensive litigation will not afford a practical
      resolution of the issues within a reasonable period of time. Consequently,
      each
      party agrees that all disputes, disagreements and questions of interpretation
      concerning this Agreement are to be submitted for resolution to the American
      Arbitration Association (the "Association") in Scranton, Pennsylvania. Peoples,
      or the Executive, may initiate an arbitration proceeding at any time by giving
      notice to the other in accordance with the rules of the Association. The
      Association shall designate a single arbitrator to conduct the proceeding,
      but
      Peoples, and the Executive, may, as a matter of right, require the substitution
      of a different arbitrator chosen by the Association. Each such right of
      substitution may be exercised only once. The arbitrator shall not be bound
      by
      the rules of evidence and procedure of the courts of the Commonwealth of
      Pennsylvania but shall be bound by the substantive law applicable to this
      Agreement. The decision of the arbitrator, absent fraud, duress, incompetence
      or
      gross and obvious error of fact, shall be final and binding upon the parties
      and
      shall be enforceable in courts of proper jurisdiction. Following written notice
      of a request for arbitration, Peoples, and the Executive, shall be entitled
      to
      an injunction restraining all further proceedings in any pending or subsequently
      filed litigation concerning this Agreement, except as otherwise provided herein.
      Notwithstanding the preceding provisions of this section, in the event any
      such
      provision is in conflict with a rule or policy of the Association, the
      arbitration proceeding shall be governed by such rule or policy.

    

    10. Legal
      Expenses.
      Peoples
      shall pay to the Executive all reasonable legal fees and expenses incurred
      by
      the Executive in seeking in good faith to obtain or enforce any right or benefit
      provided by this Agreement, provided that any action or proceeding is not
      decided against the Executive.

    

    11. Mitigation
      of Damages.
      The
      Executive shall not be required to mitigate the amount of any payment provided
      for in Section 6 or Section 7 hereof by seeking other employment or otherwise,
      nor shall the amount of any payment or benefit provided for in Section 6 or
      Section 7 be reduced by any compensation earned by the Executive as the result
      of employment by another employer or by reason of the Executive's receipt of
      or
      right to receive any retirement or other benefits after the date of termination
      of employment or otherwise; provided, however, that the payments provided for
      in
      Section 6 or Section 7 shall be reduced by the amount actually received by
      the
      Executive under any severance policy of Peoples or the Bank then in
      effect.

    

    12. Notices.
      Any
      notice required or permitted to be given under this Agreement shall be deemed
      properly given if in writing and if mailed by registered or certified mail,
      postage prepaid with return receipt requested, to the residence of the
      Executive, in the case of notices to the Executive, and to the principal office
      of Peoples, in the case of notices to Peoples and the Bank.

    

    13. Waiver.
      No
      provision of this Agreement may be modified, waived, or discharged unless such
      waiver, modification, or discharge is agreed to in writing and signed by the
      Executive and an executive officer of Peoples specifically designated by the
      Board of Directors of Peoples. No waiver by any party hereto at any time of
      any
      breach by the other party hereto of, or compliance with, any condition or
      provision of this Agreement to be performed by such other party shall be deemed
      a waiver of similar or dissimilar provisions or conditions at the same or at
      any
      prior or subsequent time.

    

    14. Assignment.
      This
      Agreement shall not be assignable by either party hereto, except by Peoples
      to
      any successor in interest to the business of Peoples and the Bank.

    

    15. Entire
      Agreement.
      This
      Agreement contains the entire agreement of the parties relating to the subject
      matter of this Agreement.

    

    16. Successors,
      Binding Agreement.

    

    (a) Peoples
      will require any successor (whether direct or indirect, by purchase, merger,
      consolidation, or otherwise) to all or substantially all of the business and/or
      assets of Peoples to expressly assume and agree to perform this Agreement in
      the
      same manner and to the same extent that Peoples would be required to perform
      it
      if no such succession had taken place. Failure by Peoples to obtain such
      assumption and agreement prior to the effectiveness of any such succession
      shall
      constitute a breach of this Agreement and the provisions of Section 6 hereof
      shall apply. As used in this Agreement, "Peoples" shall mean Peoples as
      hereinbefore defined and any successor to the respective business and/or assets
      of Peoples which assumes and agrees to perform this Agreement by operation
      of
      law or otherwise.

    

    (b) This
      Agreement shall inure to the benefit of and be enforceable by the Executive's
      personal or legal representatives, executors, administrators, heirs,
      distributees, devisees, and legatees. If the Executive should die after a Notice
      of Termination is delivered by the Executive and any amounts would be payable
      to
      the Executive under this Agreement if the Executive had continued to live,
      all
      such amounts shall be paid in accordance with the terms of this Agreement to
      the
      Executive's devisee, legatee, or other designee, or, if there is none, to the
      Executive's estate.

    

    17. Termination.

    

    (a) Unless
      the Executive's employment terminates pursuant to the provisions of Section
      3 or
      Section 5 hereof (or the last sentence of Section 2 or Section 7 hereof), the
      term of this Agreement shall:

    

    (i) initially
      be a term commencing as of January 1, 2007, and ending on December 31, 2010;
      and

    

    (ii) be
      automatically extended to provide for a three (3) year term, annually, on
      January 1, 2008, and again on January 1 of each year thereafter, effective
      as of
      such respective dates, unless either (1) Peoples or (2) the Executive shall
      have
      given written notice of nonextension of the term of this Agreement to the other
      at least ninety (90) days before the date of any such extension.

    

    (b) Any
      termination of the Executive's employment under this Agreement or of this
      Agreement shall not affect the provisions of Sections 6 or 7 hereof which shall
      survive any such termination and remain in full force and effect in accordance
      with their respective terms.

    

    18. Validity.
      The
      invalidity or unenforceability of any provision of this Agreement shall not
      affect the validity or enforceability of any other provision of this Agreement,
      which shall remain in full force and effect.

    

    19. Applicable
      Law.
      This
      Agreement shall be governed by and construed in accordance with the domestic
      laws (but not the law of conflict of laws) of the Commonwealth of
      Pennsylvania.

    

    20. Headings.
      The
      headings of the sections of this Agreement are for convenience only and shall
      not control or affect the meaning or construction or limit the scope or intent
      of any of the provisions of this Agreement.

    

    21. Termination
      of Prior Agreements.
      Upon
      the execution and delivery of this Agreement by the parties hereto, any prior
      agreement relating to the subject matter hereof shall be automatically
      terminated and be of no further force or effect.

    

    22. 409A
      Safe Harbor.
      Notwithstanding anything in this Agreement to the contrary, in no event shall
      Peoples be obligated to commence payment or distribution to the Executive of
      any
      amount that constitutes nonqualified deferred compensation within the meaning
      of
      Internal Revenue Code Section 409A (“CODE SECTION 409A”) earlier that the
      earliest permissible date under Code Section 409A that such amount could be
      paid
      without additional taxes or interest being imposed under Code Section 409A.
      Peoples, the Bank and the Executive agree that they will execute any and all
      amendments to this Agreement as they mutually agree in good faith may be
      necessary to ensure compliance with the distribution provisions of Code Section
      409A and to cause any and all amounts due under this Agreement, the payment
      or
      distribution of which is delayed pursuant to Code Section 409A, to be paid
      or
      distributed in a single sum payment at the earliest permissible date under
      Code
      Section 409A.Filed by Automated Filing Services Inc. (604) 609-0244 - The Cavalier Group - Exhibit 10.2

THE CAVALIER GROUP 

CODE OF BUSINESS CONDUCT AND ETHICS &

COMPLIANCE PROGRAM 

The following Code of Business Conduct and Ethics and
Compliance Program was adopted by the Board of Directors of The Cavalier Group
on April 30, 2005. 

The upholding of a strong sense of ethics and integrity is of
the highest importance to The Cavalier Group (the “Company”) and critical
to its success in the business environment. The Company’s Code of Business
Conduct and Ethics and Compliance Program embodies the Company’s commitment to
such ethical principles and sets forth the responsibilities of the Company to
its shareholders, employees, customers, lenders and other stakeholders. The
Company’s Code of Business Conduct and Ethics and Compliance Program addresses
general business ethical principles, conflicts of interests, special ethical
obligations for employees with financial reporting responsibilities, insider
trading laws, reporting of any unlawful or unethical conduct, political
contributions and other relevant issues. 

GENERAL PRINCIPLES 

It is the Company’s firm belief that effective business
relationships can only be built on mutual trust and fair dealing. The Company
and all its directors, officers and employees, to whom the Company’s Code of
Business Conduct and Ethics and Compliance Program is applicable, will conduct
themselves in accordance with the standards established herein. 

The Company’s Code of Business Conduct and Ethics and
Compliance Program outlines the fundamental principles of legal and ethical
business conduct as adopted by the Board of Directors of the Company. It is not
intended to be a comprehensive list addressing all legal or ethical issues which
may confront the Company’s personnel. Hence, it is essential that all personnel
subject to the Company’s Code of Business Conduct and Ethics and Compliance
Program employ good judgment in the application of the principles contained
herein. 

CONFLICTS OF INTEREST 

Directors, officers and employees of the Company are expected
to make decisions and take actions based on the best interests of the Company,
as a whole, and not based on personal relationships or benefits. Generally, a
“conflict of interest” is an activity that it inconsistent with or opposed to
the best interest of the Company or one which gives the appearance of
impropriety. As conflicts of interest can compromise the ethical behavior of
Company personnel, they should be avoided.

Employees should avoid any relationship which would create a
conflict of interest. Employees are expected to disclose such relationships and
conflicts to their immediate supervisors. Conflicts of interest involving those
with whom the Company does business should also be disclosed in writing to such
third parties. Any waivers of conflicts of interest must be approved by the
Board of Directors or an appropriate committee. 

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	Code of Business Conduct 
	Page 1 of 6 

Members of the Board of Directors are to disclose any conflicts
of interest and potential conflicts of interest to the entire Board of Directors
as well as the committees on which they serve. Directors are to recuse
themselves from participation in any decision of the Board or a committee
thereof in any matter in which there is a conflict of interest or potential
conflict of interest.

Set forth below is specific guidance in respect to certain
conflicts of interest situations. As it is not possible to list all conflicts of
interest situations, it is the responsibility of the individual, ultimately, to
avoid and properly address any situation involving a conflict of interest or
potential conflict of interest. Company personnel who wish to obtain
clarification of the Company’s conflicts of interest principles or further
guidance with respect to the proper handling of any specific situation should
consult his or her immediate supervisor, the Company’s corporate secretary or
the Company’s outside legal counsel. 

Interest in Other Businesses: All Company’s directors,
officers and employees and their family members must avoid any direct or
indirect financial relationship with third parties with whom the Company has
relationships which would involve a conflict of interest or a potential conflict
of interest or compromise the individual’s loyalty to the Company. Permission
must be obtained from the Company’s president before any such individual
commences an employment, business or consulting relationship with third parties
with whom the Company has relationships. 

Outside Directorships: All Company’s directors, officers
and employees may serve on the boards of directors of other profit-making
organizations so long as those other companies are not in direct competition
with the Company. Direct competition does not include being in the same type of
resource industry business as the Company, and directors, officers and employees
are not obliged to refer to the Company every opportunity they may have in the
Company’s area of the resource industry.

Individuals who serve as directors of other companies may
retain any compensation earned from that outside directorship without accounting
for same to the Company. Individuals may receive compensation (whether in the
form of cash, stock or options) for service on a boards of director of another
business organization if such service is at the request of the Company or in
connection with the investment of the Company in such business organization, so
long as the individual discloses the compensation to the Company. All
individuals must recuse themselves from any matters pertaining to the Company
and the business organization of which they are directors. 

Proper Payments: All individuals should pay for and
receive only that which is proper. Company personnel should not make improper
payments for the purposes of influencing another’s acts or decisions and should
not receive any improper payments or gifts from others for the purposes
influencing the decisions or actions of Company’s personnel. No individual
should give gifts beyond those extended in the context of normal business
circumstances. Company personnel must observe all government restrictions on
gifts and entertainment. 

Supervisory Relationships: Supervisory relationships
with family members present special workplace issues. Accordingly, Company
personnel should where possible avoid a direct reporting relationship with a
family member. If such a relationship exists or occurs, the individuals involved
must report the relationship in writing to the Board of Directors. 

INSIDER TRADING 

It is the policy of the Company to prohibit the unauthorized
  disclosure of any nonpublic information acquired in the workplace and the misuse
  of material nonpublic information in 

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	Code of Business Conduct 
	Page 2 of 6 

securities trading. It is not possible to define all categories of material information. However, information should be regarded as material if there is a reasonable likelihood that it would be considered important to an investor in making an
investment decision regarding the purchase or sale of the Company’s securities.  Nonpublic information is information that has not been previously disclosed to the general public and is otherwise not available to the general public. While it
may be difficult to determine whether particular information is material, there are various categories of information that are particularly sensitive and, as a general rule, should always be considered material.  In addition, material information
may be positive or negative. Examples of such information may include: 

	
Financial results
	
Projections of future earnings or losses
	
Major contract awards, cancellations or write-offs
	
Joint ventures with third parties
	
Research, exploration or development milestones
	
News of a pending or proposed merger or acquisition
	
News of the disposition of material assets
	
Impending bankruptcy or financial liquidity problems
	
Gain or loss of a substantial customer or supplier
	
New product announcements or resource discoveries of a material nature
	
Significant pricing changes
	
Stock splits
	
New equity or debt offerings
	
Significant litigation exposure due to actual or threatened litigation
	
Changes in senior management
	
Capital investment plans
	
Changes in dividend policy

Trading on Material Non-public Information:  With certain limited exceptions, no officer or director of the Company, no employee of the Company or its subsidiaries and no consultant or contractor to the Company or any of its subsidiaries and
no members of the immediate family or household of any such person, shall engage in any transaction involving a purchase or sale of the Company’s securities, including any offer to purchase or offer to sell, during any period commencing with
the date that he or she possesses material nonpublic information concerning the Company, and ending at the close of business on the second trading day following the date of public disclosure of that information, or at such time as such nonpublic
information is no longer material. The term “trading day” shall mean a day on which national stock exchanges and the NASDAQ National Market are open for trading. 

Tipping:  No insider shall disclose (“tip”) material nonpublic information to any other person (including family members) where such information may be used by such person to his or her profit by trading in the securities of
companies to which such information relates, nor shall such insider or related person make recommendations or express opinions on the basis of material nonpublic information as to trading in the Company’s securities. 

 Regulation FD (Fair Disclosure) implemented by the Securities
  and Exchange Commission provides that when the Company, or person acting on
  its behalf, discloses material nonpublic information to certain enumerated persons
  (in general, securities market professionals and holders of the Company’s
  securities who may well trade on the basis of the information), it must make
  public disclosure of that information. The timing of the required public disclosure
  depends on 

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	Code of Business Conduct 
	Page 3 of 6 

whether the selective disclosure was intentional or unintentional; for an intentional selective disclosure, the Company must make public disclosures simultaneously; for a non-intentional disclosure the Company must make public disclosure promptly.
Under the regulation, the required public disclosure may be made by filing or furnishing a Form 8-K, or by another method or combination of methods that is reasonably designed to effect broad, non-exclusionary distribution of the information to the
public. 

It is the policy of the Company that all communications with the press be handled through the Company president or his specifically designated appointee. 

Confidentiality of Nonpublic Information: Nonpublic information relating to the Company is the property of the Company and the unauthorized disclosure of such information is strictly forbidden.

Applicability of Insider Trading Regulations to Securities of Other Companies:  The insider trading guidelines described herein also apply to material nonpublic information relating to other companies, including the Company’s customers,
vendors or suppliers (“business partners”), when that information is obtained in the course of employment with, or other services performed on behalf of the Company.  All employees should treat material nonpublic information about the
Company’s business partners with the same care as is required with respect to information relating directly to the Company. 

COMPLIANCE PROGRAM 

In order to implement the principles of the Company’s Code of Business Conduct and Ethics and to establish a Compliance Program, the Company has adopted the following policies: 

Size of the Board: The Board will periodically review the appropriate size of the Board. 

Independent Directors: It is the policy of the Company that at least one of the directors will be non-employees and non-officers of the Company and will otherwise meet the appropriate standards of independence. In determining independence,
the Board will consider the definition of “independence” under the relevant rules and regulations of the Securities and Exchange Commission and the stock exchange or market on which the Company’s shares are listed for trading. 

Management Directors: The Board anticipates that the Company’s Chief Executive Officer will be nominated annually to serve on the Board. The Board may also nominate other members of management. 

Chair; Lead Independent Director: The Board will periodically appoint a Chair.  Both independent and management directors, including the CEO, are eligible for appointment as the Chair. The Chair or one of the independent directors (if the
Chair is not an independent director) may be designated by the Board to be the “lead independent director.”  The lead independent director may periodically help schedule or conduct separate meetings of the independent directors. 

 Selection of Board Nominees: The Board will be responsible
  for the selection of candidates for the nomination of all Board members. The
  Nominating and Corporate Governance Committee, if constituted, shall recommend
  candidates for election to the Board. 

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	Code of Business Conduct 
	Page 4 of 6 

Board Membership Criteria: The Board’s policy is to encourage selection of directors who will contribute to the Company’s overall corporate goals of responsibility to its shareholders and other stakeholders.

Independent Directors’ Discussions: It is the policy of the Board that the independent directors, under the direction of the lead independent director, may meet separately without management directors at least once per year to discuss
such matters as the independent directors may consider appropriate. The Company’s independent auditors, outside legal counsel, finance staff, legal staff and other employees may be invited to attend. 

Access to Information: The Board encourages the presentation at meetings by managers who can provide additional insight into matters being discussed.  The Company’s executive management will afford each Board member full access to the
Company’s records, information, employees, outside auditors and outside counsel.

Board Committees: The Board shall have three standing committees: the Audit Committee, the Compensation Committee and the Nominating/Corporate Governance Committee. From time to time, the Board may establish additional committees. 

Committee Member Selection:  The Board will designate the members and Chairs of each committee.  The membership of the Audit Committee, the Compensation Committee and the Nominating/Corporate Governance Committee shall meet all applicable
criteria of the rules and regulations of the Securities and Exchange Commission and the stock exchange or market on which the Company’s shares are listed for trading. 

Committee Functions: The Board of Directors shall adopt a Committee Charter for each of the Audit Committee, the Compensation Committee and the Nominating/Corporate Governance Committee which shall provide the structure and guiding principles
of such committees. The full authority and responsibilities of each committee are fixed by resolution of the full Board of Directors and the Committee Charter. The following is a brief summary of the authority of each committee: 

	
Audit Committee. Review the Company’s financial procedures and controls; monitor financial reporting and select and meet with independent auditors.
	
Compensation Committee. Review and approve compensation arrangements for the Company’s executive officers and awards under employee benefit plans, including the Company’s stock option plans.
	
Nominating and Corporate Governance Committee. Recommend to the full Board candidates for election to the Board and changes to governance policies.

Insider Trading Compliance: The Board of Directors shall adopt an Insider Trading Compliance Program for the purposes of educating and ensuring the all subject persons are fully aware of the rules and regulations of the Securities and
Exchange Commission with respect to insider trading. The Company will, within reason, endeavor to make the Company’s outside legal counsel available to Company personnel with respect to any insider trading questions or issues. 

 Financial Reporting; Legal Compliance and Ethics: The
  Board’s governance and oversight functions do not relieve the Company’s
  executive management of its primary responsibility of preparing financial statements
  which accurately and fairly present the Company’s financial results and
  condition, the responsibility of each executive officer to fully comply with
  applicable 

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	Code of Business Conduct 
	Page 5 of 6 

legal and regulatory requirements or the responsibility of each
executive officer to uphold the ethical principles adopted by the Company. 

Corporate Communications: Management has the primary
responsibility to communicate with investors, the press, employees and other
stakeholders on a timely basis and to establish policies for such communication.

Access to Outside Counsel: The Company will, within
reason, endeavor to provide Company personnel access to the Company’s outside
legal counsel with respect to any matter which may arise relating to the
Company’s Code of Business Conduct and Ethics and Compliance Program.

 

APPROVED AND ADOPTED this 30th day of April, 2005 

 

/s/ “Gerald W. Williams” 

Gerald W. Williams 
Secretary 

 

 

CERTIFICATE OF SECRETARY 

I, Gerald W. Williams, hereby certify that I am the duly
appointed Secretary of THE CAVALIER GROUP and that the foregoing Code of
Business Conduct and Ethics and Compliance Program constitutes the code of
Business Conduct and Ethics and the Compliance Program of THE CAVALIER GROUP as
duly adopted at a regular meeting of the Board of Directors of the Corporation.

DATED this 30th day of April, 2005. 

/s/ “Gerald W. Williams” 

Gerald W. Williams 

  Secretary 

	THE CAVALIER GROUP
    
	Code of Business Conduct 
	Page 6 of 6

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