Document:

<PAGE>   1

                                                                   Exhibit 10.41

                      FirstMerit Bank, National Association
                       Senior and Subordinated Bank Notes
                     Due 30 Days or More from Date of Issue

                             DISTRIBUTION AGREEMENT

                                                                   July 15, 1999

KEEFE, BRUYETTE & WOODS, INC.
Two World Trade Center
85th Floor
New York, New York  10048

LEHMAN BROTHERS INC.
3 World Financial Center
New York, New York  10285

McDONALD INVESTMENTS INC.
McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio  44114-2603

Ladies and Gentlemen:

         FirstMerit Bank, National Association, a national banking association
(the "Bank"), confirms its agreement with Keefe, Bruyette & Woods, Inc., Lehman
Brothers Inc. (including its affiliate, Lehman Commercial Paper Inc.) and
McDonald Investments Inc. (each referred to as an "Agent" and collectively
referred to as the "Agents") with respect to the issue and sale by it of its
senior unsecured debt obligations not insured by the Federal Deposit Insurance
Corporation (the "FDIC") with maturities from 30 days to not more than one year
from date of issue (the "Short-Term Senior Bank Notes"), its senior unsecured
debt obligations not insured by the FDIC with maturities of more than one year
from date of issue (the "Medium-Term Senior Bank Notes," and together with the
Short-Term Senior Bank Notes, the "Senior Bank Notes"), and its subordinated
debt obligations not insured by the FDIC with maturities of five years or more
from date of issue ("Subordinated Bank Notes," and together with the Senior Bank
Notes, the "Bank Notes"). The Bank Notes are to be issued pursuant to an Issuing
and Paying Agency Agreement, dated as of July 15, 1999, (the "Issuing and Paying
Agency Agreement"), between the Bank and Bank One Trust Company, NA, as the
Issuing and Paying Agent ("Issuing and Paying Agent"). The aggregate principal
amount of Notes offered by the Bank pursuant to the Offering Circular (as
defined below) may not exceed an aggregate principal amount of $1,000,000,000
outstanding at any one time; provided that the aggregate principal amount of
Notes offered pursuant to the Offering Circular with maturities greater than 270
days from date of issue may not exceed an

<PAGE>   2

aggregate principal amount of $1,000,000,000. It is understood, however, that
the Bank may from time to time authorize the issuance of an additional amount of
Bank Notes and that such Bank Notes may be distributed through or sold to one or
more of the Agents pursuant to the terms of this Agreement, all as though the
issuance of such Bank Notes were authorized as of the date hereof. The Bank is a
wholly-owned direct subsidiary of FirstMerit Corporation (the "Parent").

         This Agreement provides both for the sale of Bank Notes by the Bank to
the Agents as principal for resale to investors and other purchasers and for the
sale of Bank Notes by the Bank directly to investors agented by the Agents (as
may from time to time be agreed to by the Bank and the Agents), in which case
the Agents will act as agents of the Bank in soliciting Bank Note purchasers.

SECTION 1. APPOINTMENT AS AGENTS.

         (a) APPOINTMENT OF AGENTS. Subject to the terms and conditions stated
herein, the Bank hereby agrees that Bank Notes will be sold exclusively to or
through the Agents. The Agents are authorized to engage the services of any
other broker or dealer in connection with the offer or sale of the Bank Notes
purchased by an Agent as principal for resale to others but are not authorized
to appoint sub-agents. In connection with sales by the Agents of Bank Notes
purchased by an Agent as principal to other brokers or dealers, an Agent may
allow any portion of the discount it has received in connection with such
purchase from the Bank to such brokers or dealers.

         (b) SALE OF BANK NOTES. The Bank shall not approve the solicitation of
purchases of Bank Notes in excess of the amount which shall be authorized to be
issued or outstanding, as the case may be, by the Bank from time to time or in
excess of the aggregate principal amount of Bank Notes specified in the Offering
Circular (as such term is hereinafter defined). The Agents will have no
responsibility for maintaining records with respect to the aggregate principal
amount of Bank Notes sold or outstanding, or of otherwise monitoring the
availability of Bank Notes for sale.

         (c) PURCHASES AS PRINCIPAL. The Agents shall not have any obligation to
purchase Bank Notes from the Bank as principal, but the Agents may agree from
time to time to purchase Bank Notes as principal. Any such purchase of Bank
Notes by an Agent as principal shall be made in accordance with Section 3(a)
hereof.

         (d) SOLICITATIONS AS AGENT. If agreed upon by an Agent and the Bank,
the Agent acting solely as agent for the Bank and not as principal, will solicit
purchases of the Bank Notes. The Agent will communicate to the Bank, orally,
each offer to purchase Bank Notes solicited by such Agent on an agency basis,
other than those offers rejected by the Agent. The Agent shall have the right,
in its absolute discretion, to reject any proposed purchase of Bank Notes, as a
whole or in part, and any such rejection shall not be deemed a breach of any
Agent's agreement contained herein. The Bank may accept or reject any proposed
purchase of the Bank Notes, in its absolute discretion, in whole or in part. The
Agent shall make reasonable efforts to assist the Bank in

2

<PAGE>   3

obtaining performance by each purchaser whose offer to purchase Bank Notes has
been solicited by the Agent and accepted by the Bank. The Agent shall not have
any liability to the Bank in the event any such agency purchase is not
consummated for any reason other than a breach by the Agent of its obligations
hereunder. If the Bank shall default on its obligation to deliver Bank Notes to
a purchaser whose offer it has accepted, the Bank shall (i) hold the Agent
harmless against any loss, claim or damage arising from or as a result of such
default by the Bank and (ii) notwithstanding such default, pay to the Agent any
commission to which it would be entitled in connection with such sale.

         (e) ADDITIONAL AGENTS. The Bank may from time to time offer Bank Notes
for sale otherwise than through an Agent; PROVIDED, HOWEVER, that so long as
this Agreement shall be in effect the Bank shall not solicit or accept offers to
purchase Bank Notes through any agent other than an Agent without amending this
Agreement to appoint such agent an additional Agent hereunder on the same terms
and conditions as provided herein for the Agents and without giving the Agents
prior notice of such appointment; except, that if from time to time the Bank is
approached by a prospective agent offering to solicit a specific purchase of
Bank Notes, the Bank may engage such agent with respect to such specific
purchase, only if, (i) the Bank shall not have solicited such offer, (ii) such
agent is engaged on terms substantially similar (including the same commission
schedule as set forth herein) to the applicable terms of this Agreement (without
being required to become a party hereto) and (iii) the Bank shall have notified
the Agents prior to the acceptance of such an offer.

         (f) RELIANCE. The Bank and the Agents agree that any Bank Notes
purchased by the Agents shall be purchased, and any Bank Notes the placement of
which an Agent arranges shall be placed by such Agent, in reliance on the
representations, warranties, covenants and agreements of the Bank contained
herein and on the terms and conditions and in the manner provided herein.

         (g) RENEWALS AND ROLLOVERS. Neither the Agents nor the Bank will have
any agreement, understanding or other arrangement for the extension, renewal or
automatic rollover of any of the Bank Notes with maturities ranging from 30 days
to not more than 270 days from date of issue. The Bank will use the proceeds of
such Bank Notes in connection with financing current transactions within the
meaning of Section 3(a)(3) of the Securities Act of 1933, as amended (the "1933
Act").

SECTION 2. REPRESENTATIONS AND WARRANTIES.

         (a) The Bank represents and warrants to each Agent as of the date
hereof, as of the date of each acceptance by the Bank of an offer for the
purchase of Bank Notes (whether to the Agent as principal or through the Agent
as agent), as of the date of each delivery of Bank Notes (whether to such Agent
as principal or through such Agent as agent) (the date of each such delivery to
an Agent as principal being hereafter referred to as a "Settlement Date"), and
as of the times the Offering Circular shall be amended or supplemented or there
is filed with the Securities and Exchange Commission (the "Commission") or any
bank regulatory agency any document incorporated by reference into the Offering
Circular (each of the times referenced above being referred to hereafter as a
"Representation Date"), as follows:

3

<PAGE>   4

                  (i) OFFERING CIRCULAR. The Bank has prepared an offering
         circular, dated July 15, 1999, to be used by the Agents in connection
         with the Agents' solicitation of purchasers of or offering of the Bank
         Notes. Such offering circular, in the form transmitted for filing with
         the Office of the Comptroller of the Currency of the United States (the
         "Comptroller"), pursuant to 12 C.F.R. Section 16.6 is referred to
         herein as the "Offering Circular"; PROVIDED, HOWEVER, that if any
         amendment or supplement shall be provided to the Agents for use in
         connection with the offering of the Bank Notes, whether or not the same
         is required to be filed with the Comptroller pursuant to 12 C.F.R.
         Section 16.6, the term "Offering Circular" shall be deemed to refer to
         and include such amendment or supplement from and after the time it is
         first provided to the Agents for use. Any reference to the Offering
         Circular shall be deemed to refer to and include all documents
         incorporated by reference including the Call Reports and the Periodic
         Reports (as such terms are hereinafter defined) incorporated by
         reference therein, and any reference herein to the terms "amend,"
         "amendment" or "supplement" with respect to the Offering Circular shall
         be deemed to include the filing of any Call Report or Periodic Report
         with any bank regulatory agency or the Commission after the date of
         this Agreement or the Offering Circular, as the case may be. The
         Offering Circular, as of the date hereof, complies with, and as of the
         applicable Representation Date, will comply with, the applicable
         requirements of 12 C.F.R. Part 16 (including 12 C.F.R. Section 16.6);
         and the Offering Circular, as of the date hereof, does not and, as of
         the applicable Representation Date, will not contain an untrue
         statement of a material fact or omit to state a material fact necessary
         in order to make the statements made therein, in the light of the
         circumstances under which they are made, not misleading; provided,
         however, that the representations and warranties in this subsection
         shall not apply to statements in the Offering Circular made in reliance
         upon and in conformity with information furnished to the Bank in
         writing by the Agents expressly for use therein.

                  The Bank will incorporate by reference in the Offering
         Circular the publicly available portions of each of its Consolidated
         Reports of Condition and Income (each, a "Call Report"), and any
         amendments or supplements thereto, beginning with and including the
         Call Report for the period ended December 31, of the third calendar
         year prior to the date of the Offering Circular to and including the
         most recent Call Report filed or published prior to an offering
         pursuant to the Offering Circular. The publicly available portions of
         any Call Reports filed by the Bank subsequent to the date of the
         Offering Circular and prior to the termination of the offering of the
         Bank Notes will be incorporated therein by reference.

                  In addition, the Bank has been authorized by the Parent to
         incorporate by reference in the Offering Circular, and will incorporate
         by reference into the Offering Circular, the Parent's annual reports on
         Form 10-K for its most recently ended fiscal year, quarterly reports on
         Form 10-Q since its most recently ended fiscal year, current reports on
         Form 8-K since its most recently ended fiscal year, each as amended or
         supplemented, and any other document filed by the Parent with the
         Commission pursuant to Sections 13 or 15(d) of the Securities Exchange
         Act of 1934, as amended (the "1934 Act"), and the rules and regulations
         thereunder (the "Periodic Reports").

                  The documents incorporated by reference into the Offering
         Circular, at the time

4

<PAGE>   5

         they were or hereafter are filed with the applicable federal regulatory
         authorities, complied or when so filed will comply in all material
         respects with the 1934 Act or the rules and regulations otherwise
         applicable thereto, as the case may be and, when read together with the
         other information in the Offering Circular, did not and will not
         include an untrue statement of a material fact or omit to state a
         material fact required to be stated therein or necessary in order to
         make the statements therein, in light of the circumstances in which
         they were or are made, not misleading.

                  (ii) DUE ORGANIZATION, VALID EXISTENCE AND GOOD STANDING. The
         Bank is a banking corporation duly organized, validly existing and in
         good standing under the laws of the jurisdiction in which it is
         chartered and is licensed, registered or qualified to conduct the
         business in which it is engaged in each jurisdiction in which the
         conduct of its business or its ownership or leasing of property
         requires such license, registration or qualification, except to the
         extent that the failure to be so licensed, registered or qualified or
         to be in good standing would not have a material adverse effect on the
         Bank and its subsidiaries taken as a whole. The Bank is a wholly owned
         direct or indirect subsidiary of the Parent, an Ohio corporation and
         bank holding company which has securities registered under the 1934
         Act.

                  (iii) DUE AUTHORIZATION, EXECUTION AND DELIVERY OF THIS
         AGREEMENT, THE ISSUING AND PAYING AGENCY AGREEMENT AND THE INTEREST
         CALCULATION AGREEMENT. This Agreement, the Issuing and Paying Agency
         Agreement and the Interest Calculation Agreement dated as of July 15,
         1999 (the "Interest Calculation Agreement"), between the Bank and Bank
         One Trust Company, NA, as the Calculation Agent (the "Calculation
         Agent"), have been duly authorized, executed and delivered by the Bank
         and are valid and legally binding agreements of the Bank, enforceable
         against the Bank in accordance with their respective terms, subject to
         applicable bankruptcy, liquidation, insolvency, reorganization,
         moratorium and similar laws of general applicability relating to, or
         affecting, creditors' rights and to general equity principles.

                  (iv) DUE AUTHORIZATION, EXECUTION AND DELIVERY OF THE BANK
         NOTES. The Bank Notes have been duly authorized and, when issued and
         authenticated against payment of the consideration therefor, the Bank
         Notes will be valid and legally binding obligations of the Bank,
         enforceable against the Bank in accordance with their respective terms,
         subject to applicable bankruptcy, liquidation, insolvency,
         reorganization, moratorium and similar laws of general applicability
         relating to, or affecting, creditors' rights and to general equity
         principles.

                  (v) EXEMPTION FROM REGISTRATION. The Bank Notes are exempt
         from registration under Section 3(a)(2) of the 1933 Act and, in
         addition, the Senior Bank Notes with maturities ranging from 30 days to
         not more than 270 days from date of issue are exempt from registration
         under Section 3(a)(3) of the 1933 Act. Neither registration of the Bank
         Notes under the 1933 Act nor qualification of an indenture under the
         Trust Indenture Act of 1939, as amended, is required in connection with
         the offer, sale, issuance or delivery of the Bank Notes pursuant to
         this Agreement or any applicable Terms Agreement (as defined in Section
         3(a) hereof). The requirements of 12 C.F.R. Part 16 (including those
         contained in 12 C.F.R. Section 16.6) have been and will be satisfied in
         connection with the offer, sale, issuance or delivery of the Bank Notes
         pursuant to this Agreement and any applicable Terms Agreement.

5

<PAGE>   6

                  (vi) EXEMPTION FROM INVESTMENT COMPANY ACT. The Bank is not
         required to register under the provisions of the Investment Company Act
         of 1940, as amended (the "Investment Company Act"), or to take any
         other action with respect to or under the Investment Company Act.

                  (vii) NO OTHER APPROVALS REQUIRED. No consent, approval or
         authorization of or filing with any governmental body or agency is
         required for the performance by the Bank of its obligations under this
         Agreement, the Bank Notes, the Issuing and Paying Agency Agreement, the
         Interest Calculation Agreement and any applicable Terms Agreement,
         except (A) such as may be required by the securities or Blue Sky laws
         of the various states in connection with the offer and sale of the Bank
         Notes and (B) with respect to Subordinated Notes, notice must be filed
         by the Bank with the Comptroller pursuant to 12 C.F.R. Section 5.47 in
         order for such Subordinated Notes to be counted as Tier 2 capital.

                  (viii) DESCRIPTION OF BANK NOTES. The Bank Notes are
         substantially in the form heretofore delivered to the Agents and
         conform to the description thereof contained in the Offering Circular
         under the caption "Description of Notes."

                  (ix) PRIORITY OF BANK NOTES. The Senior Bank Notes are
         unsecured and unsubordinated debt obligations of the Bank and rank pari
         PASSU among themselves and with all other unsecured and unsubordinated
         debt obligations of the Bank except, pursuant to Section 11(d)(11) of
         the Federal Deposit Insurance Act, the Bank's unsecured deposit
         liabilities; the Subordinated Bank Notes are unsecured and subordinated
         debt obligations and rank PARI PASSU among themselves and with all
         other debt obligations of the Bank which are subordinate and junior in
         right of payment to the Bank's obligations to depositors and general
         creditors, other than obligations which, by their express terms, rank
         junior to the Subordinated Bank Notes.

                  (x) NO VIOLATION. Neither the Bank or any of its subsidiaries
         nor the Parent or any of its subsidiaries is in violation of its
         charter or in default in the performance or observance of any material
         obligation, agreement, covenant or condition contained in any contract,
         indenture, mortgage loan agreement, note, lease or other instrument to
         which it is a party or by which it or any of them or their properties
         may be bound. The execution, issuance and delivery by the Bank of the
         Bank Notes, and the execution, delivery and performance by the Bank of
         this Agreement, the Issuing and Paying Agency Agreement, the Interest
         Calculation Agreement and any applicable Terms Agreement, will not
         violate any law, rule, regulation, order, judgment or decree applicable
         to the Parent and its subsidiaries or to the Bank and its subsidiaries
         or violate any provision of the Bank's charter or by-laws, or conflict
         with or result in a breach of or constitute a default under, or result
         in the creation or imposition of any lien, charge or encumbrance upon
         any property or assets of the Parent and its subsidiaries or the Bank
         and its subsidiaries pursuant to any material contract, indenture,
         mortgage loan agreement, note, lease or other instrument to which the
         Parent or any of its subsidiaries or the Bank or any of its
         subsidiaries, or the property of any of them, is bound or subject.

                  (xi) NO MATERIAL ADVERSE CHANGE. Since the respective dates as
         of which information is given in the Offering Circular, (a) there has
         not been any material adverse change in the condition, financial or
         otherwise, or business affairs or business prospects of the Bank and
         its subsidiaries

6

<PAGE>   7

         or the Parent and its subsidiaries, as the case may be, considered as
         one enterprise, whether or not arising in the ordinary course of
         business, other than as set forth or contemplated in the Offering
         Circular (including the material incorporated by reference therein),
         and (b) there have been no material transactions entered into by the
         Bank or any of its subsidiaries or the Parent and any of its
         subsidiaries other than those in the ordinary course of business.

                  (xii) RATING. The Bank Notes of the Bank have been rated by a
         "nationally recognized statistical rating organization" (as that term
         is defined by the Commission for purposes of Rule 436(g)(2) under the
         1933 Act) and by each other nationally recognized statistical rating
         organization that has rated the Bank Notes, in one of its four highest
         rating categories.

                  (xiii) FINANCIAL STATEMENTS AND FINANCIAL INFORMATION. The
         consolidated financial statements and other financial information of
         the Parent and its consolidated subsidiaries included or incorporated
         by reference in the Offering Circular present fairly the consolidated
         financial position of the Parent and its consolidated subsidiaries as
         of the date indicated therein and the consolidated results of their
         operations for the periods specified therein; and except as stated
         therein, such financial statements have been prepared in conformity
         with generally accepted accounting principles in the United States
         applied on a consistent basis; the Call Reports and other financial
         information of the Bank included or incorporated by reference in the
         Offering Circular present fairly the financial position of the Bank and
         the results of its operations for the periods specified therein, and
         except as stated therein, have been prepared in conformity with
         regulatory instructions issued by the Federal Financial Institution
         Examination Council applied on a consistent basis; financial
         information of certain financial institutions, if any, acquired or
         proposed to be acquired by the Parent or the Bank included or
         incorporated by reference in the Offering Circular present fairly the
         financial position of such financial institutions as of the dates
         indicated therein and the results of their operations for the periods
         specified therein.

                  (xiv) LEGAL PROCEEDINGS. Except as may be set forth in the
         Offering Circular, there is no action, suit or proceeding before or by
         any court or governmental agency or body, domestic or foreign, now
         pending, or, to the knowledge of the Bank, threatened against or
         affecting, the Parent or any of its subsidiaries or the Bank or any of
         its subsidiaries, which would be required to be disclosed in the
         Offering Circular by the Parent or any of its subsidiaries or the Bank
         or any of its subsidiaries if the Bank Notes were required to be
         registered with the Commission on Form S-1 under the 1933 Act, or which
         might materially and adversely affect the consummation of this
         Agreement, the Issuing and Paying Agency Agreement or the Interest
         Calculation Agreement or any transaction contemplated hereby or
         thereby.

                  (xv) COMMODITY EXCHANGE ACT. The Bank Notes, when issued,
         authenticated and delivered pursuant to the provisions of this
         Agreement and the Issuing and Paying Agency Agreement, will be excluded
         or exempted under the provisions of the Commodity Exchange Act.

         (b) ADDITIONAL CERTIFICATIONS. Any certificate signed by any officer of
the Bank and delivered to the Agents or to counsel for the Agents in connection
with an offering of Bank Notes, or the sale of Bank Notes to an Agent as
principal, contemplated by this Agreement shall be deemed a representation and
warranty by the Bank to the Agents as to the matters covered thereby on the

7

<PAGE>   8

date of such certificate and at each Representation Date referred to in Section
2(a) hereof subsequent thereto.

SECTION 3. PURCHASES AS PRINCIPAL; SOLICITATIONS AS AGENTS.

         (a) PURCHASES AS PRINCIPAL. Unless otherwise agreed by an Agent and the
Bank, Bank Notes shall be purchased by the Agent as principal. Such purchases
shall be made in accordance with terms agreed upon by the Agent and the Bank
with respect to such information (as applicable) as is specified in EXHIBIT A
hereto (a "Terms Agreement") (which terms shall be agreed upon orally and which
may or may not be confirmed in a writing in the form of EXHIBIT A prepared by
the Agent and mailed or sent via facsimile transmission to the Bank). The
Agent's commitment to purchase Bank Notes as principal shall be deemed to have
been made on the basis of the representations and warranties of the Bank herein
contained and shall be subject to the terms and conditions herein set forth.
Each purchase of Bank Notes shall be at a discount from the principal amount of
each such Bank Note with such discount being agreed upon between the Bank and
the applicable Agent at the time of trade. The Agent may engage the services of
any other broker or dealer in connection with the resale of the Bank Notes
purchased as principal and may allow any portion of the discount received in
connection with such purchases from the Bank to such brokers and dealers. At the
time of each purchase of Bank Notes by an Agent as principal, the Agent shall
specify the requirements for the officers' certificates, opinions of counsel and
letters pursuant to Sections 8(b), 8(c) and 8(d) hereof.

         (b) SOLICITATIONS AS AGENTS. On the basis of the representations and
warranties herein contained, but subject to the terms and conditions herein set
forth, when agreed upon by the Bank and an Agent, such Agent, as an agent of the
Bank, will use its reasonable efforts to solicit offers to purchase the Bank
Notes upon the terms and conditions set forth herein and in the Offering
Circular. All Bank Notes sold through an Agent as agent will be sold at 100% of
their principal amount unless otherwise agreed to by the Bank and the Agent.

         The Bank reserves the right, in its sole discretion, to suspend
solicitation of purchases of the Bank Notes through the Agents, as agents,
commencing at any time for any period of time or permanently. Upon receipt of
instructions from the Bank, the Agents will forthwith suspend solicitation of
purchases from the Bank until such time as the Bank has advised the Agents that
such solicitation may be resumed.

         The Bank agrees to pay each Agent a commission, in the form of a
discount, equal to the applicable percentage of the principal amount of each
Bank Note sold by the Bank as a result of a solicitation made by such Agent as
set forth in EXHIBIT B hereto. The Agents may reallow any portion of the
commission payable pursuant hereto to dealers in connection with the offer and
sale of any Bank Notes.

         (c) ADMINISTRATIVE PROCEDURES. The purchase price, interest rate or
formula, maturity date and other terms of the Bank Notes (as applicable)
specified in EXHIBIT A hereto shall be agreed upon by the Bank and the
applicable Agent and set forth in a pricing supplement to the Offering Circular
to be prepared in connection with each sale of Bank Notes. Administrative
procedures

8

<PAGE>   9

with respect to the sale of Bank Notes shall be agreed upon from time to time by
the Agents and the Bank (the "Administrative Procedures"). The initial
Administrative Procedures, as agreed upon by the Agents and the Bank, are
attached hereto as EXHIBIT G. The Agents and the Bank agree to perform the
respective duties and obligations specifically provided to be performed by the
Agents and the Bank herein and in the Administrative Procedures.

         (d) DELIVERY. The documents required to be delivered by Section 6
hereof shall be delivered at the office of Brown & Wood LLP, on the date hereof,
or at such other time as the Agents and the Bank may agree upon in writing (the
"Closing Time").

SECTION 4. COVENANTS OF THE BANK.

         The Bank covenants with the Agents as follows:

         (a) AMENDING OFFERING CIRCULAR. The Bank will give the Agents notice of
its intention to prepare any additional offering circular supplement with
respect to the sale of the Bank Notes or any amendment or supplement to the
Offering Circular and will furnish the Agents with copies of any such amendment
or supplement or other documents proposed to be distributed a reasonable time in
advance of such proposed distribution and will not distribute any such amendment
or supplement or other documents in a form to which the Agents or counsel for
the Agents shall reasonably object. The Bank will promptly cause such amendments
and supplements to be filed with the Comptroller when and to the extent required
by 12 C.F.R. Section 16.6 and will promptly advise the Agents of the filing of
any amendment or supplement to the Offering Circular with the Comptroller. In
addition, the Bank will advise the Agents (i) of any request by the Comptroller,
any other bank regulatory agency or the Commission for any amendment of or
supplement to the Offering Circular (including, without limitation, the
documents incorporated by reference therein) or for any additional information;
(ii) of the institution or threat by the Comptroller, any other bank regulatory
agency or the Commission of any proceeding with respect to the Offering Circular
(including, without limitation, the documents incorporated by reference therein)
or any amendment or supplement thereto or the offering or sale of the Bank
Notes, and (iii) of the receipt by the Bank of any notification with respect to
the suspension of the qualification of the Bank Notes for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose. The Bank will use its reasonable best efforts to prevent the issuance
of any order or similar action interfering with the offering or sale of the Bank
Notes or the use of the Offering Circular, and, if issued, to obtain as soon as
possible the withdrawal thereof.

         (b) COPIES OF OFFERING CIRCULAR. The Bank will deliver to the Agents as
many copies of the Offering Circular (as amended or supplemented, including
documents incorporated by reference therein) as the Agents shall reasonably
request in connection with sales or solicitations of offers to purchase the Bank
Notes.

         (c) REVISIONS OF OFFERING CIRCULAR -- MATERIAL CHANGES. Except as
otherwise provided in Subsection (d) of this Section 4, if any event shall occur
or condition exist as a result of which it is necessary, in the reasonable
opinion of counsel for the Agents or counsel for the Bank, to

9

<PAGE>   10

amend or supplement the Offering Circular in order that the Offering Circular
will not include any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made therein not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, immediate notice shall be given, and confirmed in
writing, to the Agents to cease the solicitation of offers to purchase the Bank
Notes in their capacity as agents and to cease sales of any Bank Notes the
Agents may then own as principal, and the Bank will promptly prepare such
amendment or supplement as may be necessary to correct such untrue statement or
omission. The Agents shall, at such time as the Bank shall have furnished to the
Agents an amended or supplemented Offering Circular in form satisfactory to the
Agents and their counsel, resume solicitation of offers to purchase Bank Notes
using the Offering Circular so amended and supplemented. In addition, the Bank
shall cause the Offering Circular to be amended at least annually.

         (d) SUSPENSION OF CERTAIN OBLIGATIONS. The Bank shall not be required
to comply with the provisions of Subsection (c) of this Section 4 during any
period from the later of the time (i) the Agents shall have suspended
solicitation of purchases of the Bank Notes in their capacity as agents pursuant
to a request from the Bank and (ii) no Agent shall then hold any Bank Notes
purchased as principal pursuant hereto, until the time the Bank shall determine
that solicitation of purchases of the Bank Notes should be resumed or the Agent
shall subsequently purchase Bank Notes from the Bank as principal.

         (e) REGULATORY REPORTS. The Bank shall provide the Agents with copies
of any publicly available reports (financial or otherwise) furnished to or filed
by either the Bank or the Parent with any United States or state supervisory or
regulatory authority as promptly as practicable after such reports become
publicly available.

         (f) PREPARATION OF PRICING SUPPLEMENTS. The Bank will prepare, with
respect to any Bank Notes to be sold through or to the Agents pursuant to this
Agreement, a pricing supplement with respect to such Bank Notes in a form
previously approved by the Agents, and, if required by 12 C.F.R. Section 16.6,
will file such pricing supplement with the Comptroller no later than the time
required for such filing.

         (g) BLUE SKY QUALIFICATIONS. The Bank will endeavor, in cooperation
with the Agents, to qualify the Bank Notes for offering and sale under the
applicable securities laws of such States and other jurisdictions of the United
States as the Agents may designate, and will maintain such qualifications in
effect for as long as may be required for the distribution of the Bank Notes;
PROVIDED, HOWEVER, that the Bank shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified. The Bank will file such statements
and reports as may be required by the laws of each jurisdiction in which the
Bank Notes have been qualified as above provided. The Bank will promptly advise
the Agents of the receipt by the Bank of any notification with respect to the
suspension of the qualification of the Bank Notes for sale in any such state or
jurisdiction or the initiating or threatening of any proceeding for such
purpose.

         (h) REQUIRED FILINGS. The Bank will make the filings required by 12
C.F.R. Section 16.6

10

<PAGE>   11

with respect to the Bank Notes and will make the filings required by 12 C.F.R.
Section 5.47 with respect to inclusion of the Subordinated Bank Notes in Tier 2
capital when and as required by such provisions.

         (i) STAND-OFF AGREEMENT. In connection with a purchase by an Agent of
Bank Notes as principal, between the date of the agreement to purchase such Bank
Notes and the Settlement Date with respect to such purchase, the Bank will not,
without the prior consent of the Agent who is party to such agreement, offer or
sell in the United States, or enter into any agreement to sell in the United
States, any debt securities or deposit obligations of the Bank (other than the
Bank Notes that are to be sold pursuant to such agreement and deposit and other
bank obligations issued and sold directly by the Bank in the ordinary course of
its business).

         (j) PAYMENT OF FDIC ASSESSMENTS. The Bank shall not take any action
which would cause it to be in default (within the meaning of Section 18(b) of
the Federal Deposit Insurance Act) in the payment of any assessment owing to the
FDIC.

SECTION 5. PAYMENT OF EXPENSES.

         Whether or not the transactions contemplated hereunder are consummated
or this Agreement or any agreement by an Agent to purchase Bank Notes as
principal is terminated, the Bank will pay all expenses incident to the
performance of its obligations under this Agreement including: (a) the
preparation, printing and delivery of the Offering Circular and all amendments
and supplements thereto; (b) the preparation of this Agreement; (c) the
preparation, issuance and delivery of the Bank Notes, including fees and
expenses related to the use of book-entry notes; (d) the fees and disbursements
of the Bank's counsel, of the Issuing and Paying Agent and of any calculation
agents or exchange rate agents; (e) the reasonable fees and disbursements of
counsel to the Agents incurred in connection with the establishment of the
program relating to the Bank Notes and incurred from time to time in connection
with the transactions contemplated thereby; (f) any fees charged by rating
agencies for rating of the Bank Notes; (g) any advertising and other actual,
out-of-pocket expenses of the Agents incurred with the approval of the Bank; (h)
all filing fees payable to the Comptroller, including any such fees required by
12 C.F.R. Section 16.33 and 12 C.F.R. Section 8.8; (i) the qualification of the
Bank Notes under State securities laws in accordance with the provisions of
Sections 4(g) hereof, including the filing fees and the reasonable fees and
disbursements of counsel for the Agents in connection therewith and in
connection with the preparation of any Blue Sky Survey, any Legal Investment
Survey; (j) the cost of preparing and providing any CUSIP or other
identification numbers for the Bank Notes; and (k) any filing fee payable to the
National Association of Securities Dealers, Inc.

SECTION 6. CONDITIONS OF AGENTS' OBLIGATIONS.

         The obligations of the Agents to solicit offers to purchase the Bank
Notes as agents of the Bank, the obligations of any purchasers of Bank Notes
sold through an Agent as agent, and any obligation of an Agent to purchase Bank
Notes pursuant to any agreement by such Agent to purchase Bank Notes as
principal (or otherwise), will be subject at all times to the accuracy of the
representations and warranties on the part of the Bank herein and to the
accuracy of the

11

<PAGE>   12

statements of the Bank's and the Parent's officers made in any certificate
furnished pursuant to the provisions hereof, to the performance and observance
by the Bank of all covenants and agreements herein contained and to the
following additional conditions precedent:

         (a) LEGAL OPINIONS. On the date hereof, the Agents shall have received
the following legal opinions, dated as of the date hereof and in form and
substance satisfactory to the Agents:

                  (i) OPINION OF COUNSEL TO THE BANK AND THE PARENT. The opinion
         of Brouse McDowell L.P.A., counsel to the Bank and the Parent,
         substantially in the form of EXHIBIT C hereto.

                  (ii) OPINION OF COUNSEL TO THE AGENTS. The opinion of Brown &
         Wood LLP, counsel to the Agents, covering such matters as they may
         request.

         (b) OFFICERS' CERTIFICATES. On the date hereof and if required pursuant
to Section 8(b) hereto, on each Settlement Date, the Agents shall have received
a certificate of (i) the President, a Senior Vice President or a Vice President,
and the Chief Financial Officer or Chief Accounting Officer of the Bank
satisfactory to the Agents, substantially in the form of EXHIBIT D hereto and
(ii) the President or a Vice President, and the Chief Financial Officer, Chief
Accounting Officer or Treasurer of the Parent satisfactory to the Agents,
substantially in the form of EXHIBIT E hereto, each dated the date hereof or the
Settlement Date, as the case may be.

         (c) REPRESENTATIONS CERTIFICATE. On the date hereof, the Agents shall
have received a certificate of the Parent, substantially in the form of EXHIBIT
F hereto.

         (d) COMFORT LETTER. On the date hereof, the Agents shall have received
a letter from PricewaterhouseCoopers LLP, dated as of the date hereof and in
form and substance satisfactory to the Agents and Agents' counsel.

         (e) OTHER DOCUMENTS. On the date hereof and on each Settlement Date,
counsel to the Agents shall have been furnished with such documents and opinions
as such counsel may reasonably request for the purpose of enabling such counsel
to pass upon the issuance and sale of the Bank Notes as herein contemplated and
related proceedings, or in order to evidence the accuracy and completeness of
any of the representations and warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Bank in
connection with the issuance and sale of Bank Notes as herein contemplated shall
be satisfactory in form and substance to the Agents and to counsel to the
Agents.

         If any condition specified in this Section 6 shall not have been
fulfilled when and as required to be fulfilled, this Agreement (or, at the
option of the Agent, any applicable agreement by such Agent to purchase Bank
Notes as principal) may be terminated by the Agents by notice to the Bank at any
time at or prior to the Closing Time and any such termination shall be without
liability of any party to any other party, except that the provisions of Section
5 hereof, the indemnity and contribution agreement set forth in Sections 9 and
10 hereof, and the provisions of Sections 11, 14 and 15 hereof shall remain in
effect.

SECTION 7. DELIVERY OF AND PAYMENT FOR BANK NOTES SOLD THROUGH AN AGENT.

12

<PAGE>   13

         Delivery of Bank Notes sold through an Agent as agent shall be made by
the Bank to such Agent for the account of any purchaser only against payment
therefor in immediately available funds. In the event that a purchaser shall
fail either to accept delivery of or to make payment for a Bank Note on the date
fixed for settlement, the Agent shall promptly notify the Bank and deliver the
Bank Note to the Bank, and, if the Agent has theretofore paid the Bank for such
Bank Note, the Bank will promptly return such funds to the Agent. If such
failure shall have occurred for any reason other than default by the applicable
Agent to perform its obligations hereunder, the Bank will reimburse such Agent
on an equitable basis for its loss of the use of funds during the period when
the funds were credited to the account of the Bank.

SECTION 8. ADDITIONAL COVENANTS OF THE BANK.

         The Bank covenants and agrees with each Agent that:

         (a) REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES. Each acceptance by
such Bank of an offer for the purchase of Bank Notes (whether to an Agent as
principal or through the Agent as agent), and each delivery of Bank Notes to the
Agents, shall be deemed to be an affirmation that the representations and
warranties of the Bank contained in this Agreement and in any certificate
theretofore delivered to the Agents pursuant hereto are true and correct at the
time of such acceptance or sale, as the case may be, and an undertaking that
such representations and warranties will be true and correct at the time of
delivery to the purchaser or his agent, or to the applicable Agent, of the Bank
Note or Bank Notes relating to such acceptance or sale, as the case may be, as
though made at and as of each such time (and it is understood that such
representations and warranties shall relate to the Offering Circular as amended
and supplemented to each such time, including any amendment resulting from the
incorporation by reference of documents filed by the Bank or the Parent).

         (b) SUBSEQUENT DELIVERY OF CERTIFICATES. Each time that (i) the
Offering Circular shall be amended or supplemented (other than by an amendment
or supplement providing solely for a change in the interest rates of the Bank
Notes or similar changes (unless, in the reasonable judgment of the Agents, an
opinion of counsel should be furnished in light of such an amendment), (ii) (if
required in connection with the purchase of Bank Notes by an Agent as principal)
the Bank sells Bank Notes to such Agent as principal or (iii) the Bank issues
and sells Bank Notes in a form not previously certified to the Agents by the
Bank, the Bank shall furnish or cause to be furnished forthwith to the Agents
certificates from each of the Bank and the Parent dated the date of such
amendment or supplement, the date of such filing, or the Settlement Date, as the
case may be, to the effect that the statements contained in the certificates
which were last furnished to the Agents by each of the Bank and the Parent
pursuant to Section 6(b) hereof are true and correct at the time of such
amendment, supplement or sale, as the case may be, as though made at and as of
such time (except that such statements shall be deemed to relate to the Offering
Circular as amended and supplemented to such time, including any amendment
resulting from incorporation by reference of documents filed by the Bank and the
Parent) or, in lieu of such certificates, certificates of the same form as the
certificates referred to in said Section 6(b), modified as necessary to relate
to the Offering Circular as amended and supplemented to the time of delivery of
such certificates.

13

<PAGE>   14

         (c) SUBSEQUENT DELIVERY OF LEGAL OPINIONS. Each time that (i) the
Offering Circular shall be amended or supplemented with respect to the Bank
Notes (other than by an amendment or supplement (x) providing solely for a
change in interest rates of the Bank Notes or similar changes, or (y) setting
forth financial statements or other information as of and for a fiscal period
(unless, in the reasonable judgment of the Agents, an opinion of counsel should
be furnished in light of such an amendment)), (ii) (if required in connection
with the purchase of Bank Notes by an Agent as principal) the Bank sells Bank
Notes to such Agent as principal or (iii) the Bank issues and sells Bank Notes
in a form not previously certified to the Agents by the Bank, the Bank shall
furnish or cause to be furnished forthwith to the Agents and the Agents' counsel
a letter from counsel last furnishing an opinion referred to in Sections 6(a)(i)
hereof to the effect that the Agents may rely on such last opinion to the same
extent as though it were dated the date of such letter authorizing reliance
(except that statements in such last opinion shall be deemed to relate to the
Offering Circular as amended and supplemented at the time of delivery of such
letter authorizing reliance) or in lieu of such letter, such counsel may deliver
a letter in the same form as its letter referred to in Sections 6(a)(i), but
modified as necessary to relate to the Offering Circular as amended and
supplemented at the time of delivery of such letter.

         (d) SUBSEQUENT DELIVERY OF COMFORT LETTERS. Each time that (i) the
Offering Circular shall be amended or supplemented with respect to the Bank
Notes (other than by an amendment or supplement providing solely for a change in
interest rates or other variable terms of the Bank Notes (unless, in the
reasonable judgment of the Agents, a comfort letter should be furnished in light
of such an amendment)), (ii) (if required in connection with the purchase of
Bank Notes by an Agent as principal) the Bank sells Bank Notes to such agent as
principal or (iii) the Bank issues and sells Bank Notes in a form not previously
certified to the Agents by the Bank, the Bank shall furnish or cause to be
furnished forthwith to the Agents and the Agents' counsel a letter from
PricewaterhouseCoopers LLP reaffirming the statements made in its letter
delivered pursuant to Section 6(d), or in lieu of such letter,
PricewaterhouseCoopers LLP may deliver a letter in the same form as its letter
referred to in Section 6(d) but modified as necessary to relate to the Offering
Circular as amended and supplemented to the time of delivery of such letter.

SECTION 9. INDEMNIFICATION.

         (a) INDEMNIFICATION OF AGENTS. The Bank agrees to indemnify and hold
harmless each Agent and each person, if any, who controls each Agent within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:

                  (i) against any and all loss, liability, claim, damage and
         expense whatsoever, as incurred, arising out of any untrue statement or
         alleged untrue statement of a material fact contained in the Offering
         Circular (or any amendment or supplement thereto), or the omission or
         alleged omission therefrom of a material fact necessary to make the
         statements therein, in the light of the circumstances under which they
         were made, not misleading;

                  (ii) against any and all loss, liability, claim, damage and
         expense whatsoever, as incurred, to the extent of the aggregate amount
         paid in settlement of any litigation, or investigation or proceeding by
         any governmental agency or body, commenced or threatened, or of any
         claim

14

<PAGE>   15

         whatsoever based upon any such untrue statement or omission, or any
         such alleged untrue statement or omission, provided that (subject to
         Section 9(d) hereof) any such settlement is effected with the written
         consent of the Bank; and

                  (iii) against any and all expense whatsoever (including the
         reasonable fees and disbursements of counsel chosen by the Agents), as
         reasonably incurred in investigating, preparing or defending against
         any litigation, or investigation or proceeding by any governmental
         agency or body, commenced or threatened, or any claim whatsoever based
         upon any such untrue statement or omission, or any such alleged untrue
         statement or omission, to the extent that any such expense is not paid
         under (i) or (ii) above;

PROVIDED, HOWEVER, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent arising out of an untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Bank by the Agents
expressly for use in the Offering Circular (or any amendment or supplement
thereto).

         (b) INDEMNIFICATION OF THE BANK. Each Agent agrees, severally and not
jointly, to indemnify and hold harmless the Bank and each person, if any, who
controls the Bank within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act against any and all loss, liability, claim, damage and expense
whatsoever described in the indemnity contained in Subsection (a) of this
Section, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions, made in the Offering Circular (or any
amendment or supplement thereto) in reliance upon and in conformity with written
information furnished to the Bank by such Agent expressly for use in the
Offering Circular (or any amendment or supplement thereto).

         (c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give prompt notice to each indemnifying party of any action commenced against it
in respect of which indemnity may be sought hereunder, but failure to so notify
an indemnifying party shall not relieve such indemnifying party from any
liability hereunder to the extent it is not materially prejudiced as a result
thereof and in any event shall not relieve it from any liability which it may
have otherwise than on account of this indemnity agreement. In the case of
parties indemnified pursuant to Section 9(a) hereof, counsel to the indemnified
parties shall be selected by the applicable Agent(s) and, in the case of parties
indemnified pursuant to Section 9(b) hereof, counsel to the indemnified parties
shall be selected by the Bank. An indemnifying party may participate at its own
expense in the defense of any such action; PROVIDED, HOWEVER, that counsel to
the indemnifying party shall not (except with the consent of the indemnified
party) also be counsel to the indemnified party. In no event shall the
indemnifying parties be liable for the fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances.

         No indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or

15

<PAGE>   16

any investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 9 or 10 hereof (whether or not
the indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.

         (d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 9(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement. Notwithstanding the immediately preceding sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, an indemnifying party shall
not be liable for any settlement of the nature contemplated by Section 9(a)(ii)
effected without its consent if such indemnifying party (i) reimburses such
indemnified party in accordance with such request to the extent it considers
such request to be reasonable and (ii) provides written notice to the
indemnified party substantiating the unpaid balance as unreasonable, in each
case prior to the date of such settlement.

SECTION 10. CONTRIBUTION.

         If the indemnification provided for in Section 9 hereof is for any
reason unavailable to or insufficient to hold harmless an indemnified party in
respect of any losses, liabilities, claims, damages or expenses referred to
therein, then each indemnifying party shall contribute to the aggregate amount
of such losses, liabilities, claims, damages and expenses incurred by such
indemnified party, as incurred, (i) in such proportion as is appropriate to
reflect the relative benefits received by the Bank, on the one hand, and the
applicable Agent(s), on the other hand, from the offering of the Bank Notes that
were the subject of the claim for indemnification or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Bank, on the one hand, and the
applicable Agent(s), on the other hand, in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.

         The relative benefits received by the Bank, on the one hand, and the
applicable Agent(s), on the other hand, in connection with the offering of the
Bank Notes that were the subject of the claim for indemnification shall be
deemed to be in the same respective proportions as the total net proceeds from
the offering of such Bank Notes (before deducting expenses) received by the Bank
and the total discount or commission received by each applicable Agent, as the
case may

16

<PAGE>   17

be, bears to the aggregate initial offering price of such Bank Notes.

         The relative fault of the Bank, on the one hand, and the applicable
Agent(s), on the other hand, shall be determined by reference to, among other
things, whether any untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Bank or by the applicable Agent(s) and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.

         The Bank and the Agents agree that it would not be just and equitable
if contribution pursuant to this Section 10 were determined by pro rata
allocation (even if the applicable Agent(s) were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 10. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 10 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any applicable untrue or alleged
untrue statement or omission or alleged omission.

         Notwithstanding the provisions of this Section 10, (i) no Agent shall
be required to contribute any amount in excess of the amount by which the total
discount or commission received by such Agent in connection with the offering of
the Bank Notes that were the subject of the claim for indemnification exceeds
the amount of any damages which such Agent has otherwise been required to pay by
reason of any applicable untrue or alleged untrue statement or omission or
alleged omission and (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.

         For purposes of this Section 10, each person, if any, who controls an
Agent within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934
Act shall have the same rights to contribution as such Agent, and each person,
if any, who controls the Bank within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act shall have the same rights to contribution as the
Bank. The obligations of each of the Agents and the Bank under this Section 10
to contribute are several in proportion to the respective purchases or sales
made by or through it to which such loss, claim, damage or liability (or action
in respect thereof) relates and are not joint.

SECTION 11. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.

         All representations, warranties and agreements contained in this
Agreement or contained in certificates of officers of the Bank pursuant hereto,
shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of the Agents or any controlling person of an
Agent, or by or on behalf of the Bank, and shall survive each delivery of and
payment for any of the Bank Notes.

17

<PAGE>   18

SECTION 12. TERMINATION.

         (a) TERMINATION OF THIS AGREEMENT. This Agreement (excluding any
agreement hereunder by an Agent to purchase Bank Notes as principal) may be
terminated for any reason, at any time by either the Bank or any of the Agents
as to itself, immediately upon the giving of 30 days' written notice of such
termination to the other party hereto in accordance with the provisions of
Section 13 hereof.

         (b) TERMINATION OF AN AGREEMENT TO PURCHASE BANK NOTES AS PRINCIPAL. An
Agent may terminate an agreement hereunder by such Agent to purchase Bank Notes
as principal, immediately upon notice to the Bank, at any time prior to the
Settlement Date relating thereto (i) if there has been, since the date of such
agreement or since the respective dates as of which information is given in the
Offering Circular, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Bank and its subsidiaries, or of the Parent and its subsidiaries, as the case
may be, considered as one enterprise, whether or not arising in the ordinary
course of business, or (ii) if there shall have occurred any material adverse
change in the financial markets in the United States or any outbreak or
escalation of hostilities or other national or international calamity or crisis
the effect of which is such as to make it, in the judgment of such Agent,
impracticable to market the Bank Notes or enforce contracts for the sale of the
Bank Notes, or (iii) if trading in any securities of the Bank or the Parent
shall have been suspended by the Commission or a national securities exchange,
or if trading generally on the New York Stock Exchange, the American Stock
Exchange, or Chicago Board of Trade shall have been suspended, or minimum or
maximum prices for trading shall have been fixed, or maximum ranges for prices
for securities shall have been required, by either of said exchanges or by order
of the Commission or any other governmental authority, or if a banking
moratorium shall have been declared by either federal, New York State or Ohio
State authorities, as the case may be, or (iv) if the rating assigned by any
nationally recognized securities rating organization to any debt securities of
the Bank as of the date of any agreement by an Agent to purchase the Bank Notes
as principal shall have been lowered since that date or if any such rating
organization shall have publicly announced that it has placed under surveillance
or review, other than with positive implications, its rating of any debt
securities or deposits of the Bank, or (v) if there shall have come to such
Agent's attention any facts that would cause such Agent to believe that the
Offering Circular or any amendments thereto or supplements thereof, at the time
it was required to be delivered to a purchaser of Bank Notes, contained an
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in light of the circumstances
existing at the time of such delivery, not misleading.

         (c) GENERAL. In the event of any such termination, none of the parties
will have any liability to the other parties hereto, except that (i) the Agents
shall be entitled to any commissions earned in accordance with the third
paragraph of Section 3(b) hereof, (ii) if at the time of termination (a) an
Agent shall own any Bank Notes purchased with the intention of reselling them or
(b) an offer to purchase any of the Bank Notes has been accepted by the Bank but
the time of delivery to the purchaser or his agent of the Bank Note or Bank
Notes relating thereto has not occurred, the covenants set forth in Sections 4
and 8 hereof shall remain in effect until such Bank Notes are so

18

<PAGE>   19

resold or delivered, as the case may be, and (iii) the provisions of Section 5
hereof, the indemnity and contribution agreements set forth in Sections 9 and 10
hereof, and the provisions of Sections 11, 14 and 15 hereof shall remain in
effect.

SECTION 13. NOTICES.

         Unless otherwise provided herein, all notices required under the terms
and provisions hereof shall be in writing, either delivered by hand, by mail or
by telex, telecopier or telegram, and any such notice shall be effective when
received at the address specified below.

         If to the Bank:

                  FirstMerit Bank, National Association
                  III Cascade Plaza
                  7th Floor
                  Akron, Ohio  44308
                  Attention: Terry E. Patton
                  Facsimile Number (330) 384-7271

         If to the Parent:

                  FirstMerit Corporation
                  III Cascade Plaza
                  7th Floor
                  Akron, Ohio  44308
                  Attention: Terry E. Patton
                  Facsimile Number: (330) 384-7271

         If to Keefe, Bruyette & Woods, Inc.:

                  Keefe, Bruyette & Woods, Inc.
                  Two World Trade Center
                  85th Floor
                  New York, New York  10048
                  Attention: Steve Janaszak
                  Facsimile Number: (212) 323-8340

         If to Lehman Brothers Inc.:

                  Lehman Brothers Inc.
                  3 World Financial Center
                  New York, New York  10285
                  Attention: Erin Callan
                  Facsimile Number: (212) 526-1578

         If to McDonald Investments Inc.:

19

<PAGE>   20

                  McDonald Investments Inc.
                  McDonald Investment Center
                  800 Superior Avenue
                  Cleveland, Ohio  44114-2603
                  Attention: Barbara Kaminsky
                  Facsimile Number: (216) 443-3801

or at such other address as such party may designate from time to time by notice
duly given in accordance with the terms of this Section 13.

SECTION 14. PARTIES.

         This Agreement shall inure to the benefit of and be binding upon the
Agents, the Bank and their respective successors. Nothing expressed or mentioned
in this Agreement is intended or shall be construed to give any person, firm or
corporation, other than the parties hereto and their respective successors and
the controlling persons and officers and directors referred to in Sections 9 and
10 and their heirs and legal representatives, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision herein or
therein contained. This Agreement and all conditions and provisions hereof and
thereof are intended to be for the sole and exclusive benefit of the parties
hereto and respective successors and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of Bank Notes shall be deemed to
be a successor by reason merely of such purchase.

SECTION 15. GOVERNING LAW.

         This Agreement and all the rights and obligations of the parties shall
be governed by and construed in accordance with the laws of New York applicable
to agreements made and to be performed in such state.

SECTION 16. COUNTERPARTS.

         This Agreement may be executed by any one or more of the parties hereto
in any number of counterparts, each of which shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.

20

<PAGE>   21

         If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Bank a counterpart hereof, whereupon
this instrument along with all counterparts will become a binding agreement
between each of the Agents and the Bank in accordance with its terms.

                                  Very truly yours,

                                  FIRSTMERIT BANK, NATIONAL ASSOCIATION

                                  By: /s/ Sid A. Bostic
                                     Name:  Sid A. Bostic
                                     Title: President

CONFIRMED AND ACCEPTED,
as of the date first above written:

KEEFE, BRUYETTE & WOODS, INC.

By: /s/ Joseph A. Lenihan
      Name:  Joseph A. Lenihan
      Title: Executive V.P. & Director of Fixed Income

LEHMAN BROTHERS INC.

By: /s/ M. Rayle
      Name:  M. Rayle
      Title: Managing Director

McDONALD INVESTMENTS INC.

By: /s/ Charles R. Crowley
      Name:  Charles R. Crowley
      Title: Managing Director

21<PAGE>   1

                                                                    EXHIBIT 10.7
                                                                    ------------

                             CAPITAL HOLDINGS, INC.

                      LONG-TERM INCENTIVE COMPENSATION PLAN

                        EFFECTIVE DATE: DECEMBER 14, 1999

<PAGE>   2

                                    SECTION I
                                     PURPOSE

1.1      Purpose. The purpose of the Capital Holdings, Inc. Long-Term Incentive
         Compensation Plan (the "Plan") is to provide competitive Long-Term
         Incentive Compensation to Participants that aligns their interests with
         shareholder interests through share ownership and investment in the
         Company, and to encourage long-term growth in shareholder value through
         the achievement of specified financial objectives.

1.2      Rule 16b-3 Plan. With respect to persons subject to Section 16 of the
         Act ("Section 16 Persons"), transactions under this Plan are intended
         to comply with all applicable conditions of Rule 16b-3 or its
         successors promulgated under the Act. To the extent any provision of
         the Plan or action by the Committee fails to so comply, it shall be
         deemed null and void, to the extent permitted by law and deemed
         advisable by the Committee. Moreover, in the event the Plan does not
         include a provision required by Rule 16b-3 to be stated therein, such
         provision (other than one relating to eligibility requirements, or the
         price and amount of Awards) shall be deemed automatically to be
         incorporated by reference into the Plan insofar as Participants who are
         Section 16 Persons are concerned, to the extent permitted by law and
         deemed advisable by the Committee.

1.3      Effectiveness of the Plan. The Plan will be effective upon adoption by
         the Board. Nonqualified options granted under the plan on or after the
         Effective Date are not subject to shareholder approval and shall be
         binding upon the Company in accordance with the terms of the Plan and
         such option's Option Agreement. Incentive Stock Options granted on or
         after the Effective Date are subject to shareholder approval of the
         Plan and shall automatically convert to a Nonqualified Stock Option in
         the event the shareholders of the Company shall fail to approve the
         Plan within one year of the Effective Date. In the event shareholders
         of the Company shall not approve the Plan within one year of the
         Effective Date the Plan shall immediately terminate. In the event the
         Shareholders approve the Plan within one year of the Effective Date the
         Plan will remain in effect until the earlier of the termination date
         set forth in Section 12.2 hereof or such time as it is amended or
         terminated by the Board in accordance with the terms of Section 12.2
         hereof, except that no Incentive Stock Option may be granted under the
         Plan on or after ten years from the Effective Date of the Plan.

                                   SECTION II
                                   DEFINITIONS

Unless the context clearly indicates otherwise, the following terms have the
meanings set forth below:

2.1      "Act" means the Securities and Exchange Act of 1934, as amended.

2.2      "Award" means Options, Restricted Stock or Stock Awards granted
         pursuant to the Plan.

2.3      "Board" means the Board of Directors of the Company.

                                       25

<PAGE>   3

2.4      "Cause" means, with respect to any certain Participant:

         (a)      the willful and continued failure by such Participant to
                  substantially perform his or her duties with respect to the
                  Company (other than any such failure resulting from his or her
                  incapacity due to physical or mental illness), or

         (b)      the willful engaging by such Participant in conduct which is
                  demonstrably and materially injurious to the Company,
                  monetarily or otherwise. For purposes of this Section 2.4, no
                  act or failure to act shall be deemed "willful" if done by the
                  Participant either in good faith and in the reasonable belief
                  that such act or omission was in the best interest of the
                  Company, or before the Board provides the Participant with a
                  written notice and reasonable opportunity to cure the actions
                  or omissions that the Board considers to be grounds for a
                  finding of Cause for purposes of this Plan.

2.5      "Change in Control" means the occurrence of any of the following
events:

         (a)      Any person or group (as such terms are used in connection with
                  Sections 13(d) and 14(d) of the Securities Exchange Act of
                  1934, "Exchange Act") is or becomes the "beneficial owner" (as
                  defined in Rule 13(d)(3) and 13(d)(5) under the Exchange Act),
                  directly or indirectly, of securities of Capital Holdings,
                  Inc. representing 35% or more of the combined voting power of
                  Capital Holdings, Inc.'s then outstanding securities; or

         (b)      Capital Holdings, Inc. is a party to a merger, consolidation,
                  sale of assets or other reorganization, or a proxy contest, as
                  a consequence of which members of the Board in office
                  immediately prior to such transaction or event constitute less
                  than a majority of the Board thereafter; or

         (c)      During any period of 24 consecutive months, individuals who at
                  the beginning of such period constitute the Board (including
                  for this purpose any new director whose election or nomination
                  for election by Capital Holdings, Inc.'s stockholders was
                  approved by a vote of at least one-half of the directors then
                  still in office who were directors at the beginning of such
                  period) cease for any reason to constitute at least a majority
                  of the Board.

         (d)      Capital Holdings, Inc. is party to a merger, consolidation or
                  reorganization with any other corporation in which the
                  shareholders of Capital Holdings, Inc. immediately prior to
                  the merger, consolidation or reorganization do not immediately
                  thereafter directly or indirectly own more than fifty percent
                  (50%) of the combined voting power of the voting securities
                  entitled to vote in the selection of directors of the merged,
                  consolidated or reorganized entity.

         Notwithstanding the foregoing, no trust department or designated
         fiduciary or other trustee of such trust department of Capital
         Holdings, Inc. or a subsidiary of Capital Holdings, Inc., or other
         similar fiduciary capacity of Capital Holdings, Inc. with direct voting
         control of the stock shall be treated as a person or group within the
         meaning of subsection (a) hereof. Further, no profit-sharing, employee
         stock ownership, employee stock purchase and savings, employee pension,
         or other employee benefit plan of Capital Holdings, Inc. or any of its
         subsidiaries, and no Trustee of any such plan in its capacity as such
         Trustee, shall be treated as a person or group within the meaning of
         subsection (a) hereof.

                                       26
<PAGE>   4

2.6      "Code" means the Internal Revenue Code of 1986, as amended.

2.7      "Committee" means the members of the Compensation Committee as
         appointed and maintained by the Board who are not employees of the
         Company.

2.8      "Common Shares" means the Common Shares, no par value per share, of the
         Company, which the Company may authorize and issue from time to time,
         and as may be made subject to this Plan in the sole discretion of the
         Board.

2.9      "Company" means collectively Capital Holdings, Inc., an Ohio
         corporation, and any successor entity in a merger or consolidation, and
         any of its Subsidiaries, which elects to participate in the Plan with
         the approval of the Board.

2.10     "Director" means a member of the Board of the Company.

2.11     "Disability" means permanent and total disability as defined under
         Section 22(e)(3) of the Code.

2.12     "Effective Date" means the date the Plan becomes effective.

2.13     "Fair Market Value" as of a certain date means the fair market value of
         the Common Shares as determined by the Committee in its sole
         discretion. In making such determination, the Committee will comply
         with the valuation methods defined in Treasury Regulation Section
         1.421-7(e)(2).

2.14     "Grant Date" as used with respect to Options, means the date as of
         which such Options are granted by the Committee, as applicable,
         pursuant to the Plan.

2.15     "Incentive Stock Option" or "ISO" means an Option conforming to the
         requirements of Section 422 of the Code.

2.16     "Nonqualified Stock Option" or "NQO" means an Option granted pursuant
         to the Plan other than an Incentive Stock Option.

2.17     "Option" means an option to purchase Common Shares granted by the
         Committee pursuant to the Plan, which may be designated as either an
         "Incentive Stock Option" or a "Nonqualified Stock Option."

2.18     "Participant" means an employee of the Company or non-employee director
         as described in Section V hereof.

2.19     "Plan" means the Capital Holdings, Inc. Long-Term Incentive
         Compensation Plan as set forth herein and as may be amended from time
         to time, subject to Section 12.1 hereof.

2.20     "Retirement" means a Participant's voluntarily leaving the employment
         of the Company upon the attainment of the minimum age of sixty-two
         (62).

                                       27
<PAGE>   5

2.21     "Restricted Stock Award" or "Restricted Stock" means an award of Common
         Shares with restrictions placed on the sale, transfer or pledging of
         the shares, and a risk of forfeiture during the restriction period.

2.22     "Stock Award" means an award of the Common Shares.

2.23     "Subsidiary" means a subsidiary corporation as defined in Section
         424(f) of the Code.

                                   SECTION III
                           ADMINISTRATION OF THE PLAN

3.1      The Committee. The Plan shall be administered by the Committee and
         shall act only by the vote or written consent of at least a majority of
         its members. The members of the Committee shall be appointed from time
         to time by, and shall serve at the discretion of the Board. It is the
         intent of the Committee to administer the Plan in a manner that
         qualifies awards, to the extent possible, as excludable from the
         deduction limit set forth under Section 162(m) of the Code.

3.2.     Authority of the Committee. The Committee shall have all powers and
         discretion necessary or appropriate to administer the Plan and to
         control its operation, including, but not limited to, the power (a) to
         determine which employees shall be granted Awards, (b) to prescribe the
         terms, conditions and vesting schedule, if any, of such Awards, (c) to
         determine the amount and form of Awards granted to Participants, (d) to
         interpret the Plan and the Awards, (e) to adopt rules for the
         administration, interpretation and application of the Plan as are
         consistent therewith, and (f) to interpret, amend or revoke any such
         rules subject to Section 12.1 hereof.

         The Committee, in their sole discretion and on such terms and
         conditions as they may provide, may delegate their duties in order to
         provide for the day-to-day administration of the Plan. The Committee
         shall control the general administration of the Plan with all powers
         necessary to enable it to carry out its duties in that respect;
         provided, however, that the Committee may not delegate its authority
         and powers (a) with respect to those individuals under Section 16, or
         (b) in any way which is impermissible under Code Section 162(m) or the
         rules and regulations promulgated thereunder.

3.3      Decisions Binding. All determinations and decisions made by the
         Committee shall be final, conclusive, and binding on all parties, and
         shall be given the maximum deference permitted by law.

                                   SECTION IV
                           SHARES SUBJECT TO THE PLAN

4.1      Shares Subject to Plan. The Company shall reserve 750,000 Common Shares
         for issuance under this Plan, subject to adjustment pursuant to Section
         4.2 hereof. Common Shares may be now or hereafter authorized yet
         unissued or Common Shares already authorized, issued and owned or
         purchased by the Company or a trust as to which the Company is a
         grantor. If and to the extent that any rights with respect to Common
         Shares shall not be exercised by any Participant for any reason or if
         such rights shall terminate as provided herein, Common Shares that have
         not been allocated to such Participant under the Plan shall again
         become available for allocation to Participants as provided herein.

                                       28
<PAGE>   6

4.2      Change in Capitalization. In the event of a change in the
         capitalization of the Company due to a share split, share dividend,
         recapitalization, merger, consolidation, combination, or similar event
         or as the Committee shall in its sole discretion deem appropriate, the
         aggregate number of Common Shares and the terms of any existing Awards
         shall be adjusted by the Committee to reflect such change.

                                    SECTION V
                                   ELIGIBILITY

The Committee shall have the discretion to select directors, officers,
executives, managers, and other key employees of the Company for participation
in the Plan. The discretion of the Committee to select such Participants shall
be absolute and no person otherwise eligible for participation shall have any
right to participate. Only persons so selected shall be deemed "Participants"
for purposes hereof.

                                   SECTION VI
                                  STOCK OPTIONS

6.1      Grant of Options. Options may be granted to Participants, subject to
         the provisions of the Plan, at any time and from time to time, as
         determined in the sole discretion of the Committee. The Committee, as
         applicable, shall in its sole discretion, determine the number of
         Options granted to each Participant; provided, however, that in any one
         calendar year, no one Participant shall be granted Options to purchase
         a number of Common Shares in excess of 90,000, adjusted for any stock
         dividends, stock splits, reverse stock splits, recapitalization mergers
         or consolidations. Options granted may be ISOs to employees, NQOs to
         employees or non-employee Directors, or a combination thereof.

6.2      Option Agreement. Each Option shall be evidenced by a written option
         agreement (an "Option Agreement") that shall specify the Option price,
         the expiration date of the Option, the number of shares to which the
         Option pertains, any conditions to exercise of the Option, and such
         other terms and conditions as the Committee, in its discretion, shall
         determine. The Option Agreement also shall specify whether the Option
         is intended to be an ISO or an NQO.

6.3      Option Price. The price for each Common Share deliverable upon the
         exercise of an Option (the "Option Price") shall be determined at the
         discretion of the Committee; provided, however, that with respect to
         ISOs, the Option Price shall not be less than the Fair Market Value at
         the date of grant. If at the time that an ISO is granted, the
         Participant owns shares possessing more than 10% of the total combined
         voting power of all classes of the Company's or any of its
         Subsidiaries' capital shares, the Option Price of an ISO shall not be
         less than one hundred and ten percent (110%) of the Fair Market Value
         of a share on the date that the ISO is granted and any ISO so granted
         must be exercised not later than five (5) years from the date it is
         granted.

                                       29
<PAGE>   7

6.4      Exercise of Options. Options granted under the Plan shall be
         exercisable at such times, and subject to such restrictions and
         conditions, as the Committee shall determine in its sole discretion,
         except that any outstanding Options at the time of a Change in Control,
         or a Participant's Death, Disability or Retirement will be immediately
         exercisable without regard to any vesting restrictions attached to such
         Options. A Participant electing to exercise an Option shall give
         written notice of such election to the Company in such form as the
         Committee may require.

6.5      Expiration of Options. Each Option belonging to a Participant shall
         terminate upon the first to occur of the events listed in this section.

(a)      Employees

                  (i)      The date for termination of such Option set forth in
                           the Option Agreement applicable to such Option.

                  (ii)     The expiration of ten (10) years from the date such
                           Option was granted, except as outlined in 6.3.

                  (iii)    The expiration of one year from the date of the
                           Optionee's termination of employment for reason other
                           than Retirement or termination for Cause, it being
                           understood that the exercise of an Incentive Stock
                           Option at any time after ninety (90) days from the
                           date of such termination of employment for reason
                           other than death or Disability shall convert to a
                           Nonqualified Stock Option.

                  (iv)     The expiration of one year from the later of the
                           Optionee's Retirement with the Company or termination
                           of service on the Board for a reason other than for
                           Cause.

                  (v)      Termination of employment for Cause.

(b)                        Non-Employee Directors

                  (i)      The date for termination of such Option set forth in
                           the Option Agreement applicable to such Option.

                  (ii)     The expiration of ten (10) years from the date such
                           Option was granted.

                  (iii)    The expiration of one year following the non-employee
                           Director's termination of service on the Board for a
                           reason other than for Cause.

                  (iv)     Termination of a non-employee Director's service on
                           the Board for Cause.

6.6      Payment. The Option Price upon exercise of any Option shall be payable
         to the Company in full in cash. The Committee also may, in its sole
         discretion, permit exercise (a) by tendering previously acquired Common
         Shares having an aggregate Fair Market Value at the time of exercise
         equal to the total Option Price (provided that the Common Shares which
         are

                                       30
<PAGE>   8

         tendered must have been held by the Participant or his or her
         Permissible Transferees (as defined in 6.7) for at least six (6) months
         prior to their tender to satisfy the Option Price), or (b) by any other
         means which the Committee determines, in its sole discretion, to both
         provide legal consideration for the Common Shares and to be consistent
         with the purposes of the Plan.

         As soon as practicable after receipt of a written notification of
         exercise and full payment for the Common Shares purchased, the Company
         shall deliver to the Participant, or his or her Permissible Transferee,
         the certificates (in the Participant's or such Permissible Transferee's
         name) representing such Common Shares.

6.7      Nontransferability of Options. No Option granted under the Plan shall
         be assignable or transferable by the Participant other than by will or
         the laws of descent and distribution. During the lifetime of a
         Participant, the Option shall be exercisable only by such Participant,
         except: (a) in the event of the disability of the Participant resulting
         in the appointment, by a court of competent jurisdiction, of a legal
         guardian or personal representative with appropriate authority, then by
         such person in the name of Participant; or (b) in the name of the
         Participant pursuant to a power of attorney, acceptable in form and
         substance to Capital Holdings, Inc.

         Notwithstanding the above, a Participant may, with respect to any
         Nonqualified Stock Option: (a) designate in writing a beneficiary to
         exercise his or her Option after the Participant's death; (b) transfer
         an Option to a revocable inter vivos trust as to which the Optionee is
         the settlor; and (c) transfer an Option for no consideration to any of
         the following Permissible Transferees (each a "Permissible
         Transferee"): (i) any member of the Immediate Family of the Participant
         to whom such Option was granted, (ii) any trust solely for the benefit
         of members of the Participant's Immediate Family, or (iii) any
         partnership whose only partners are members of the Participant's
         Immediate Family; and further provided that: (1) the Transferee shall
         remain subject to all of the terms and conditions applicable to such
         Options prior to and after such transfer; and (2) any such transfer
         shall be subject to and in accordance with the rules and regulations
         prescribed by the Committee. Any such transfer to a Permissible
         Transferee shall consist of one or more options covering a minimum of
         one hundred (100) option shares. An Option may not be re-transferred by
         a Permissible Transferee except by will or the laws of descent and
         distribution and then only to another Permissible Transferee. In the
         case of (b) and (c), the Option shall only be exercisable by the
         trustee or Permissible Transferee, as applicable. For the purposes
         hereof, "Immediate Family" means, with respect to a particular
         Participant, such Participant's child, stepchild, grandchild, parent,
         stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
         son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and
         shall include adoptive relationships.

6.8      Certain Additional Provisions for Incentive Stock Options.

         (a)      The aggregate Fair Market Value (determined at the time the
                  Option is granted) of the Common Shares with respect to which
                  ISOs are exercisable for the first time by any Participant
                  during any calendar year shall not exceed $100,000.

         (b)      ISOs may be granted only to persons who are employees of the
                  Company at the time of grant.

                                       31
<PAGE>   9

         (c)      No ISO may be exercised after the expiration of ten years from
                  the date such ISO was granted; provided, however, that if the
                  ISO is granted to a Participant who, together with Persons
                  whose Common Share ownership is attributed to the Participant
                  pursuant to Section 424(d) of the Code, owns shares possessing
                  more than 10% of the total combined voting power of all
                  classes of the Company's or any of its Subsidiaries' capital
                  shares, the ISO may not be exercised after the expiration of
                  five years from the date that it was granted.

                                   SECTION VII
                             RESTRICTED STOCK AWARD

7.1      Award of Restricted Stock. Restricted Stock may be granted to
         Participants, subject to the provisions of the Plan, at any time and
         from time to time, as determined in the sole discretion of the
         Committee. The Committee shall in its sole discretion, determine the
         number of shares of Restricted Stock granted to each Participant and
         the terms and conditions of such grant.

         Each Restricted Stock Award under the Plan shall be evidenced by a
         stock certificate of the Company, registered in the name of the
         Participant, accompanied by an agreement in such form as the Committee
         shall prescribe from time to time. The Restricted Stock Awards shall
         comply with such other terms and conditions not inconsistent with the
         terms of this Plan as the Committee, in its discretion, shall
         establish.

7.2      Stock Legends; Prohibition on Disposition. Certificates for shares of
         Restricted Stock shall bear an appropriate legend referring to the
         restrictions to which they are subject, and any attempt to dispose of
         any such shares of stock in contravention of such restrictions shall be
         null and void and without effect. The certificates representing shares
         of Restricted Stock shall be held by the Company until the restrictions
         are satisfied.

7.3      Termination of Service. The Committee shall determine the extent to
         which the restrictions on any Restricted Stock Award shall lapse upon
         the termination of the Participant's service to the Company and its
         subsidiaries, due to death, Disability, Retirement or for any other
         reason. If the restrictions on all or any portion of a Restricted Stock
         Award shall not lapse, the Participant, or in the event of his death,
         his personal representative, shall deliver to the Secretary of the
         Company such instruments of transfer, if any, as may reasonably be
         required to transfer the shares back to the Company.

7.4      Change in Control. Upon the occurrence of a Change in Control of the
         Company, as determined in Section 2.5 of this Plan, all restrictions
         then outstanding with respect to shares of Restricted Stock shall
         automatically expire and be of no further force and effect and all
         certificates representing such shares of Restricted Stock shall be
         delivered to the Participant.

7.5      Effect of Attempted Transfer. No benefit payable or interest in any
         Restricted Stock Award shall be subject in any manner to anticipation,
         alienation, sale, transfer, assignment, pledge, encumbrance or charge
         and any such attempted action shall be void and no such interest in any
         Restricted Stock Award shall be in any manner liable for or subject to
         debts, contracts, liabilities, engagements or torts of any Participant
         or his beneficiary. If any Participant or beneficiary shall become
         bankrupt

                                       32
<PAGE>   10

         or shall attempt to anticipate, alienate, sell, transfer, assign,
         pledge, encumber or charge any benefit payable under or interest in any
         Restricted Stock Award, then the Committee, in its discretion, may hold
         or apply such benefit or interest or any part thereof to or for the
         benefit of such Participant or his beneficiary, his spouse, children,
         or other dependents, in any such manner and such proportions as the
         Committee may consider proper.

7.6      Dividends. Dividends, other than stock dividends, paid on Restricted
         Stock, shall be either paid at the dividend payment date in cash, in
         shares of unrestricted stock having a Fair Market Value equal to the
         amount of such dividends, or the amount or value thereof automatically
         reinvested in additional Restricted Stock or other investment vehicles,
         as the Committee shall determine in its sole discretion. Stock
         distributed in connection with a stock split or stock dividend, and
         other property distributed as a dividend, shall be subject to
         restrictions and a risk of forfeiture to the same extent as the
         Restricted Stock with respect to which such stock or other property has
         been distributed, unless otherwise determined by the Committee.

7.7      Rights as a Stockholder. A Participant shall have the right to receive
         dividends, as described in Section 7.6, on Common Shares subject to the
         Restricted Stock Award during the applicable restricted period, to vote
         the Common Shares subject to the Award and to enjoy all other
         stockholder rights, except that the employee shall not be entitled to
         delivery of the stock certificate until the applicable Restricted
         Period shall have lapsed (if at all).

                                  SECTION VIII
                                  STOCK AWARDS

8.1      Stock Awards. The Committee may, at any time and from time to time,
         designate an Award of Common Shares to any Participant, which is
         subject to one or more conditions established by the Committee, in its
         sole discretion. If the Award is subject to the achievement of certain
         performance objectives (as that term is used for purposes of Code
         Section 162(m)), then the performance objectives shall be determined by
         the Committee at their full discretion.

8.2      Effect of Change in Control. The effect of a Change in Control upon an
         Award of Common Shares subject to this Section VIII shall be determined
         by the Committee at such time as the Committee establishes the terms
         and conditions that will apply to an Award of Common Shares.

                                   SECTION IX
         PAYMENT OF STOCK OR STOCK OPTIONS IN LIEU OF CASH COMPENSATION

The Committee may, at any time and from time to time, at the request of a
Participant, designate that a portion of a Participant's compensation otherwise
payable in cash be payable in Common Shares or as Stock Options. The Committee,
as applicable, shall have the sole discretion to determine the terms and
conditions under which such Common Shares or Stock Options shall be issued to
eligible employees or non-employee directors.

                                       33
<PAGE>   11

                                    SECTION X
                        NO RIGHT TO CONTINUED EMPLOYMENT

Participation in the Plan shall confer no rights to continued employment with
the Company, nor shall it restrict the rights of the Company to terminate a
Participant's employment relationship at any time for Cause or without Cause.

                                   SECTION XI
                                WITHHOLDING TAXES

As a condition of delivery of cash or Common Shares upon exercise of an Option,
the issuance of Common Shares or the grant of Options in lieu of cash
compensation, or the payment of a Performance Award, the Company shall require
that the Participant and/or his or her permitted transferees (without regard to
whether the Participant has transferred the Award in accordance with the Plan)
satisfy federal, state and local tax withholding requirements as follows:

         (a)      Cash Remittance. Whenever Common Shares are to be issued upon
                  the exercise of an Option or payment of Award, the Participant
                  and/or his or her permitted transferees shall remit to the
                  Company in cash an amount sufficient to satisfy federal, state
                  and local withholding tax requirements, if any, attributable
                  to such exercise or payment, prior to the delivery of any
                  certificate or certificates for such shares. In addition, the
                  Company shall have the right to withhold from any cash payment
                  required to be made pursuant thereto an amount sufficient to
                  satisfy the federal, state and local withholding tax
                  requirements.

         (b)      Share Withholding or Remittance. In lieu of the remittance
                  required by Section X(a) hereof a Participant who is granted
                  an Award may, to the extent approved by the Committee,
                  irrevocably elect by written notice to the Company at the
                  office of the Company designated for that purpose, to (i) have
                  the Company withhold Common Shares from any Award hereunder,
                  or (ii) deliver other previously owned Common Shares, the Fair
                  Market Value of which as of the date on which any such tax is
                  determined shall be equal to, the required tax withholding
                  amount, if any, rounded down to the nearest whole share
                  attributable to such exercise, occurrence or grant; provided,
                  however, that no election to have Common Shares withheld from
                  any Award shall be in excess of the minimum statutory
                  withholding tax or shall be effective with respect to an Award
                  which was transferred by such Participant to a Permitted
                  Transferee or otherwise.

                                   SECTION XII
                      AMENDMENT OR TERMINATION OF THE PLAN

12.1     Amendment. The Board or Committee may alter, amend or suspend the Plan
         at any time or alter and amend Awards granted hereunder; provided,
         however, that no such amendment may, without the consent of any
         Participant to whom an Option shall theretofore have been granted or to
         whom a Restricted Stock Award shall theretofore have been issued,
         adversely affect the right of such Participant under such Award.

                                       34
<PAGE>   12

12.2     Termination. The Plan shall terminate ten years from the Effective Date
         of the Plan; provided, however, that the Plan shall be subject to
         termination prior to such date on the date set forth in a resolution of
         the Board terminating the Plan. No termination of the Plan shall
         materially alter or impair the right of any Participant to receive
         Awards previously granted hereunder without such Participant's consent.
         In the event of a termination of the Plan, all Options granted
         hereunder shall continue to be valid and binding obligations of the
         Company going forward on the same terms and conditions as set forth
         herein and in the applicable Option Agreements.

12.3     Change in Control. In the event of any merger, consolidation or other
         reorganization in which the Company is not the surviving or continuing
         corporation or in which a Change in Control is to occur, all of the
         Company's obligations regarding Awards, if applicable, that were
         granted hereunder and that are outstanding on the date of such event
         shall, on such terms as may be approved by the Board or the Committee
         prior to such event, be assumed by the surviving or continuing
         corporation or canceled in exchange for property (including cash) in
         amounts determined by the Board or the Committee.

                                       35

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00003-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00003-of-00352.parquet"}]]