Document:

Exhibit
10.4

 

TERMINATION
AND RELEASE AGREEMENT

 

This Termination and
Release Agreement (this “Agreement”) is entered into as of December 8, 2004
by and among Jerry D. Holbrook (the “Executive”), Northeast Pennsylvania
Financial Corp., a Delaware corporation (the “Company”), First Federal Bank, a federally-chartered
savings bank and a wholly-owned subsidiary of the Company (the “Bank”), and KNBT
Bancorp, Inc., a Delaware corporation (“Parent”).

 

RECITALS

 

WHEREAS, the Company and
Parent are entering into an Agreement and Plan of Merger, dated as of December 8,
2004 (the “Merger Agreement”); and

 

WHEREAS, the Bank and the
Executive are parties to an Employment Agreement effective as of September 13,
2003 (the “Employment Agreement”); and

 

WHEREAS, as an inducement
to Parent to enter into the Merger Agreement, the Company, the Bank and the
Executive agree that the Employment Agreement shall be terminated as of the
Effective Date of the Merger (as such terms are defined in the Merger
Agreement), and that the Executive shall be entitled to the rights and payments
set forth herein in lieu of any rights and payments under the Employment
Agreement.

 

NOW THEREFORE, in
consideration of the foregoing and the mutual covenants set forth herein, the
parties hereto agree as follows:

 

1.  Certain Actions to Be Taken in 2004 and
2005.

 

(a)                                  The
Company, the Bank and their respective boards and committees, and the Executive,
hereby agree to take the following actions between the date hereof and December 31,
2004, it being the intention of the parties hereto that all of such actions
shall be fully effective and consummated no later than December 31, 2004:

 

(i)                                     the
Executive may exercise all or any portion of the vested non-qualified stock
options granted to the Executive under the Company’s 1998 Stock-Based Incentive
Plan  (as amended and restated), 2000
Stock Option Plan and 2004 Stock Plan (the “Option Plans”) (i.e., all vested
non-qualified options under each plan to be exercised), and the Executive
acknowledges that a failure to do the foregoing could result in the cash
payable under Section 2(a) being reduced pursuant to Section 2(b)
hereof;

 

(ii)                                  the
Company and/or the Bank shall pay to the Executive a cash amount equal to $200,000.00,
minus applicable withholding taxes, with such amount representing a prepayment
of a portion of the cash severance that would otherwise be paid to the
Executive at the Effective Date of the Merger.

 

(b)                                 The
Company, the Bank and their respective boards and committees agree to take all
necessary actions so that, at the Effective Date of the Merger, all then
unvested stock options held by the Executive at that time shall become vested
and exercisable and each unexercisable stock option held by the Executive shall
be treated in accordance with Section 3.04 of the Merger

 

 

Agreement and each share
of restricted stock shall vest and shall be treated in accordance with Section 3.05
of the Merger Agreement.

 

(c)                                  The
Company, the Bank and their respective boards and committees agree to take such
actions as may be necessary or advisable by them in order to permit the
Executive to take the actions set forth in Section 1(a) above and have
them be fully effective and consummated no later than December 31, 2004,
including without limitation making the cash payment specified in Section 1(a)(ii)
above.

 

2.                                      Acknowledgement
of Payment, Release and Waiver.

 

(a)                                  Provided
the Executive’s employment has not been terminated for cause (as defined in the
Executive’s Employment Agreement), death, disability or voluntarily terminated by
the Executive and the Company, the Bank and the boards and committees thereof
have taken the actions necessary pursuant to Sections 1(a), 1(b) and 1(c)
hereof prior to the Effective Date, the Bank shall pay to the Executive an
amount equal to $777,160  on the Effective Date, subject to
adjustment as set forth in Section 2(b) below (the “Maximum Amount”), with
applicable withholding taxes to be subtracted from the amount payable to the
Executive.  In consideration of such
payment and the other provisions of this Agreement, the Executive, the Company,
the Bank and Parent hereby agree that, except as provided in Section 3
below, the Employment Agreement shall be terminated without any further action
of any parties hereto, effective immediately prior to the Effective Date of the
Merger.

 

(b)                                 If
the payment pursuant to Section 2(a) hereof, either alone or together with
other payments and benefits which the Executive has the right to receive from the
Company, the Bank or Parent, would constitute a “parachute payment” under Section 280G
of the Code, based upon the calculations described below, then the amount
payable by Parent pursuant to Section 2(a) hereof shall be reduced by the
amount which is the minimum necessary to result in no portion of the payment
payable by Parent under Section 2(a) being non-deductible to Parent, the
Company and/or the Bank pursuant to Section 280G of the Code and subject
to the excise tax imposed under Section 4999 of the Code.  The parties hereto agree that the present
value of the payments and benefits payable pursuant to this Agreement to the
Executive upon termination of the Executive’s employment pursuant to Section 2(a)
shall not exceed three times the Executive’s “base amount,” as that term is
defined in Section 280G(b)(3) of the Code, less one dollar.  The determination of any reduction in the
payment to be made pursuant to Section 2(a) shall be based upon an
analysis prepared by Muldoon Murphy Faucette & Aguggia LLP (“Muldoon Murphy”),
which analyses shall be reasonably acceptable to Elias, Matz, Tiernan &
Herrick L.L.P. and paid for by the Company. Muldoon Murphy shall provide its
analysis no later than five (5) business days prior to the Effective Date of
the Merger, and may use such actuaries as it may deem necessary or advisable
for the purpose.

 

2

 

3.                                      Releases.

 

(a)                                  Upon
payment of the amounts set forth in Section 2(a) (as such amount may be
adjusted pursuant to Section 2(b) hereof), the Executive, for himself and
for his heirs, successors and assigns, does hereby release completely and
forever discharge the Company, the Bank and their successors from any
obligation under the Employment Agreement.

 

(b)                                 Upon
payment of the amounts set forth in Section 2(a) (as such amount may be
adjusted pursuant to Section 2(b) hereof), each of the Company and the
Bank for itself, and for its successors and assigns, does hereby release
completely and forever discharge the Executive and his heirs, successors and
assigns, to the fullest extent permitted by applicable law, from any obligation
under the Employment Agreement, provided that, notwithstanding the foregoing,
the Company and the Bank (and their successors) do not hereby release the
Executive from any obligation under Sections 6, 9 and 10 of the Employment
Agreement; it being specifically understood and agreed that the geographic area
of the Executive’s non-competition obligations under Section 10 thereof
shall be limited to the Pennsylvania counties of Monroe, Luzerne, Schuylkill,
Carbon and Columbia and that such obligations shall expire one year from the
Effective Date of the Merger.

 

4.                                      General.

 

(a)                                  Heirs,
Successors and Assigns.  The
terms of this Agreement shall be binding upon the parties hereto and their
respective heirs, successors and assigns.

 

(b)                                  Final
Agreement.  This Agreement
represents the entire understanding of the parties with respect to the subject
matter hereof and supersedes all prior understandings, written or oral. The
terms of this Agreement may be changed, modified or discharged only by an
instrument in writing signed by each of the parties hereto.

 

(c)                                  Governing
Law.  This Agreement shall be
construed, enforced and interpreted in accordance with and governed by the laws
of the Commonwealth of Pennsylvania, without reference to its principles of
conflicts of law, except to the extent that federal law shall be deemed to
preempt such state laws.

 

(d)                                  Defined
Terms.  Any capitalized terms not
defined in this Agreement shall have as their meaning the definitions contained
in the Merger Agreement.

 

(e)                                  Voluntary
Action and Waiver. The Executive acknowledges that by his free and
voluntary act of signing below, the Executive agrees to all of the terms of
this Agreement and intends to be legally bound thereby. The Executive
acknowledges that he has been advised to consult with an attorney prior to
executing this Agreement.

 

(f)                                    Counterparts.
This Agreement may be executed in two or more counterparts, each of which shall
be deemed an original, and all of which shall constitute one and the same
Agreement.

 

3

 

(g)                                 Gender.
References herein to the masculine gender shall be deemed to refer to the
feminine gender where appropriate.

 

5.                                      Effectiveness.  Notwithstanding anything to the contrary
contained herein, this Agreement shall be subject to consummation of the Merger
in accordance with the terms of the Merger Agreement, as the same may be
amended by the parties thereto in accordance with its terms.  In the event the Merger Agreement is
terminated for any reason, this Agreement shall be deemed null and void.

 

[Signature
Page Follows]

 

4

 

IN WITNESS WHEREOF, the
Company, the Bank and Parent have each caused this Agreement to be executed by
their duly authorized officers, and the Executive has signed this Agreement,
effective as of the date first above written.

 

	
  WITNESS:

  	
   

  	
  EXECUTIVE:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Thomas M. Petro

  	
   

  	
  /s/ Jerry D. Holbrook

  
	
  Name: Thomas M. Petro

  	
   

  	
  Name: Jerry D. Holbrook

  
	
  Title:
  President and Chief Executive Officer

  	
   

  	
  Title:
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	 
	
  ATTEST:

  	
   

  	
  NORTHEAST PENNSYLVANIA FINANCIAL CORP.

  
	 
	
   

  	
   

  	
   

  
	 
	
   

  	
   

  	
   

  
	 
	
  /s/ Thomas M. Petro

  	
   

  	
  By:

  	
  /s/ Thomas L. Kennedy

  	
   

  
	 
	
  Name: Thomas M. Petro

  	
   

  	
   

  	
  Name: Thomas L. Kennedy

  
	 
	
  Title:
  President and Chief Executive Officer

  	
   

  	
   

  	
  Title: Chairman of the
  Board

  
	 
	
   

  	
   

  	
   

  
	 
	
   

  	
   

  	
   

  
	 
	
   

  	
   

  	
   

  
	 
	
  ATTEST:

  	
   

  	
  FIRST FEDERAL BANK

  
	 
	
   

  	
   

  	
   

  
	 
	
   

  	
   

  	
   

  
	 
	
  /s/ Thomas M. Petro

  	
   

  	
  By:

  	
  /s/ Thomas L. Kennedy

  	
   

  
	 
	
  Name: Thomas M. Petro

  	
   

  	
   

  	
  Name: Thomas L. Kennedy

  
	 
	
  Title:
  President and Chief Executive Officer

  	
   

  	
   

  	
  Title: Chairman of the
  Board

  
	 
	
   

  	
   

  	
   

  
	 
	
   

  	
   

  	
   

  
	 
	
  ATTEST:

  	
   

  	
  KNBT BANCORP, INC.

  
	 
	
   

  	
   

  	
   

  
	 
	
   

  	
   

  	
   

  
	 
	
  /s/ Michelle A. Linsky

  	
   

  	
  By:

  	
  /s/ Scott V. Fainor

  	
   

  
	 
	
  Name: Michelle A.
  Linsky

  	
   

  	
   

  	
  Name: Scott V. Fainor

  
	 
	
  Title: Corporate
  Secretary

  	
   

  	
   

  	
  Title:
  President and Chief Executive Officer

  
						

 

5Exhibit 10.1

 

 

AMERICAN BANK HOLDINGS, INC.

 

2004 NON-EMPLOYEE DIRECTORS STOCK
OPTION PLAN

 

 

 

TABLE OF CONTENTS

 

	
  1.

  	
  PURPOSE

  	
   

  
	
  2.

  	
  DEFINITIONS

  	
   

  
	
  3.

  	
  ADMINISTRATION OF THE PLAN

  	
   

  
	
   

  	
  3.1.

  	
  Board

  	
   

  
	
   

  	
  3.2.

  	
  Committee.

  	
   

  
	
   

  	
  3.3.

  	
  Terms of Awards.

  	
   

  
	
   

  	
  3.4.

  	
  No Liability.

  	
   

  
	
   

  	
  3.5.

  	
  Book Entry

  	
   

  
	
  4.

  	
  STOCK SUBJECT TO THE PLAN

  	
   

  
	
  5.

  	
  EFFECTIVE DATE, DURATION AND AMENDMENTS

  	
   

  
	
   

  	
  5.1.

  	
  Effective Date.

  	
   

  
	
   

  	
  5.2.

  	
  Term.

  	
   

  
	
   

  	
  5.3.

  	
  Amendment and
  Termination of the Plan

  	
   

  
	
  6.

  	
  AWARD ELIGIBILITY AND
  LIMITATIONS

  	
   

  
	
   

  	
  6.1.

  	
  Outside Directors

  	
   

  
	
   

  	
  6.2.

  	
  Successive Awards.

  	
   

  
	
  7.

  	
  AWARD AGREEMENT

  	
   

  
	
  8.

  	
  TERMS AND CONDITIONS OF
  OPTIONS

  	
   

  
	
   

  	
  8.1.

  	
  Annual Option Grants

  	
   

  
	
   

  	
  8.2.

  	
  Additional Option Grants

  	
   

  
	
   

  	
  8.3.

  	
  Option Price

  	
   

  
	
   

  	
  8.4.

  	
  Vesting.

  	
   

  
	
   

  	
  8.5.

  	
  Term.

  	
   

  
	
   

  	
  8.6.

  	
  Termination of Service.

  	
   

  
	
   

  	
  8.7.

  	
  Limitations on
  Exercise of Option.

  	
   

  
	
   

  	
  8.8.

  	
  Method of Exercise.

  	
   

  
	
   

  	
  8.9.

  	
  Rights of Holders of
  Options

  	
   

  
	
   

  	
  8.10.

  	
  Delivery of Stock
  Certificates.

  	
   

  
	
   

  	
  8.11.

  	
  Transferability of Options

  	
   

  
	
   

  	
  8.12.

  	
  Family Transfers.

  	
   

  
	
  9.

  	
  FORM OF PAYMENT FOR OPTIONS

  	
   

  
	
   

  	
  9.1.

  	
  General Rule.

  	
   

  
	
   

  	
  9.2.

  	
  Surrender of Stock.

  	
   

  
	
   

  	
  9.3.

  	
  Cashless Exercise.

  	
   

  
	
   

  	
  9.4.

  	
  Other Forms of Payment.

  	
   

  
	
  10.

  	
  REQUIREMENTS OF LAW

  	
   

  
	
   

  	
  10.1.

  	
  General.

  	
   

  
	
   

  	
  10.2.

  	
  Rule 16b-3.

  	
   

  
	
  11.

  	
  EFFECT OF CHANGES
  IN CAPITALIZATION

  	
   

  
	
   

  	
  11.1.

  	
  Changes in Stock.

  	
   

  
	
   

  	
  11.2.

  	
  Reorganization
  in Which the Company Is the Surviving Entity Which does not Constitute a
  Corporate Transaction.

  	
   

  
	
   

  	
  11.3.

  	
  Corporate Transaction.

  	
   

  
	
   

  	
  11.4.

  	
  Adjustments.

  	
   

  
	
   

  	
  11.5.

  	
  No Limitations on Company.

  	
   

  
	
  12.

  	
  GENERAL PROVISIONS

  	
   

  
	
   

  	
  12.1.

  	
  Disclaimer of Rights

  	
   

  
	
   

  	
  12.2.

  	
  Nonexclusivity of the Plan

  	
   

  
	
   

  	
  12.3.

  	
  Withholding Taxes

  	
   

  
	
   

  	
  12.4.

  	
  Captions

  	
   

  
	
   

  	
  12.5.

  	
  Other Provisions

  	
   

  
	
   

  	
  12.6.

  	
  Number and Gender

  	
   

  
	
   

  	
  12.7.

  	
  Severability

  	
   

  
	
   

  	
  12.8.

  	
  Governing Law

  	
   

  

 

i

 

AMERICAN
BANK HOLDINGS, INC.

 

2004 NON-EMPLOYEE DIRECTORS STOCK
OPTION PLAN

 

American Bank Holdings, Inc., a
Maryland corporation (the “Company”), sets forth herein the terms of its 2004
Non-Employee Directors Stock Option Plan (the “Plan”), as follows:

 

1.                                      PURPOSE

 

The Plan is intended to
enhance the Company’s and its Affiliates’ (as defined herein) ability to
attract and retain highly qualified directors to motivate such directors to
serve the Company and its Affiliates and to expend maximum effort to improve
the business results and earnings of the Company, by providing to such persons
an opportunity to acquire or increase a direct proprietary interest in the
operations and future success of the Company. 
To this end, the Plan provides for
the grant of stock options which are non-qualified stock options.

 

2.                                      DEFINITIONS

 

For
purposes of interpreting the Plan and related documents (including Award
Agreements), the following definitions shall apply:

 

2.1                                 “Affiliate” means, with respect to the Company, any company
or other trade or business that controls, is controlled by or is under common
control with the Company within the meaning of Rule 405 of Regulation C under
the Securities Act, including, without limitation, any subsidiary.

 

2.2                                 “Award” means a grant of an Option under the Plan.

 

2.3                                 “Award Agreement” means the written agreement between the Company
and a Grantee that evidences and sets out the terms and conditions of an Award.

 

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

 

2.5                                 “Code” means the Internal Revenue Code of 1986, as now
in effect or as hereafter amended.

 

2.6                                 “Committee” means a committee of, and designated from time to
time by resolution of, the Board.

 

2.7                                 “Company” means American Bank Holdings, Inc.

 

2.8                                 “Corporate Transaction” means (i) the dissolution or
liquidation of the Company or a merger, consolidation, or reorganization of the
Company with one or more other entities in which the Company is not the
surviving entity, (ii) a sale of substantially all of the assets of the Company
to another person or entity, or (iii) any transaction (including without
limitation a merger or reorganization in which the Company is the surviving
entity) which results in any person or entity (other than persons who are
stockholders or Affiliates immediately prior to the transaction) owning 50% or
more of the combined voting power of all classes of stock of the Company.

 

2.9                                 “Effective Date” means November 9, 2004, the date the Plan
is approved by the Board.

 

2.10                           “Exchange Act” means the Securities Exchange Act of 1934, as
now in effect or as hereafter amended.

 

2.11                           “Fair Market Value”  means the value of a share of Stock as
determined by the Board in good faith.

 

 

2.12                           “Family Member” means a person who is a spouse, former spouse,
child, stepchild, grandchild, parent, stepparent, grandparent, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother, sister,
brother-in-law, or sister-in-law, including adoptive relationships, of the
Grantee, any person sharing the Grantee’s household (other than a tenant or
employee), a trust in which any one or more of these persons have more
than fifty percent of the beneficial interest, a foundation in which any one or
more of these persons (or the Grantee) control the management of assets, and
any other entity in which one or more of these persons (or the Grantee) own more than fifty percent of the voting interests.

 

2.13                           “Grant Date” means, as determined by the Board, the
latest to occur of  (i) the date
as of which the Board approves an Award, (ii) the date on which the recipient
of an Award first becomes eligible to receive an Award under Section 6
hereof, or (iii) such other date as may be specified by the Board.

 

2.14                           “Grantee” means a person who receives or holds an Award
under the Plan.

 

2.15                           “Non-qualified Stock Option” means an Option that is not an Incentive Stock
Option.

 

2.16                           “Option” means an option to purchase one or more shares of
Stock pursuant to the Plan.

 

2.17                           “Option Price” means the exercise price for each share of Stock
subject to an Option.

 

2.18                           “Other Agreement” shall have the meaning set forth in Section 10 hereof.

 

2.19                           “Outside Director” means a member of the Board who is not an officer
or employee of the Company.

 

2.20                           “Plan” means this American Bank Holdings, Inc. 2004
Non-Employee Directors Stock Option Plan.

 

2.21                           “Reporting Person” means a person who is required to file reports
under Section 16(a) of the Exchange Act.

 

2.22                           “Securities Act” means the Securities Act of 1933, as now in
effect or as hereafter amended.

 

2.23                           “Service” means service as an Outside Director to the
Company.  Subject to the preceding
sentence, whether a termination of Service shall have occurred for purposes of
the Plan shall be determined by the Board, which determination shall be final,
binding and conclusive.

 

2.24                           “Stock” means the common stock, par value $1.00 per
share, of the Company.

 

2.25                           “Termination Date” means the date upon which an Option shall
terminate or expire, as set forth in Section 8.5
hereof.

 

3.                                      ADMINISTRATION OF THE PLAN

 

3.1.                            Board

 

The Board shall have such powers
and authorities related to the administration of the Plan as are consistent
with the Company’s articles of incorporation and by-laws and applicable
law.  The Board shall have full power and
authority to take all actions and to make all determinations required or
provided for under the Plan, any Award or any Award Agreement, and shall have
full power and authority to take all such other actions and make all such other
determinations not inconsistent with the specific terms and provisions of the
Plan that the Board deems to be necessary or appropriate to the administration
of the Plan, any Award or any Award Agreement. 
All such actions and determinations shall be by the affirmative vote of
a majority of the members of the Board present at a meeting or by unanimous
consent of the Board executed in writing in accordance with the Company’s
articles of incorporation and by-laws

 

2

 

and applicable law.  The
interpretation and construction by the Board of any provision of the Plan, any
Award or any Award Agreement shall be final, binding and conclusive.

 

3.2.                            Committee.

 

The Board from time to
time may delegate to the Committee such powers and authorities related to the
administration and implementation of the Plan, as set forth in Section 3.1 above and other applicable provisions, as
the Board shall determine, consistent with the articles of incorporation and
by-laws of the Company and applicable law. 
In the event that the Plan, any Award
or any Award Agreement entered into hereunder provides for any action to
be taken by or determination to be made by the Board, such action may be taken
or such determination may be made by the Committee if the power and authority
to do so has been delegated to the Committee by the Board as provided for in
this Section.  Unless otherwise expressly
determined by the Board, any such action or determination by the Committee
shall be final, binding and conclusive.  To the extent permitted by law, the Committee
may delegate its authority under the Plan to a member of the Board.

 

3.3.                            Terms of Awards.

 

Subject to the other terms and
conditions of the Plan, the Board shall have full and final authority to:

 

(i)                                     designate Grantees,

 

(ii)                                  determine the number of shares of Stock to be
subject to an Award,

 

(iii)                               establish the terms and conditions of each Award
(including, but not limited to, the exercise price of any Option, the nature
and duration of any restriction or condition (or provision for lapse thereof)
relating to the vesting, exercise, transfer, or forfeiture of an Award or the
shares of Stock subject thereto, and any terms or conditions that may be
necessary to qualify Options as Incentive Stock Options),

 

(iv)                              prescribe the form of each Award Agreement evidencing
an Award, and

 

(v)                                 amend, modify, or supplement the terms of any
outstanding Award.  Such authority
specifically includes the authority, in order to effectuate the purposes of the
Plan but without amending the Plan, to modify Awards to eligible individuals
who are foreign nationals or are individuals who are employed outside the
United States to recognize differences in local law, tax policy, or
custom.  Notwithstanding the foregoing,
no amendment, modification or supplement of any Award shall, without the
consent of the Grantee, impair the Grantee’s rights under such Award.

 

As a condition to any subsequent
Award, the Board shall have the right, at its discretion, to require Grantees
to return to the Company Awards previously made under the Plan.  Subject to the terms and conditions of the
Plan, any such new Award shall be upon such terms and conditions as are
specified by the Board at the time the new Award is made.  The Board shall have the right, in its
discretion, to make Awards in substitution or exchange for any other award
under another plan of the Company, any Affiliate, or any business entity to be
acquired by the Company or an Affiliate. 
The grant of any Award shall be contingent upon the Grantee executing
the appropriate Award Agreement.

 

Notwithstanding the foregoing, no
amendment or modification may be made to an outstanding Option which reduces
the Option Price, either by lowering the Option Price or by canceling the
outstanding Option and granting a replacement Option with a lower exercise price
without the approval of the stockholders of the Company, provided, that,
appropriate adjustments may be made to outstanding Options pursuant to Section 11.

 

3.4.                            No Liability.

 

No member of the Board or of the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Award or Award Agreement.

 

3

 

3.5.                            Book Entry

 

Notwithstanding any other
provision of this Plan to the contrary, the Company may elect to satisfy any
requirement under this Plan for the delivery of stock certificates through the
use of book-entry.

 

4.                                      STOCK SUBJECT TO THE PLAN

 

Subject to adjustment as provided
in Section 11 hereof, the number of
shares of Stock available for issuance under the Plan shall be one hundred and
fifty thousand (150,000).    Stock issued
or to be issued under the Plan shall be authorized but unissued shares; or,
to the extent permitted by applicable law, issued shares that have been
reacquired by the Company.  If any shares covered by an Award are not
purchased or are forfeited, or if an Award otherwise terminates without
delivery of any Stock subject thereto, then the number of shares of Stock
counted against the aggregate number of shares available under the Plan with
respect to such Award shall, to the extent of any such forfeiture or
termination, again be available for making Awards under the Plan.

 

5.                                      EFFECTIVE DATE, DURATION AND AMENDMENTS

 

5.1.                            Effective Date.

 

The Plan shall be effective as of the Effective Date,
subject to approval of the Plan by the Company’s stockholders within one year
of the Effective Date.  Upon approval of
the Plan by the stockholders of the Company as set forth above, all Awards made
under the Plan on or after the Effective Date shall be fully effective as if
the stockholders of the Company had approved the Plan on the Effective
Date.  If the stockholders fail to
approve the Plan within one year after the Effective Date, any Awards made
hereunder shall be null and void and of no effect.

 

5.2.                            Term.

 

The Plan shall terminate
automatically ten (10) years after its adoption by the Board and may be
terminated on any earlier date as provided in Section 5.3.

 

5.3.                            Amendment and Termination of the Plan

 

The Board may, at any time and
from time to time, amend, suspend, or terminate the Plan as to any shares of
Stock as to which Awards have not been made. 
An amendment shall be contingent on approval of the Company’s
stockholders to the extent stated by the Board, required by applicable law or
required by applicable stock exchange listing requirements.  No Awards shall be made after termination of
the Plan.  No amendment, suspension, or
termination of the Plan shall, without the consent of the Grantee, impair
rights or obligations under any Award theretofore awarded under the Plan.

 

6.                                      AWARD ELIGIBILITY AND LIMITATIONS

 

6.1.                            Outside Directors

 

Awards may be made under the Plan
to Outside Directors of the Company.

 

6.2.                            Successive Awards.

 

An eligible person may receive
more than one Award, subject to such restrictions as are provided herein.

 

4

 

7.                                      AWARD AGREEMENT

 

Each Award granted pursuant to
the Plan shall be evidenced by an Award Agreement, in such form or forms as the
Board shall from time to time determine. 
Award Agreements granted from time to time or at the same time need not
contain similar provisions but shall be consistent with the terms of the Plan.

 

8.                                      TERMS AND CONDITIONS OF OPTIONS

 

8.1.                            Annual Option Grants

 

Each Outside Director, including any Outside Director
who becomes an Outside Director prior to such meeting, shall be granted an
Option to purchase 2,500 shares of Stock (subject to adjustment as provided in Section 11 hereof) on the day of the Company’s annual
meeting.  In addition, an Option to
purchase an additional 7,500 shares of Stock (subject to adjustment as provided
in Section 11 hereof) shall be granted to
the Chairman of the Board each year on the day of the Company’s annual meeting.

 

8.2.                            Additional Option Grants

 

An Option shall be granted under the Plan to the
following Outside Directors on the day of the Company’s annual meeting in 2004,
in recognition of their recent extraordinary services to the Company:

 

	
  Name

  	
   

  	
  Number of Shares

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  J.R. Schuble,
  Jr.

  	
   

  	
  25,000

  	
   

  
	
  Howard J. Postal

  	
   

  	
  11,000

  	
   

  
	
  Bruce S. Cook

  	
   

  	
  8,000

  	
   

  
	
  Douglas M.
  Bregman

  	
   

  	
  6,000

  	
   

  

 

8.3.                            Option Price

 

The Option Price of each Option shall be fixed by the
Board and stated in the Award Agreement evidencing such Option.  The Option Price of each Option shall be at
least the Fair Market Value on the Grant Date of a share of Stock.  In no case shall the Option Price of any
Option be less than the par value of a share of Stock.

 

8.4.                            Vesting.

 

Options granted under the Plan
shall be fully vested and nonforfeitable as of the Grant Date.

 

8.5.                            Term.

 

Each Option granted under the
Plan shall terminate, and all rights to purchase shares of Stock thereunder
shall cease, upon the expiration of ten years from the date such Option is
granted, or under such circumstances and on such date prior thereto as is set
forth in the Plan or as may be fixed by the Board and stated in the Award
Agreement relating to such Option (the “Termination Date”).

 

8.6.                            Termination of Service.

 

Each Award Agreement shall set forth the extent to which
the Grantee shall have the right to exercise the Option following termination
of the Grantee’s Service.  Such
provisions shall be determined in the sole discretion of the Board, need not be
uniform among all Options issued pursuant to the Plan, and may reflect
distinctions based on the reasons for termination of Service.

 

5

 

8.7.                            Limitations on Exercise of Option.

 

Notwithstanding any other
provision of the Plan, in no event may any Option be exercised, in whole or in
part, prior to the date the Plan is approved by the stockholders of the Company
as provided herein or after the occurrence of an event referred to in Section 11 hereof which results in termination of the
Option.

 

8.8.                            Method of Exercise.

 

An Option that is exercisable may
be exercised by the Grantee’s delivery to the Company of written notice of
exercise on any business day, at the Company’s principal office, on the form
specified by the Company.  Such notice
shall specify the number of shares of Stock with respect to which the Option is
being exercised and shall be accompanied by payment in full of the Option Price
of the shares for which the Option is being exercised plus the amount (if any)
of federal and/or other taxes which the Company may, in its judgment, be
required to withhold with respect to an Award. 
The minimum number of shares of Stock with respect to which an Option
may be exercised, in whole or in part, at any time shall be the lesser of (i) 100
shares or such lesser number set forth in the applicable Award Agreement and
(ii) the maximum number of shares available for purchase under the Option
at the time of exercise.

 

8.9.                            Rights of Holders of Options

 

Unless otherwise stated in the
applicable Award Agreement, an individual holding or exercising an Option shall
have none of the rights of a stockholder (for example, the right to receive
cash or dividend payments or distributions attributable to the subject shares
of Stock or to direct the voting of the subject shares of Stock ) until the
shares of Stock covered thereby are fully paid and issued to him.  Except as provided in Section 11
hereof, no adjustment shall be made for dividends, distributions or other
rights for which the record date is prior to the date of such issuance.

 

8.10.                     Delivery of Stock Certificates.

 

Promptly after the exercise of an
Option by a Grantee and the payment in full of the Option Price, such Grantee
shall be entitled to the issuance of a stock certificate or certificates
evidencing his or her ownership of the shares of Stock subject to the Option.

 

8.11.                     Transferability of Options

 

Except as provided in Section 8.12,
during the lifetime of a Grantee, only the Grantee (or, in the event of legal
incapacity or incompetency, the Grantee’s guardian or legal representative) may
exercise an Option.  Except as provided
in Section 8.12, no Option shall be
assignable or transferable by the Grantee to whom it is granted, other than by
will or the laws of descent and distribution.

 

8.12.                     Family Transfers.

 

If authorized in the applicable Award Agreement, a
Grantee may transfer, not for value, all or part of an Option to any Family
Member.  For the purpose of this Section 8.12, a “not for value” transfer is a transfer which
is (i) a gift, (ii) a transfer under a domestic relations order in settlement
of marital property rights; or (iii) a transfer to an entity in which more than
fifty percent of the voting interests are owned by Family Members (or the
Grantee) in exchange for an interest in that entity.  Following a transfer under this Section 8.12, any such Option shall continue to be subject
to the same terms and conditions as were applicable immediately prior to
transfer.  Subsequent transfers of
transferred Options are prohibited except to Family Members of the original Grantee
in accordance with this Section  8.12 or by will or the laws of descent and
distribution.  The events of termination
of Service of Section 8.6 hereof shall continue
to be applied with respect to the original Grantee, following which the Option
shall be exercisable by the transferee only to the extent, and for the periods
specified, in Section 8.6.

 

6

 

9.                                      FORM OF PAYMENT
FOR OPTIONS

 

9.1.                            General Rule.

 

Payment of the Option Price for the shares purchased
pursuant to the exercise of an Option shall be made in cash or in cash
equivalents acceptable to the Company.

 

9.2.                            Surrender of Stock.

 

To the extent the Award Agreement so provides, payment
of the Option Price for shares purchased pursuant to the exercise of an Option
may be made all or in part through the tender to the Company of shares of
Stock, which shares, if acquired from the Company and if so required by the
Company, shall have been held for at least six months at the time of tender and
which shall be valued, for purposes of determining the extent to which the
Option Price has been paid thereby, at their Fair Market Value on the date of
exercise or surrender.

 

9.3.                            Cashless Exercise.

 

To the extent permitted by law and to the extent the
Award Agreement so provides, payment of the Option Price for shares purchased
pursuant to the exercise of an Option may be made all or in part by delivery
(on a form acceptable to the Board) of an irrevocable direction to a licensed
securities broker acceptable to the Company to sell shares of Stock and to
deliver all or part of the sales proceeds to the Company in payment of the
Option Price and any withholding taxes described in Section 12.3.

 

9.4.                            Other Forms of Payment.

 

To the extent the Award Agreement
so provides, payment of the Option Price for shares purchased pursuant to
exercise of an Option may be made in any other form that is consistent with
applicable laws, regulations and rules.

 

10.                               REQUIREMENTS OF LAW

 

10.1.                     General.

 

The Company shall not be required
to sell or issue any shares of Stock under any Award if the sale or issuance of
such shares would constitute a violation by the Grantee, any other individual
exercising an Option, or the Company of any provision of any law or regulation
of any governmental authority, including without limitation any federal or
state securities laws or regulations.  If
at any time the Company shall determine, in its discretion, that the listing,
registration or qualification of any shares 
subject to an Award upon any securities exchange or under any
governmental regulatory body is necessary or desirable as a condition of, or in
connection with, the issuance or purchase of shares hereunder, no shares of
Stock may be issued or sold to the Grantee or any other individual exercising
an Option pursuant to such Award unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Company, and any delay caused thereby
shall in no way affect the date of termination of the Award.  Specifically, in connection with the
Securities Act, upon the exercise of any Option or the delivery of any shares
of Stock underlying an Award, unless a registration statement under such Act is
in effect with respect to the shares of Stock covered by such Award, the
Company shall not be required to sell or issue such shares unless the Board has
received evidence satisfactory to it that the Grantee or any other individual
exercising an Option may acquire such shares 
pursuant to an exemption from registration under the Securities
Act.  Any determination in this
connection by the Board shall be final, binding, and conclusive.  The Company may, but shall in no event be
obligated to, register any securities covered hereby pursuant to the Securities
Act.  The Company shall not be obligated
to take any affirmative action in order to cause the exercise of an Option or
the issuance of shares of Stock pursuant to the Plan to comply with any law or
regulation of any governmental authority. 
As to any jurisdiction that expressly imposes the requirement that an
Option shall not be exercisable until the shares of Stock covered by such
Option are registered or are

 

7

 

exempt from registration, the exercise of such Option (under
circumstances in which the laws of such jurisdiction apply) shall be deemed
conditioned upon the effectiveness of such registration or the availability of
such an exemption.

 

10.2.                     Rule 16b-3.

 

During any time when the Company
has a class of equity security registered under Section 12 of the Exchange Act,
it is the intent of the Company that Awards pursuant to the Plan and the
exercise of Options granted hereunder will qualify for the exemption provided
by Rule 16b-3 under the Exchange Act.  To
the extent that any provision of the Plan or action by the Board does not
comply with the requirements of Rule 16b-3, it shall be deemed inoperative to
the extent permitted by law and deemed advisable by the Board, and shall not affect
the validity of the Plan.  In the event
that Rule 16b-3 is revised or replaced, the Board may exercise its discretion
to modify this Plan in any respect necessary to satisfy the requirements of, or
to take advantage of any features of, the revised exemption or its replacement.

 

11.                               EFFECT
OF CHANGES IN CAPITALIZATION

 

11.1.                     Changes in Stock.

 

If the number of outstanding shares of Stock is
increased or decreased or the shares of Stock are changed into or exchanged for
a different number or kind of shares or other securities of the Company on
account of any recapitalization, reclassification, stock split, reverse split,
combination of shares, exchange of shares, stock dividend or other distribution
payable in capital stock, or other increase or decrease in such shares effected
without receipt of consideration by the Company occurring after the Effective
Date, the number and kinds of shares for which grants of Options may be made
under the Plan shall be adjusted proportionately and accordingly by the Company.  In addition, the number and kind of shares
for which Awards are outstanding shall be adjusted proportionately and
accordingly so that the proportionate interest of the Grantee immediately
following such event shall, to the extent practicable, be the same as
immediately before such event.  Any such
adjustment in outstanding Options shall not change the aggregate Option Price
payable with respect to shares that are subject to the unexercised portion of
an outstanding Option, as applicable, but shall include a corresponding
proportionate adjustment in the Option Price per share.  The conversion of any convertible securities
of the Company shall not be treated as an increase in shares effected without
receipt of consideration.  
Notwithstanding the foregoing, in the event of any distribution to the
Company’s stockholders of securities of any other entity or other assets
(including an extraordinary cash dividend but excluding a non-extraordinary
dividend payable in cash or in stock of the Company) without receipt of
consideration by the Company, the Company may, in such manner as the Company
deems appropriate, adjust (i) the number and kind of shares subject to
outstanding Awards and/or (ii) the exercise price of outstanding Options to
reflect such distribution.

 

11.2.                     Reorganization in Which the Company Is
the Surviving Entity Which does not Constitute a Corporate Transaction.

 

Subject to Section 11.3
hereof, if the Company shall be the surviving entity in any reorganization,
merger, or consolidation of the Company with one or more other entities which
does not constitute a Corporate Transaction, any Option theretofore granted
pursuant to the Plan shall pertain to and apply to the securities to which a
holder of the number of shares of Stock subject to such Option would have been
entitled immediately following such reorganization, merger, or consolidation,
with a corresponding proportionate adjustment of the Option Price per share so
that the aggregate Option Price thereafter shall be the same as the aggregate
Option Price of the shares remaining subject to the Option immediately prior to
such reorganization, merger, or consolidation. 
Subject to any contrary language in an Award Agreement evidencing an
Award, any restrictions applicable to such Award shall apply as well to any
replacement shares received by the Grantee as a result of the reorganization,
merger or consolidation.

 

11.3.                     Corporate Transaction.

 

Subject to the exceptions set
forth in the last sentence of this Section 11.3
and the last sentence of Section 11.4, upon
the occurrence of a Corporate Transaction the Board may elect, in its sole
discretion, to cancel any outstanding Options and pay or deliver, or cause to
be paid or delivered, to the holder thereof an amount in cash or securities
having a value (as determined by the Board acting in good faith), equal to the
product of the number of shares

 

8

 

of Stock subject to the Option (the “Award Shares”) multiplied by the
amount, if any, by which (I) the formula or fixed price per share paid to
holders of shares of Stock pursuant to such transaction exceeds (II) the Option
Price applicable to such Award Shares.

 

This Section 11.3
shall not apply to any Corporate Transaction to the extent that provision is
made in writing in connection with such Corporate Transaction for the
assumption or continuation of the Options theretofore granted, or for the
substitution for such Options for new common stock options relating to the
stock of a successor entity, or a parent or subsidiary thereof, with
appropriate adjustments as to the number of shares (disregarding any
consideration that is not common stock) and option exercise price, in which
event the Plan and Options theretofore granted shall continue in the manner and
under the terms so provided.

 

11.4.                     Adjustments.

 

Adjustments under this Section 11 related to shares of Stock or securities of
the Company shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. 
No fractional shares or other securities shall be issued pursuant to any
such adjustment, and any fractions resulting from any such adjustment shall be
eliminated in each case by rounding downward to the nearest whole share.  The Board may provide in the Award Agreements
at the time of grant, or any time thereafter with the consent of the Grantee,
for different provisions to apply to an Award in place of those described in Sections 11.1, 11.2 and 11.3.

 

11.5.                     No Limitations on Company.

 

The making of Awards pursuant to
the Plan shall not affect or limit in any way the right or power of the Company
to make adjustments, reclassifications, reorganizations, or changes of its
capital or business structure or to merge, consolidate, dissolve, or liquidate,
or to sell or transfer all or any part of its business or assets.

 

12.                               GENERAL PROVISIONS

 

12.1.                     Disclaimer of Rights

 

                                                No provision in the Plan or in any Award or Award
Agreement shall be construed to confer upon any individual the right to remain
an Outside Director of the Company or any Affiliate, or to interfere in any way
with any contractual or other right or authority of the Company either to
increase or decrease the compensation or other payments to any individual at
any time, or to terminate any relationship between any individual and the
Company.  In addition, notwithstanding
anything contained in the Plan to the contrary, unless otherwise stated in the
applicable Award Agreement, no Award granted under the Plan shall be affected
by any change of duties or position of the Grantee, so long as such Grantee
continues to be an Outside Director of the Company or an Affiliate.  The obligation of the Company to pay any
benefits pursuant to this Plan shall be interpreted as a contractual obligation
to pay only those amounts described herein, in the manner and under the
conditions prescribed herein.  The Plan
shall in no way be interpreted to require the Company to transfer any amounts
to a third party trustee or otherwise hold any amounts in trust or escrow for
payment to any Grantee or beneficiary under the terms of the Plan.

 

12.2.                     Nonexclusivity of the Plan

 

Neither the adoption of the Plan
nor the submission of the Plan to the stockholders of the Company for approval
shall be construed as creating any limitations upon the right and authority of
the Board to adopt such other incentive compensation arrangements (which
arrangements may be applicable either generally to a class or classes of
individuals or specifically to a particular individual or particular
individuals) as the Board in its discretion determines desirable, including,
without limitation, the granting of stock options otherwise than under the
Plan.

 

12.3.                     Withholding Taxes

 

The Company or an Affiliate, as
the case may be, shall have the right to deduct from payments of any kind
otherwise due to a Grantee any federal, state, or local taxes of any kind
required by law to be withheld with respect to the vesting of or other lapse of
restrictions applicable to an Award or upon the issuance of any shares of Stock
upon the

 

9

 

exercise of an Option or pursuant to an Award.  At the time of such vesting, lapse, or
exercise, the Grantee shall pay to the Company or the Affiliate, as the case
may be, any amount that the Company or the Affiliate may reasonably determine
to be necessary to satisfy such withholding obligation.  Subject to the prior approval of the Company
or the Affiliate, which may be withheld by the Company or the Affiliate, as the
case may be, in its sole discretion, the Grantee may elect to satisfy such
obligations, in whole or in part, (i) by causing the Company or the
Affiliate to withhold shares of Stock otherwise issuable to the Grantee or
(ii) by delivering to the Company or the Affiliate shares of Stock already
owned by the Grantee.  The shares of
Stock so delivered or withheld shall have an aggregate Fair Market Value equal
to such withholding obligations.  The
Fair Market Value of the shares of Stock used to satisfy such withholding
obligation shall be determined by the Company or the Affiliate as of the date
that the amount of tax to be withheld is to be determined.  A Grantee who has made an election pursuant
to this Section 12.3 may satisfy his or
her withholding obligation only with shares of Stock that are not subject to
any repurchase, forfeiture, unfulfilled vesting, or other similar requirements.

 

12.4.                     Captions

 

The use of captions in this Plan
or any Award Agreement is for the convenience of reference only and shall not
affect the meaning of any provision of the Plan or such Award Agreement.

 

12.5.                     Other Provisions

 

Each Award granted under the Plan
may contain such other terms and conditions not inconsistent with the Plan as
may be determined by the Board, in its sole discretion.

 

12.6.                     Number and Gender

 

With respect to words used in
this Plan, the singular form shall include the plural form, the masculine
gender shall include the feminine gender, etc., as the context requires.

 

12.7.                     Severability

 

If any provision of the Plan or
any Award Agreement shall be determined to be illegal or unenforceable by any
court of law in any jurisdiction, the remaining provisions hereof and thereof
shall be severable and enforceable in accordance with their terms, and all
provisions shall remain enforceable in any other jurisdiction.

 

12.8.                     Governing Law

 

The validity and construction of this Plan and the
instruments evidencing the Award hereunder shall be governed by the laws of the
State of Maryland, other than any conflicts or choice of law rule or principle
that might otherwise refer construction or interpretation of this Plan and the
instruments evidencing the Awards granted hereunder to the substantive laws of
any other jurisdiction.

 

*    *    *

 

10

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