Document:

Exhibit 10.2

 

EMPLOYMENT
AGREEMENT

 

THIS EMPLOYMENT AGREEMENT
(“Agreement”) is made and entered into as of the 23rd  day of May 2005, by and
among Frederick County Bank, a Maryland corporation (“Bank”), and William R.
Talley, Jr.  (“Mr. Talley”).

 

RECITAL

 

Bank desires to continue
to retain Mr. Talley as the Executive Vice President and Chief Financial
Officer.  Mr. Talley desires to
accept such employment, all upon the terms and conditions hereinafter set
forth.

 

NOW, THEREFORE, in
consideration of the recital, the mutual covenants and agreements herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Agreement,
intending to be legally bound, agree as follows:

 

1.                                       Certain
Definitions. As used in this Agreement, the following terms have the
meanings set forth below:

 

1.1                                 “Commencement
Date” means April 1, 2005.

 

1.2                                 “Bank
Regulatory Agency” means any governmental authority, regulatory agency, ministry,
department, statutory corporation, central bank or other body of the United
States or of any other country or of any state or other political subdivision
of any of them having jurisdiction over Bank or any transaction contemplated,
undertaken or proposed to be undertaken by Bank, including, but not necessarily
limited to:

 

(a) the Federal Deposit Insurance Corporation or any other
federal or state depository insurance organization or fund;

 

(b) the Federal Reserve System, the Comptroller of the Currency,
the Maryland Division of Financial Institutions, or any other federal or state
bank regulatory or commissioner’s office;

 

(c) any Person established, organized, owned (in whole or in
part) or controlled by any of the foregoing; and

 

(d) any predecessor, successor or assignee of any of the
foregoing.

 

1.3                                 “Bank
Board” means the Board of Directors of Frederick County Bank.

 

1.4                                 “Bank
Bylaws” means the Bylaws of Frederick County Bank as in effect from time to
time.

 

1.5                                 “Chairman”
means the Chairman of the Board of Frederick County Bank.

 

1.6                                 “Code”
means the Internal Revenue Code of 1986, as amended.

 

1.7                                 “Company”
means Frederick County Bancorp, Inc.

 

1.8                                 “Person”
means any individual, firm, association, partnership, corporation, limited
liability company, group, governmental agency or other authority, or other
organization or entity.

 

2.                                       Employment;
Term.

 

2.1 Position. Bank
hereby employs Mr. Talley to serve as its Executive Vice President and
Chief Financial Officer.  Mr. Talley
shall also be a member of the Bank Board subject to election by the Company in
accordance with the Bank Bylaws.

 

2.2 Term. The term
of this Agreement and Mr. Talley’s employment hereunder shall commence
with the Commencement Date and continue until October 1, 2009  (the “Term”), unless sooner terminated in
accordance with the provisions of this Agreement.

 

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3.                                       Duties
of President.

 

3.1 Nature and
Substance.  Mr. Talley shall
report directly to the Chairman and shall be under the direction of the
Chairman.  The specific powers and duties
of the President shall be established, determined and modified by and within
the discretion of the Bank Board including (but not necessarily limited to):

 

(a) the coordination
and leadership of the efforts of the Bank to achieve and maintain any and all
necessary and/or appropriate Bank Regulatory Agency approvals and permissions
prerequisite to its successful continued operation, including coordination of
the professional services of counsel, accountants and bank consultants;

 

(b) the preparation and presentation to the Bank Board of
budgets and adherence of the Bank to those approved by the Bank Board;

 

(c) the provision of such reports, updates and other data and
information as may be reasonably required by the Bank Board and Bank Regulatory
Agencies;

 

(d) subject to
guidelines and/or criteria established by the Bank Board, the hiring,
promotion, supervision, retention and discharge of all employees, except at or
above the level of Senior Vice President.

 

(e) the formulation and implementation of Bank employee
personnel policies and benefits, subject to approval by the Bank Board;

 

(f) the promotion of the reputation and business of the Bank
within the community;

 

(g) the advancement of the business purposes of the Bank,
including, but not limited to, business development and customer, depositor and
public relations;

 

(h) participation in and service upon such committees and
subcommittees as may be directed by the Bank Board without additional compensation
to that set forth herein below;

 

(i) supervision of
the maintenance of the books and accounts and the supervision and maintenance
of accounts payable and expenses of the Bank and the reporting of the status
thereof at each scheduled or called meeting of the Bank Board or any committee
thereof; provided, however, that all expenditures on behalf of the Bank shall
be approved in accordance with the terms and conditions of procedures
established by the Bank Board;

 

(j) such
other duties of the Executive Vice President and Chief Financial Officer of the
Bank as may be enumerated in the Bank Bylaws.

 

(k) such other duties and
responsibilities as are normally incident to the subject position of President,
including assisting, directing and/or supervising the operations and other
employees of the Bank upon such terms, conditions, rules, policies and
regulations as may be established by the Bank Board from time to time.

 

3.2 Performance of
Services.  Mr. Talley agrees to
devote his full business time and attention to the performance of his duties
and responsibilities under this Agreement, and shall use his best efforts and
discharge his duties to the best of his ability for and on behalf of the Bank
and to its successful operation.   Mr. Talley
shall comply with all laws, statutes, ordinances, rules and regulations
relating to his employment and duties. During the Term of this Agreement, Mr. Talley
shall not at any time or place directly or indirectly engage or agree to engage
in any business or practice related to the banking business with or for any
other Person to any extent whatsoever, other than to the extent required by the
terms and conditions of this Agreement.  Mr. Talley
agrees that while employed by the Bank he will not, without the prior written
consent of the Bank Board, engage, or obtain a financial or ownership interest,
in any other business, employment, consulting or similar arrangement, or other
undertaking (an “Outside Arrangement”) if such Outside Arrangement would
interfere with the satisfactory performance of his duties to the Bank, present
a conflict of interest with the Bank, breach his duty of loyalty or fiduciary
duties to the Bank, or otherwise conflict with the provisions of this
Agreement; provided, however, that Mr. Talley shall not be prevented from
investing his

 

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assets in such form or
manner as would not require any services on the part of Mr. Talley in the
operation or the affairs of the entities in which such investments are made and
provided such investments do not present a conflict of interest with the
Bank.  Mr. Talley shall promptly
notify the Bank Board of any Outside Arrangement and provide the Bank Board
with any written agreement in connection therewith.

 

4.                                       Compensation
and Benefits. As full compensation for all services rendered pursuant to
this Agreement and the covenants contained herein, the Bank shall pay to Mr. Talley
the following:

 

4.1 Salary.
Beginning on the Commencement Date, Mr. Talley shall be paid a salary (“Salary”)
of One Hundred Fifty Thousand Dollars ($150,000) on an annualized basis. The
Bank shall pay Mr. Talley’s Salary in equal installments in accordance
with the Bank’s regular payroll periods. 
Mr. Talley’s Salary shall be further increased from time to time at
the discretion of the Bank Board.

 

4.2 Bonus.  During the Term, Mr. Talley shall be
paid a bonus (“CFO Bonus”) as approved by the Compensation Committee and the
Bank Board.

 

4.3 Withholding.
Payments of Salary and CFO Bonus shall be subject to the customary withholding
of income and other employment taxes as is required with respect to
compensation paid by an employer to an employee.

 

4.4 Vacation and
Leave.  Mr. Talley shall be
entitled to twenty-five (25) days vacation and leave annually, of which ten (10) days
may be carried over to the following year. 
Sick leave may be provided for under the current and future sick leave
policies of the Bank for executive officers.

 

4.5 Automobile
Allowance.  Mr. Talley shall be
provided an automobile allowance of $5,000 annually, which shall be paid in
quarterly payments of $1,250, payable on the last day of each quarter
commencing with the second quarter of 2005. 
This allowance is in lieu of any automobile expense reimbursement.

 

4.5 Non-Life
Insurance.  The Bank will provide Mr. Talley
with group health, disability and other insurance as the Bank Board may
determine appropriate.

 

4.6 Life Insurance.

 

4.6.1 The Bank will
obtain, and maintain at all times while this Agreement is in effect, a term
life insurance policy (the “Policy”) on Mr. Talley in the amount of
$600,000, the particular product and carrier to be chosen by the Bank in its
discretion.  Mr. Talley shall have
the right to designate the beneficiary of the Policy.  The Bank will pay the premium for the Policy
at the standard rate. In the event Mr. Talley is rated and the premium
exceeds the standard rate, Mr. Talley shall be responsible for paying the
excess, which shall be deducted from his Salary.

 

4.6.2 The Bank may, at
its cost, obtain and maintain “key-man” life insurance on Mr. Talley in
such amount as determined by the Bank Board from time to time.  Mr. Talley agrees to cooperate fully and
to take all actions reasonably required by the Bank in connection with such
insurance.

 

4.7 Expenses.  The Bank shall promptly upon presentation of
proper expense reports therefor reimburse Mr. Talley, in accordance with
the policies and procedures established from time to time by the Bank Board for
its senior executive officers, for all reasonable and customary travel and
other out-of-pocket expenses incurred by Mr. Talley in the performance of
his duties and responsibilities under this Agreement and promoting the business
of the Bank, including appropriate membership fees, dues and the cost of
attending meetings and conventions.

 

4.8 Retirement Plans.  Mr. Talley shall be entitled to
participate in any and all qualified pension or other retirement plans of the
Bank which may be applicable to executive personnel of the Bank.

 

4.9 Warrants.  Mr. Talley shall be issued warrants or
options to acquire shares of Bank stock from time to time at the discretion of
the Bank Board.

 

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4.10 Other Benefits.
While this Agreement is in effect, Mr. Talley shall be entitled to all other
benefits that the Bank provides from time to time to its senior executive
officers, including, but not limited to, any stock option plan and other
incentive plans.

 

4.11 Eligibility.
Participation in any health, life, accident, disability, medical expense or
similar insurance plan or any qualified pension or other retirement plan shall
be subject to the terms and conditions contained in such plan. All matters of
eligibility for benefits under any insurance plans shall be determined in
accordance with the provisions of the applicable insurance policy issued by the
applicable insurance company.

 

5.                                       Conditions
Subsequent to Continued Operation and Effect of Agreement.

 

5.1 Continued Approval
by Bank Regulatory Agencies. This Agreement and all of its terms and
conditions, and the continued operation and effect of this Agreement, shall at
all times be subject to the continuing approval of any and all Bank Regulatory
Agencies whose approval is a necessary prerequisite to the continued operation
of the Bank.  Should any term or
condition of this Agreement, upon review by any Bank Regulatory Agency, be
found to violate or not be in compliance with any then-applicable statute or
any rule, regulation, order or understanding promulgated by any Bank Regulatory
Agency, or should any term or condition required to be included herein by any
such Bank Regulatory Agency be absent, this Agreement may be rescinded and
terminated by either party if the parties hereto cannot in good faith agree
upon such additions, deletions, or modifications as may be deemed necessary or
appropriate to bring this Agreement into compliance.

 

6.                                       Termination
of Agreement. This Agreement may be terminated prior to expiration of the
Term as provided below.

 

6.1           Definition
of Cause. For purposes of this Agreement, “Cause” means:

 

(a) any
act of theft, fraud, intentional misrepresentation or similar conduct by Mr. Talley
in connection with or associated with the services rendered by Mr. Talley
to the Bank under this Agreement;

 

(b) any failure of this Agreement to comply with any Bank
Regulatory Agency requirement which is not cured in accordance with Section 5.1
within a reasonable period of time after written notice thereof;

 

(c) any Bank Regulatory Agency action or proceeding against Mr. Talley
as a result of his negligence, fraud, malfeasance or misconduct;

 

(d) material failure
of Mr. Talley to achieve budget requirements, performance standards or
targets established annually by the Bank Board, where such failure is not the
result of economic conditions or lack of appropriate effort and/or due
diligence by Mr. Talley; or

 

(e) any of the following conduct on the part of Mr. Talley
that has not been corrected or cured within thirty (30) days after having
received written notice from the Bank Board detailing and describing such
conduct:

 

(i)                                     the
use of drugs, alcohol or other substances by Mr. Talley to an extent which
materially interferes with or prevents Mr. Talley from performing his
duties under this Agreement;

 

(ii)           failure
by or the inability of Mr. Talley to devote full time, attention and
energy to the performance of his duties pursuant to this Agreement (other than
by reason of his death or disability);

 

(iii)          intentional
material failure by Mr. Talley to carry out the explicit lawful and reasonable
directions, instructions, policies, rules, regulations or decisions of the Bank
Board,

 

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which
are consistent with his position as Executive Vice President and Chief
Financial Officer; or

 

(iv)                              willful or intentional misconduct on the part of Mr. Talley
that results in substantial injury to the Bank or any of its subsidiaries or
affiliates.

 

6.2  Termination by
Bank.

 

6.2.1    For Cause. 
The Bank shall have the right to cancel and terminate this Agreement and
Mr. Talley’s employment for Cause immediately on written notice, with his
compensation and benefits ceasing as of his last day of employment, provided,
however, that Mr. Talley shall be entitled to benefits through the last
day of employment and accrued compensation to that date.

 

6.2.2    Without Cause. 
The Bank shall have the right to cancel and terminate this Agreement and
Mr. Talley’s employment at any time on written notice without Cause for
any or no reason, with Mr. Talley’s compensation and benefits ceasing as
of his last day of employment, subject to the provisions of Section 6.4. and Article 8.

 

6.3
 Termination
by Mr. Talley.  Mr. Talley
shall have the right to cancel and terminate this Agreement and his employment
at any time on sixty (60) days prior written notice to the Bank Board, with his
compensation and benefits ceasing as of his last day of employment, provided,
however, that he shall be entitled to benefits through the last day of
employment and accrued compensation to that date.

 

6.4
 Severance.
Except as set forth below, if Mr. Talley’s employment with the Bank is
terminated by the Bank or its successors during the Term without Cause, the
Bank or its successors shall, for the balance of the Term, continue to pay Mr. Talley,
in the manner set forth below, Mr. Talley’s Salary at the rate being paid
as of the date of termination plus the unpaid portion of any CFO Bonus previously approved as provided in Section 4.2; and
such other benefits as provided in Sections 4.4, 4.5, and 4.6; provided,
however, that Mr. Talley shall not be entitled to any such payments of
Salary if (i) his employment is terminated due to his death or long-term
disability or (ii) this Agreement is rendered null and void pursuant to Section 5.1
or (iii) there is a Change in Control Termination (as defined in Section 8.2).
Any Salary and CFO Bonus due Mr. Talley pursuant to this Section 6.4
shall be paid to Mr. Talley in installments on the same schedule as
he was paid immediately prior to the date of termination, each installment to
be the same amount he would have been paid under this Agreement if he had not
been terminated. In the event Mr. Talley breaches any provision of Article 7
of this Agreement, Mr. Talley’s entitlement to any Salary, any CFO Bonus,
and any benefits due pursuant to this Section 6.4, if and to the extent
not yet paid, shall thereupon immediately cease and terminate.

 

7.                                       Confidentiality;
Non-Competition; Non-Interference.

 

7.1
 Confidential
Information. Mr. Talley, during employment by the Bank, will have
access to and become familiar with various confidential and proprietary
information of the Bank, its parent, subsidiaries and/or affiliates (“Confidential
Information”), including, but not limited to: business plans; operating
results; financial statements and financial information; contracts; mailing
lists; purchasing information; customer data (including lists, names and
requirements); feasibility studies; personnel related information (including
compensation, compensation plans, and staffing plans); internal working
documents and communications; and other materials related to the businesses or
activities of the Bank, its subsidiaries and/or affiliates which is made
available only to employees with a need to know or which is not generally made
available to the public. Failure to mark any Confidential Information as
confidential, proprietary or protected information shall not affect its status
as part of the Confidential Information subject to the terms of this Agreement.

 

7.2
 Nondisclosure.  Mr. Talley hereby covenants and agrees
that he shall not at any time, directly or indirectly, disclose, divulge,
reveal, report, publish, or transfer any Confidential Information to any
Person, or use Confidential Information in any way or for any purpose, except
as required in the course of his employment by the Bank. The covenant set forth
in this Section 7.2 shall not apply to information now known by the public
or

 

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which
becomes known generally to the public (other than as a result of a breach of
this Article 7 by Mr. Talley) or information that is customarily
shown or disclosed.

 

7.3 Documents. All
files, papers, records, documents, compilations, summaries, lists, reports,
notes, databases, tapes, sketches, drawings, memoranda, and similar items
(collectively, “Documents”), whether prepared by Mr. Talley, or otherwise
provided to or coming into the possession of Mr. Talley, that contain any
proprietary information about or pertaining or relating to the Bank, its
parent, subsidiaries and/or affiliates and/or their businesses (“Proprietary
Information”) shall at all times remain their exclusive property. Promptly
after a request by the Bank Board or the termination of Mr. Talley’s
employment, Mr. Talley shall take reasonable efforts to (i) return to
the Bank all Documents in any tangible form (whether originals, copies or
reproductions) and all computer disks containing or embodying any Document or
Proprietary Information and (ii) purge and destroy all Documents and
Proprietary Information in any intangible form (including computerized, digital
or other electronic format) as may be requested in writing by the Chairman of
the Board of the Bank, and Mr. Talley shall not retain in any tangible
form any such Document or any summary, compilation, synopsis or abstract of any
Document or Proprietary Information.

 

7.4           Non-Competition.

 

7.4.1 Mr. Talley
hereby acknowledges and agrees that, during the course of employment by the
Bank, he will become familiar with and involved in all aspects of the business
and operations of the Bank and its parent, subsidiaries and affiliates.  Mr. Talley hereby covenants and agrees
that from the Commencement Date until the earlier to occur of (a) the date
one hundred eighty (180) days after his last day of employment with the Bank or
(b) October 1, 2009, Mr. Talley will not at any time, directly
or indirectly, in any capacity (whether as a proprietor, owner, agent, officer,
director, shareholder, partner, principal, member, employee, contractor,
consultant or otherwise) render any services to a bank or savings and loan or a
holding company of a bank or savings and loan (in any case, a “Bank”) with
respect to any Bank office, branch or other facility (in any case, a “Branch”)
that is located within a thirty-five (35) mile radius of the location of the
Bank’s headquarters on the date hereof (including, without limitation, being
involved in any manner in the operations of or having any responsibilities with
respect to any Branch).

 

7.4.2 This Section 7.4
shall not apply if prior to October 1, 2009, there is a (i) merger or
consolidation of the Bank with a third party in which the Bank is not the
survivor, (ii) sale of a controlling interest in the Bank to a third party
or (iii) a sale of all or substantially all of the business or assets of
the Bank to a third party, and this Agreement is not assigned to such third
party or Mr. Talley’s employment hereunder is otherwise terminated by such
third party in connection with such merger, consolidation or sale. Further,
mere ownership of less than two percent (2%) of the securities of any publicly
held corporation shall not constitute a violation of this Section.

 

7.5 Non-Interference.  Mr. Talley hereby covenants and agrees
that from the Commencement Date until the earlier to occur of (a) the date
one hundred eighty (180) days after his last day of employment with the Bank or
(b) October 1, 2009, he will not, directly or indirectly, for himself
or any other Person (whether as a proprietor, owner, agent, officer, director,
shareholder, partner, principal, member, employee, contractor, consultant or
any other capacity), induce or attempt to induce any customers, suppliers,
officers, employees, contractors, consultants, agents or representatives of, or
any other person that has a business relationship with, the Bank or any of its
subsidiaries and affiliates to discontinue, terminate or reduce the extent of
their relationship with the Bank and/or any such parent, subsidiary or
affiliate or to take any action that would disrupt or otherwise be
disadvantageous to any such relationship.

 

7.6 Injunction. In
the event of any breach or threatened or attempted breach of any such provision
by Mr. Talley, the Bank shall, in addition to and not to the exclusion of
any other rights and remedies at law or in equity, be entitled to seek and
receive from any court of competent jurisdiction (i) full temporary and
permanent injunctive relief enjoining and restraining Mr. Talley and each
and every other Person concerned therein from the continuation of such volatile
acts and (ii) a decree for specific performance of the applicable
provisions of this Agreement, without being required to furnish any bond or
other security.

 

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7.7           Reasonableness.

 

7.7.1 Mr. Talley has
carefully read and considered the provisions of this Article 7 and, having
done so, agrees that the restrictions and agreements set forth in this Article 7
are fair and reasonable and are reasonably required for the protection of the
interests of the Bank and its business, shareholders, directors, officers and
employees.  Mr. Talley further
agrees that the restrictions set forth in this Agreement will not impair or
unreasonably restrain his ability to earn a livelihood.

 

7.7.2 If any court of
competent jurisdiction should determine that the duration, geographical area or
scope of any provision or restriction set forth in this Article 7 exceeds
the maximum duration, geographic area or scope that is reasonable and
enforceable under applicable law, the parties agree that said provision shall
automatically be modified and shall be deemed to extend only over the maximum
duration, geographical area and/or scope as to which such provision or
restriction said court determines to be valid and enforceable under applicable
law, which determination the parties direct the court to make, and the parties
agree to be bound by such modified provision or restriction.

 

8.                                       Change
in Control.

 

8.1           Definition.  “Change in Control” means and shall be deemed
to have occurred if:

 

(a)  there shall be
consummated any consolidation or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which shares of the
Company’s capital stock are converted into cash, securities or other property
other than a consolidation or merger of the Company in which the holders of the
Company’s voting stock immediately before the consolidation or merger shall,
upon consummation of the consolidation or merger, own less than fifty percent
(50%) of the voting stock of the surviving corporation, or any sale of all or
substantially all of the assets of the Company;

 

(b)  any person
(within the meaning of Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) shall after the
Commencement Date become the beneficial owner (within the meaning of Rules 13d-3
and 13d-5 under the Exchange Act), directly or indirectly, of securities
of the Company representing fifty-one percent (51%) or more of the voting power
of then all outstanding securities of the Company entitled to vote generally in
the election of directors of the Company (including, without limitation, any
securities of the Company that any such person has the right to acquire
pursuant to any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise, which shall be deemed beneficially owned by such
person); or

 

(c)  individuals who
at the Commencement Date constitute the entire Board of Directors of the
Company and any new directors whose election by the Board of Directors of the
Company, or whose nomination for election by the Company’s stockholders, shall
have been approved by a vote of at least a majority of the directors then in
office who either were directors at the Commencement Date or whose election or
nomination for election shall have been so approved, shall cease for any reason
to constitute at least a majority of the Board of Directors of the Company.

 

8.2           Change
in Control Termination.  For purposes
of this Agreement, a “Change in Control Termination” means that while this
Agreement is in effect:

 

(a)  Mr. Talley’s
employment with the Bank is terminated without Cause within one hundred twenty
(120) days immediately (i) prior to and in conjunction with a Change in
Control or (ii) following consummation of a Change in Control; or

 

(b)  Mr. Talley
is notified within one hundred twenty (120) days immediately prior to or
immediately following consummation of a Change in Control that, as a result of
the Change in Control, he will not be continued in a comparable position (with
comparable compensation and benefits) with the surviving corporation to the
position he holds at the time such notice is given if the notice is given prior
to the Change in Control or, if the notice is given after a Change in Control,
to the position he held immediately prior to the Change in Control, and within
fifteen (15) days after receiving such notification Mr. Talley notifies
the Bank Board or its successors that he is terminating his employment due to
such change in his employment, with his

 

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last day of employment to
be mutually agreed to by Mr. Talley, the Bank Board or its successors but
which shall be not more than sixty (60) days after such notice is given by Mr. Talley;
or

 

(c)   If at the expiration of the one hundred
twenty (120) day period immediately following consummation of a Change in
Control (the “Action Period”) none of the events described in Sections 8.2(a) and
8.2(b) above have occurred, Mr. Talley, within the thirty (30) day
period immediately following the last day of the Action Period, notifies the
Bank that he is terminating his employment due to the Change in Control, with
his last day of employment to be mutually agreed to by Mr. Talley, the
Bank or its successors but which shall be not more than sixty (60) days after
such notice is given by Mr. Talley.

 

8.3           Change
in Control Payment.  If there is a
Change in Control Termination, Mr. Talley shall be paid a lump-sum cash
payment (the “Change Payment”) by the Bank equal to 2.99 times his Salary at
the highest rate in effect during the twelve (12) month period immediately
preceding his last day of employment, such Change Payment to be made to Mr. Talley
within forty-five (45) days after his last day of employment.  At Mr. Talley’s option, he may be paid,
in lieu of a lump-sum cash payment, in monthly payments over a period not to
exceed thirty-six months, but no interest shall accrue or be paid on any
balances.

 

8.4           Adjustment.

 

(a)  Notwithstanding
anything in this Agreement to the contrary, if the Determining Firm (as defined
in Section 8.4(b)) determines that any portion of the Change Payment
and/or the portions, if any, of other payments or distributions in the nature
of compensation by the Bank to or for the benefit of Mr. Talley
(including, but not limited to, the value of the acceleration in vesting of
restricted stock, options or any other stock-based compensation) whether or not
paid or payable or distributed or distributable pursuant to the terms of this
Agreement (collectively with the Change Payment, the “Aggregate Payment”),
would cause any portion of the Aggregate Payment to be subject to the excise
tax imposed by Code Section 4999 or would be nondeductible by the Bank
pursuant to Code Section 280G (such portion subject to the excise tax or
being nondeductible, the “Parachute Payment”), the Aggregate Payment will be
reduced, beginning with the Change Payment, to an amount which will not cause
any portion of the Aggregate Payment to constitute a Parachute Payment.

 

(b)  All
determinations required to be made under this Section 8.4, will be made by
a reputable law or accounting firm (the “Determining Firm”) selected by the
Bank.  All fees and expenses of the Determining
Firm will be obligations solely of the Bank. 
The determination of the Determining Firm will be binding upon Mr. Talley
and the Bank.

 

9. Assignability.  Mr. Talley shall have no right to assign
this Agreement or any of his rights or obligations hereunder to another party
or parties.

 

10. Governing Law.
This Agreement shall be governed by and construed in accordance with the laws
of the State of Maryland applicable to contracts executed and to be performed
therein, without giving to the choice of law rules thereof.

 

11. Notices. All
notices, requests, demands and other communications required to be given or
permitted to be given this Agreement shall be in writing and shall be
conclusively deemed to have been given (1) when hand delivered to the other
party, or (2) when received when by facsimile at the address a number set
forth below provided however, that notices given by facsimile shall not
be effective unless either a duplicate copy of such facsimile notice is
promptly given by depositing same in a United States post office first-class
postage prepaid and addressed to the parties as set forth below, or the
receiving party delivers a written confirmation of receipt for such notice
either by facsimile or any other method permitted under this sub additionally,
any notice given by facsimile shall be deemed received on the next business day
if such notice is received after 5:00 p.m. (recipient’s time) or on a
non-business day); or three (3) business days after the same have been
deposited in a United States post office with first-class certified mail,
return receipt, postage prepaid and addressed to the parties as set forth
below; or (4) the next business day after same have been deposited with a
national overnight delivery service reasonably approved by the parties (Federal
Express and DHL WorldWide Express being deemed approved by the parties),
postage prepaid, addressed to the parties as set forth below with
next-business-day delivery guaranteed, provided that the sending party received
a confirmation of delivery from the delivery service provider. The address of a
party set forth below may be changed by that party by written notice to the
other from time to time pursuant to this Article.

 

8

 

	
  To:

  	
  John N. Burdette

  	
  cc:

  	
  David Baris, Esquire

  
	
   

  	
  Chairman of the Board

  	
   

  	
  Kennedy, Baris, &
  Lundy L.L.P.

  
	
   

  	
  Frederick County Bank

  	
   

  	
  4701 Sangamore Road, Suite P-15

  
	
   

  	
  P.O. Box 1100

  	
   

  	
  Bethesda, MD 20816

  
	
   

  	
  Frederick, MD 21702

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  To:

  	
  William R. Talley, Jr.

  	
   

  	
   

  
	
   

  	
  6227 Derby Drive

  	
   

  	
   

  
	
   

  	
  Frederick, MD 21703

  	
   

  	
   

  

 

12. Entire Agreement.
This Agreement contains all of the agreements and understandings between the
parties hereto with respect to the employment of Mr. Talley by the Bank,
and supersedes all prior agreements, arrangements and understandings related to
the subject matter hereof, including but not limited to the Employment
Agreement dated September 13, 2001 be and between Frederick County Bank
and William R. Talley, Jr.  No oral
agreements or written correspondence shall be held to affect the provisions
hereof. No representation, promise, inducement or statement of intention has
been made by either party that is not set forth in this Agreement, and neither
party shall be bound by or liable for any alleged representation, promise,
inducement or statement of intention not so set forth.

 

13. Headings. The Article and
Section headings contained in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.

 

14. Severability.
Should any part of this Agreement for any reason be declared or held illegal,
invalid or unenforceable, such determination shall not affect the legality,
validity or enforceability of any remaining portion or provision of this
Agreement, which remaining portions and provisions shall remain in force and
effect as if this Agreement has been executed with the illegal, invalid or
unenforceable portion thereof eliminated.

 

15. Amendment: Waiver.
Neither this Agreement nor any provision hereof may be amended, modified,
changed, waived, discharged or terminated except by an instrument in writing
signed by the party against which enforcement of the amendment, modification,
change, waiver, discharge or termination is sought. The failure of either party
at any time or times to require performance of any provision hereof shall not
in any manner affect the right at a later time to enforce the same. No waiver
by either party of the breach of any term, provision or covenant contained in
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such breach, or a waiver of the breach of any other term, provision or covenant
contained in this Agreement.

 

16. Gender and Tense.
As used in this Agreement, the masculine, feminine and neuter gender, and the
singular or plural number, shall each be deemed to include the other or others
whenever the context so indicates.

 

17. Binding Effect.
This Agreement is and shall be binding upon, and inures to the benefit of, the
Bank, its successors and assigns, and Mr. Talley and his heirs, executors,
administrators, and personal and legal representatives.

 

IN WITNESS WHEREOF, the
parties have executed this Agreement as of the date first written above.

 

FREDERICK
COUNTY BANK

 

 

	
  By:

  	
  /s/ John N. Burdette

  	
   

  	
  By:

  	
  /s/ William R. Talley, Jr.

  	
   

  
	
   

  	
   John N. Burdette

  	
   

  	
   William R. Talley, Jr.

  
	
   

  	
   

  	
   

  	
   

  
	
  Title: 

  	
  Chairman of the Board

  	
   

  	
  Title:

  	
  Executive Vice
  President & Chief Financial Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  May 23, 2005

  	
   

  	 

	
  Date

  	
   

  	
   

  	 

													

 

9Exhibit
10.1

 

LABOR READY, INC.

 

2005 LONG-TERM EQUITY INCENTIVE PLAN

 

1.             Purposes of the Plan.  The purposes of this Plan are to further
the growth, development and financial success of the Company by attracting and
retaining the most talented Employees, Consultants and Directors available, and
by aligning the long-term interests of Employees, Consultants and Directors
with those of the shareholders by providing an opportunity to acquire an
ownership interest in the Company and by providing both performance rewards and
long term incentives for future contributions to the success of the Company.

 

The Plan permits the grant
of Incentive Stock Options, Nonqualified Stock Options, Restricted Stock,
Restricted Stock Units, or Stock Appreciation Rights, at the discretion of the
Committee and as reflected in the terms of the Award Agreement. Each Award will
be subject to conditions specified in the Plan, such as continued employment or
satisfaction of performance criteria.

 

This Plan will serve as a
framework for the Committee to establish sub-plans or procedures governing the
grants to Employees, Directors, Consultants and Employees working for the
Company outside of the United States. The awards granted under the Former Plans
shall continue to be administered under the Former Plans until such time as
those options are exercised, expire or become unexercisable for any reason.

 

2.             Definitions.  As used herein, the following definitions
shall apply:

 

(a)           “Award” shall
mean any award or benefits granted under the Plan, including Options,
Restricted Stock, Restricted Stock Units, and SARs.

 

(b)           “Award Agreement” shall mean a written or electronic agreement between the Company and
the Participant setting forth the terms of the Award.

 

(c)           “Beneficial Ownership” shall have the meaning set forth in Rule 13d-3 promulgated under the
Exchange Act.

 

(d)           “Board” shall
mean the Board of Directors of the Company.

 

(e)           “Code” shall
mean the Internal Revenue Code of 1986, as amended.

 

(f)            “Committee” shall
mean the Compensation Committee appointed by the Board, which at all times
shall consist of two (2) or more members of the Board, each of whom must
qualify as an Independent Director.

 

(g)           “Common Stock” shall mean the common stock of the Company, no par value per share.

 

(h)           “Company” shall
mean Labor Ready, Inc., a Washington corporation and

 

 

any successor thereto.

 

(i)            “Consultant” shall
mean any person, except an Employee, engaged by the Company or any Subsidiary
of the Company, to render personal services to such entity, including as an
advisor, pursuant to the terms of a written agreement.

 

(j)            “Continuous Status as a Participant” shall mean (i) for Employees, the absence of
any interruption or termination of service as an Employee, (ii) for Directors,
the absence of any interruption or termination of service as a Director, and
(iii) for Consultants, the absence of any interruption, expiration, or
termination of such person’s consulting or advisory relationship with the
Company or the occurrence of any termination event as set forth in such person’s
Award Agreement. Continuous Status as a Participant shall not be considered
interrupted (A) for an Employee in the case of sick leave, maternity leave,
infant care leave, medical emergency leave, military leave, or any other leave
of absence properly taken in accordance with the policies of the Company or any
applicable Subsidiary as may be in effect from time to time, and (B) for a
Consultant, in the case of any temporary interruption in such person’s
availability to provide services to the Company which has been authorized in
writing by a vice president of the Company prior to its commencement.

 

(k)           “Director” shall
mean a member of the Board.

 

(l)            “Disability” shall
mean (i) in the case of a Participant whose employment with the Company or a
Subsidiary is subject to the terms of an employment or consulting agreement
that includes a definition of “Disability” as used in this Plan shall have the
meaning set forth in such employment or consulting agreement during the period
that such employment or consulting agreement remains in effect; and (ii) in all
other cases, the term “Disability” as used in this Plan shall mean a “permanent
and total disability” as the term is defined for purposes of Section 22(e)(3)
of the Code.

 

(m)          “Effective Date” shall mean the date on which
the Company’s shareholders have approved this Plan in accordance with
applicable NYSE rules.

 

(n)           “Employee” shall
mean any person, including an officer, who is a common law employee of,
receives remuneration for personal services to, is reflected on the official
human resources database as an employee of, and is on the payroll of the
Company or any Subsidiary of the Company. A person is on the payroll if he or
she is paid from or at the direction of the payroll department of the Company,
or any Subsidiary of the Company. Persons providing services to the Company, or
to any Subsidiary of the Company, pursuant to an agreement with a staff leasing
organization, temporary workers engaged through or employed by temporary or leasing
agencies, and workers who hold themselves out to the Company, or a Subsidiary
to which they are providing services as being independent contractors, or as
being employed by or engaged through another company while providing the
services, and persons covered by a collective bargaining agreement (unless the
collective bargaining agreement applicable to the person specifically provides
for participation in this Plan) are not Employees for purposes of this Plan and
do not and cannot participate in this Plan, whether or not such persons are, or
may be reclassified by the courts, the Internal Revenue Service, the U. S.
Department of Labor, or other person or entity, as common law employees of the
Company, or any Subsidiary, either solely or jointly with another person or
entity.

 

2

 

(o)           “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

 

(p)           “Executive Officers” shall mean the officers
of the Company as such term is defined in Rule 16a-1 under the Exchange Act.

 

(q)           “Fair Market Value” shall mean the closing
price per share of the Common Stock on the NYSE as to the date specified (or
the previous trading day if the date specified is a day on which no trading
occurred), or if the NYSE shall cease to be the principal exchange or quotation
system upon which the shares of Common Stock are listed or quoted, then such
exchange or quotation system as the Company elects to list or quote its shares
of Common Stock and that the Committee designates as the Company’s principal
exchange or quotation system.

 

(r)            “FAS 123” shall
mean Statement of Financial Accounting Standard 123, “Accounting for
Stock-based Compensation,” as promulgated by the Financial Accounting Standards
Board.

 

(s)           “FLSA” shall
mean the Fair Labor Standards Act of 1938, as amended.

 

(t)            “Former Plans” shall mean collectively the 1996 Labor Ready Employee Stock Option and
Incentive Plan and the Labor Ready, Inc. 2000 Stock Option Plan.

 

(u)           “Incentive Stock Option” shall mean any Option intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code.

 

(v)           “Independent Director” shall mean a Director who: (1) meets the independence requirements of
the NYSE, or if the NYSE shall cease to be the principal exchange or quotation
system upon which the shares of Common Stock are listed or quoted, then such
exchange or quotation system as the Company elects to list or quote its shares
of Common Stock and that the Committee designates as the Company’s principal exchange
or quotation system; (2) qualifies as an “outside director” under Section
162(m) of the Code and the Treasury Regulations promulgated thereunder; (3)
qualifies as a “non-employee director” under Rule 16b-3 promulgated under the
Exchange Act; and (4) satisfies independence criteria under any other
applicable laws or regulations relating to the issuance of Shares to Employees.

 

(w)          “Maximum Annual Participant Award” shall have the meaning set forth in Section
6(b).

 

(x)            “NYSE” shall
mean the New York Stock Exchange.

 

(y)           “Non-Employee Director” shall mean a Director who is not an Employee.

 

(z)            “Nonqualified Stock Option” shall mean an Option that does not qualify or
is not intended to qualify as an Incentive Stock Option.

 

(aa)         “Option” shall
mean a stock option granted pursuant to Section 7 of the Plan.

 

 

3

 

(bb)         “Option Price” shall mean the per share purchase price of a Share purchased pursuant
to an Option.

 

(cc)         “Parent” shall
mean a “parent corporation,” whether now or hereafter existing, as defined in
Section 424(e) of the Code.

 

(dd)         “Participant” shall mean an Employee, Director or Consultant.

 

(ee)         “Performance Criteria” shall have the meaning set forth in Section 8(c).

 

(ff)           “Plan” shall
mean this Labor Ready, Inc. 2005 Long-Term Equity Incentive Plan, including any
amendments thereto.

 

(gg)         “Reprice” shall
mean the adjustment or amendment of the exercise price of Options or SARs
previously awarded whether through amendment, cancellation, replacement of
grants or any other means.

 

(hh)         “Restricted Stock” shall mean a grant of Shares pursuant to Section 8 of the Plan.

 

(ii)           “Restricted Stock Units” shall mean a grant of the right to receive Shares in the future or
their cash equivalent (or both) pursuant to Section 8 of the Plan.

 

(jj)           “SAR” shall
mean a stock appreciation right awarded pursuant to Section 9 of the Plan.

 

(kk)         “SEC” shall
mean the Securities and Exchange Commission.

 

(ll)           “Share” shall
mean one share of Common Stock, as adjusted in accordance with Section 4 of the
Plan.

 

(mm)       “Stand-Alone SARs” shall have the meaning set forth in Section 9(c) of the Plan.

 

(nn)         “Subcommittee”
shall have the meaning set forth in Section 5(d).

 

(oo)         “Subsidiary” shall
mean (1) in the case of an Incentive Stock Option a “subsidiary corporation,”
whether now or hereafter existing, as defined in Section 424(f) of the Code,
and (2) in the case of a Nonqualified Stock Option, Restricted Stock, a
Restricted Stock Unit or a SAR, in addition to a subsidiary corporation as
defined in (1), (A) a limited liability company, partnership or other entity in
which the Company controls fifty percent (50%) or more of the voting power or
equity interests, or (B) an entity with respect to which the Company possesses
the power, directly or indirectly, to direct or cause the direction of the
management and policies of that entity, whether through the Company’s ownership
of voting securities, by contract or otherwise.

 

(pp)         “Tandem SARs”
shall have the meaning set forth in Section 9(a) of the Plan.

 

4

 

(qq)         “Ten Percent Shareholder” shall mean a person who owns (or is deemed to own pursuant to Section
424(d) of the Code) stock comprising more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary.

 

3.             Shares Subject to the Plan.

 

(a)           Reservation
of Shares.  The shares of Common Stock reserved under
this Plan will include reserved shares of Common Stock that are not subject to
a grant or as to which the option award granted has been forfeited under the
Former Plans, and an additional Four Million Six Hundred Fifty Thousand
(4,650,000) Shares of Common Stock. Subject to the provisions of Section 4, the
maximum aggregate number of Shares which may be awarded and delivered under the
Plan shall not exceed Five Million Five Hundred Thousand (5,500,000) Shares
(adjusted, proportionately, in the event of any stock split or stock dividend
with respect to the Shares), and the maximum number which may be granted as
Incentive Stock Options under the Plan shall not exceed Four Million
(4,000,000) shares. The aggregate number of Shares available for issuance under
the Plan will be reduced by 1.5 Shares for each Share delivered in settlement
of any award of Restricted Stock, Restricted Stock Unit, or SAR and one Share
for each Share delivered in settlement of an Option. The number of Shares
underlying an Award not issued as a result of any of the following actions
shall again be available for issuance under the Plan: (i) a payout of a
Non-Tandem SAR, or a performance-based Restricted Stock Unit in the form of
cash; or (ii) a cancellation, termination, expiration, forfeiture, or lapse for
any reason (with the exception of the termination of a Tandem SAR upon exercise
of the related Options, or the termination of a related Option upon exercise of
the corresponding Tandem SAR) of any Award. The Company, during the term of
this Plan, will at all times reserve and keep available such number of Shares
as shall be sufficient to satisfy the requirements of the Plan. Shares
available for issuance under the Plan shall be increased by any shares of
Common Stock subject to outstanding awards under the Former Plans on the date
of shareholder approval of the Plan that later cease to be subject to such
awards for any reason other than such awards having been exercised, subject to
adjustment from time to time as provided in Section 5, which shares of Common
Stock shall, as of the date such shares cease to be subject to such awards,
cease to be available for grant and issuance under the Former Plans, but shall
be available for issuance under the Plan. The Shares may be authorized but
unissued, or reacquired shares of Common Stock.

 

(b)           Substitutions
and Assumptions.  The Board or the Committee shall have the
right to substitute or assume Awards in connection with mergers,
reorganizations, separations, or other transactions to which Section 424(a) of
the Code applies, provided such substitutions and assumptions are permitted by
Section 424 of the Code and the regulations promulgated thereunder. The number
of Shares reserved pursuant to Section 3(a) may be increased by a corresponding
number of Awards assumed and, in the case of substitution, by the net increase
in the number of Shares subject to Awards before and after the substitution.

 

(c)           Securities
Law Compliance.  Shares shall not be issued pursuant to the
exercise of an Award unless the exercise of such Award and the issuance and
delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933,
as amended, the Exchange Act, the rules and regulations promulgated under
either such Act, and the requirements of any stock exchange or quotation system
upon which the Shares may then be listed or quoted, and shall be further
subject to the

 

5

 

approval of counsel for the Company with respect to such compliance.

 

4.             Adjustments to Shares Subject to the
Plan.  If any change is
made to the Shares by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Shares as a class without the Company’s receipt of
consideration, appropriate adjustments shall be made to (i) the maximum number
and/or class of securities issuable under the Plan, (ii) the number and/or
class of securities and/or the price per Share covered by outstanding Awards
under the Plan, and (iii) the Maximum Annual Participant Award. The Committee
may also make adjustments described in (i)-(iii) of the previous sentence in
the event of any distribution of assets to shareholders other than a normal
cash dividend. In determining adjustments to be made under this Section 4, the
Committee may take into account such factors as it deems appropriate, including
the restrictions of applicable law and the potential tax consequences of an
adjustment, and in light of such factors may make adjustments that are not
uniform or proportionate among outstanding Awards. Adjustments, if any, and any
determinations or interpretations, including any determination of whether a
distribution is other than a normal cash dividend, made by the Committee shall
be final, binding and conclusive. The Committee in its discretion may provide
holders of Restricted Stock or Restricted Stock Units a dividend equivalent
right with respect to the Shares the Participant shall be entitled to receive
or purchase. For purposes of this Section 4, conversion of any convertible
securities of the Company shall not be deemed to have been “effected without
receipt of consideration.”

 

Except as expressly provided
herein, no issuance by the Company of shares of any class, or securities
convertible into shares of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of Shares subject to
an Award.

 

5.             Plan Administration.

 

(a)           Authority.  The Plan shall be administered by the Committee. The Committee shall
have full and exclusive power to administer the Plan on behalf of the Board,
subject to such terms and conditions as the Committee may prescribe.
Notwithstanding anything herein to the contrary, the Committee’s power to
administer the Plan, and actions the Committee takes under the Plan, shall be
consistent with the provisions set forth in the Committee’s charter, as such
charter may be amended from time to time.

 

(b)           Powers of
the Committee.  Subject to the other provisions of this Plan,
the Committee shall have the authority, in its discretion:

 

•      to grant Incentive Stock Options,
Nonqualified Stock Options, Restricted Stock, Restricted Stock Units, and SARs
to Participants and to determine the terms and conditions of such Awards,
including the determination of the Fair Market Value of the Shares and the
exercise price (subject to Section 7(b)), and to modify or amend each Award,
with the consent of the Participant when required;

 

•      to determine the Participants to whom Awards,
if any, will be granted hereunder, the timing of such Awards, and the number of
Shares to be represented by each Award;

 

6

 

•      to construe and interpret the Plan, the
Awards granted hereunder, and any Award Agreement;

 

•      to prescribe, amend, and rescind rules and
regulations relating to the Plan, including the form of Award Agreement, and
manner of acceptance of an Award, such as correcting a defect or supplying any
omission, or reconciling any inconsistency so that the Plan or any Award
Agreement complies with applicable law, regulations and listing requirements
and to avoid unanticipated consequences deemed by the Committee to be
inconsistent with the purposes of the Plan or any Award Agreement;

 

•      to establish performance criteria for Awards
made pursuant to the Plan in accordance with a methodology established by the
Committee, and to determine whether performance goals have been attained;

 

•      to accelerate or defer (with the consent of
the Participant) the exercise or vested date of any Award;

 

•      to authorize any person to execute on behalf
of the Company any instrument required to effectuate the grant of an Award
previously granted by the Committee;

 

•      to establish subplans, procedures or
guidelines for the grant of Awards to Employees, Directors and Consultants;

 

•      to authorize the cancellation, forfeiture or
suspension of an Award; and

 

•      to make all other determinations deemed
necessary or advisable for the administration of the Plan;

 

Provided that, no consent of a Participant is
necessary under clauses (i) or (vi) if a modification, amendment, acceleration,
or deferral, in the reasonable judgment of the Committee confers a benefit on
the Participant or is made pursuant to an adjustment in accordance with Section
4.

 

(c)           Effect of
Committee’s Decision.  All decisions, determinations, and
interpretations of the Committee shall be final, conclusive and binding on all
Participants, the Company, any shareholder and all other persons.

 

(d)           Delegation
and Administration.  Consistent with the Committee’s charter, as
such charter may be amended from time to time, the Committee may delegate to
one or more subcommittees consisting of members of the Committee or other
Directors who are Independent Directors (any such committee a “Subcommittee”)
the administration of the Plan, and such administrator(s) may have the
authority to directly, or under their supervision, execute and distribute
agreements or other documents evidencing or relating to Awards granted by the
Committee under this Plan, to maintain records relating to the grant, vesting,
exercise, forfeiture or expiration of Awards, to process or oversee the
issuance of Shares upon the exercise, vesting and/or settlement of an Award, to
interpret the terms of Awards and to take such other actions as

 

7

 

the Committee may specify. Any action by any such Subcommittee within
the scope of such delegation shall be deemed for all purposes to have been
taken by the Committee.

 

6.             General Eligibility.

 

(a)           Awards.  Awards may be granted to Participants who are Employees, Directors or
Consultants, provided however that Incentive Stock Options may only be granted
to Employees.

 

(b)           Maximum
Annual Participant Award.  The aggregate number of Shares with respect
to which an Award or Awards may be granted to any one Participant in any one
taxable year of the Company (the “Maximum Annual Participant Award”) shall not
exceed 1 million shares of Common Stock (adjusted, proportionately, in the
event of any stock split or stock dividend with respect to the Shares). If an
Option is in tandem with a SAR, such that the exercise of the Option or SAR
with respect to a Share cancels the tandem SAR or Option right, respectively,
with respect to each Share, the tandem Option and SAR rights with respect to
each Share shall be counted as covering but one Share for purposes of the
Maximum Annual Participant Award.

 

(c)           No
Employment/Service Rights.  Nothing in the Plan shall confer upon any
Participant the right to an Award or to continue in service as an Employee or
Consultant for any period of specific duration, or interfere with or otherwise
restrict in any way the rights of the Company (or any Subsidiary employing or
retaining such person), or of any Participant, which rights are hereby
expressly reserved by each, to terminate such person’s services at any time for
any reason, with or without cause (as such term is defined in a Company subplan
or an Award Agreement, as applicable).

 

7.             Grant, Terms and Conditions of Options.

 

(a)           Designation.  Each Option shall be designated in an Award Agreement as either an
Incentive Stock Option or a Nonqualified Stock Option. However, notwithstanding
the foregoing, if an Option is not designated as an Incentive Stock Option,
such Option will be deemed to be a Nonqualified Stock Option. To the extent
that the aggregate Fair Market Value (determined at the time of grant) of the
Shares with respect to which Options designated as Incentive Stock Options are
exercisable for the first time by any Employee during any calendar year exceeds
$100,000, such excess Options shall be treated as Nonqualified Stock Options.
For this purpose, Options shall be taken into account in the order in which
they were granted.

 

(b)           Option
Price.  The per Share exercise price under an Incentive Stock Option (i)
granted to a Ten Percent Shareholder, shall be no less than 110% of the Fair
Market Value per Share on the date of grant, or (ii) granted to any other
Participant, shall be no less than 100% of the Fair Market Value per Share on
the date of grant. The per Share exercise price under a Nonqualified Stock
Option or SAR shall be no less than one hundred percent (100%) of the Fair
Market Value per Share on the date of grant. In no event shall the Board or the
Committee be permitted to Reprice an Option after the date of grant.

 

(c)           Term of
Options.  The term of each Incentive Stock Option shall
be no more than ten (10) years from the date of grant. However, in the case of
an Incentive Stock

 

8

 

Option granted to a Ten Percent Shareholder, the term of the Option
shall be no more than five (5) years from the date of grant. The term of all
Nonqualified Options shall be seven (7) years unless otherwise provided by the Committee
in its discretion.

 

(d)           Vesting.  To the extent Options vest and become exercisable in increments, unless
otherwise provided in the applicable Award Agreement or any severance agreement
(i) such Options shall cease to vest upon a Participant’s Disability or
termination of such Participant’s Continuous Status as a Participant (other
than upon a Participant’s death), and (ii) such Options shall immediately vest
in full upon a Participant’s death.

 

(e)           Substitution
of SARs for Options.  Notwithstanding the foregoing, if the Company
is required to or elects to expense the cost of Options pursuant to FAS 123 (or
a successor or other standard), the Committee shall have the sole discretion to
substitute without receiving Participants’ permission, SARs paid only in stock
for outstanding Options; provided, the terms of the substituted stock SARs are
the same as the terms of the Options, the number of shares underlying the
number of stock SARs equals the number of shares underlying the Options and the
difference between the Fair Market Value of the underlying Shares and the grant
price of the SARs is equivalent to the difference between the Fair Market Value
of the underlying Shares and the exercise price of the Options.

 

(f)            Exercise.  Any Option granted hereunder shall be exercisable at such times and
under such conditions as determined by the Committee at the time of grant, and
as shall be permissible under the terms of the Plan. No fractional Shares may
be issued or delivered pursuant to the Plan or any Award.

 

8.             Grant, Terms and Conditions of Stock Awards.

 

(a)           Designation.  Restricted Stock or Restricted Stock Units may be granted under the
Plan. Restricted Stock or Restricted Stock Units may include a dividend
equivalent right, as permitted by Section 4. After the Committee determines
that it will offer Restricted Stock or Restricted Stock Units, it will advise
the Participant in writing or electronically, by means of an Award Agreement,
of the terms, conditions and restrictions, including vesting, if any, related
to the offer, including the number of Shares that the Participant shall be
entitled to receive or purchase, the price to be paid, if any, and, if
applicable, the time within which the Participant must accept the offer. The
offer shall be accepted by execution of an Award Agreement or as otherwise
directed by the Committee. Restricted Stock Units may be paid as permitted by
Section 10(b). The term of each award of Restricted Stock or Restricted Stock
Units shall be at the discretion of the Committee.

 

(b)           Restrictions. 
Subject to Section 8(c), the Committee may impose such conditions or
restrictions on the Restricted Stock or Restricted Stock Units granted pursuant
to the Plan as it may determine advisable, including the achievement of
specific performance goals, time based restrictions on vesting, or others. If
the Committee established performance goals, the Committee shall determine
whether a Participant has satisfied the performance goals.

 

(c)           Performance
Criteria.  Restricted Stock and Restricted Stock Units
granted pursuant to the Plan that are intended to qualify as “performance based
compensation” under Section 162(m) of the Code shall be subject to the
attainment of performance goals relating

 

9

 

to the Performance Criteria selected by the Committee and specified at
the time such Restricted Stock and Restricted Stock Units are granted. For
purposes of this Plan, “Performance Criteria” means one or more of the
following (as selected by the Committee): (i) cash flow; (ii) earnings per
share; (iii) earnings before interest, taxes, and amortization; (iv) return on
equity; (v) total shareholder return; (vi) share price performance; (vii)
return on capital; (viii) return on assets or net assets; (ix) revenue; (x)
revenue growth; (xi) earnings growth; (xii) operating income; (xiii) operating
profit; (xiv) profit margin; (xv) return on operating revenue; (xvi) return on
invested capital; (xvii) market price; (xviii) brand recognition; (xix)
customer satisfaction; (xx) operating efficiency; or (xxi) productivity. Any of
these Performance Criteria may be used to measure the performance of the
Company as a whole or any business unit or division of the Company.

 

(d)           Vesting.  Unless the Committee determines otherwise, the Award Agreement shall
provide for the forfeiture of the non-vested Shares underlying Restricted Stock
or the termination of Restricted Stock Units upon cessation of a Participant’s
Continuous Status as a Participant, and the Shares underlying Restricted Stock
and Restricted Stock Units shall vest in full immediately upon death. To the
extent that the Participant purchased the Shares granted under any such
Restricted Stock award and any such Shares remain non-vested at the time of
cessation of a Participant’s Continuous Status as a Participant, the cessation
of Participant’s Continuous Status as a Participant shall cause an immediate
sale of such non-vested Shares to the Company at the original price per Share
paid by the Participant. Non-vested Shares underlying Restricted Stock and
Restricted Stock Units shall vest in full immediately upon death.

 

9.             Grant, Terms and Conditions of SARs.

 

(a)           Grants.  The Committee shall have the full power and authority, exercisable in
its sole discretion, to grant SARs to selected Participants. The Committee is
authorized to grant both tandem stock appreciation rights consisting of SARs
with underlying Options (“Tandem SARs”) and stand-alone stock appreciation
rights consisting of SARs not tied to underlying Options (“Stand-Alone SARs”).
The term of a SAR shall be at the discretion of the Committee. In no event
shall the Board or the Committee be permitted to Reprice a SAR after the date
of grant without shareholder approval.

 

(b)           Tandem
SARs.

 

(i)            Participants may be granted a Tandem SAR,
exercisable upon such terms and conditions as the Committee shall establish, to
elect between the exercise of the underlying Option for Shares or the surrender
of the Option in exchange for a distribution from the Company in an amount
equal to the excess of (A) the Fair Market Value (on the Option surrender date)
of the number of Shares in which the Participant is at the time vested under
the surrendered Option (or surrendered portion thereof) over (B) the aggregate
exercise price payable for such vested Shares.

 

(ii)           No such Option surrender shall be effective
unless it is approved by the Committee, either at the time of the actual Option
surrender or at any earlier time. If the surrender is so approved, then the
distributions to which the Participant shall become entitled under this Section
9(b) may be made in Shares valued at Fair Market Value (on the Option surrender
date), in cash, or partly in Shares and partly in cash, as the Committee shall
deem appropriate.

 

10

 

(iii)          If the surrender of an Option is not approved
by the Committee, then the Participant shall retain whatever rights he or she
had under the surrendered Option (or surrendered portion thereof) on the Option
surrender date and may exercise such rights at any time prior to the later of
(A) five (5) business days after the receipt of the rejection notice or (B) the
last day on which the Option is otherwise exercisable in accordance with the
terms of the instrument evidencing such Option, but in no event may such rights
be exercised more than ten (10) years after the date of the Option grant.

 

(c)           Stand-Alone SARs.

 

(iv)          A Participant may be granted a Stand-Alone
SAR not tied to any underlying Option under Section 7 of the Plan. The
Stand-Alone SAR shall cover a specified number of Shares and shall be
exercisable upon such terms and conditions as the Committee shall establish.
Upon exercise of the Stand-Alone SAR, the holder shall be entitled to receive a
distribution from the Company in an amount equal to the excess of (A) the
aggregate Fair Market Value (on the exercise date) of the Shares underlying the
exercised right over (B) the aggregate base price in effect for those Shares.

 

(v)           The number of Shares underlying each
Stand-Alone SAR and the base price in effect for those Shares shall be
determined by the Committee at the time the Stand-Alone SAR is granted. In no
event, however, may the base price per Share be less than the Fair Market Value
per underlying Share on the grant date.

 

(vi)          The distribution with respect to an exercised
Stand-Alone SAR may be made in Shares valued at Fair Market Value on the
exercise date, in cash, or partly in Shares and partly in cash, as the
Committee shall deem appropriate.

 

10.           Procedure for Exercise; Rights as a Shareholder.

 

(a)           Procedure.  An Award shall be exercised when written, electronic or verbal notice
of exercise has been given to the Company, or the brokerage firm or firms
approved by the Company to facilitate exercises and sales under this Plan, in
accordance with the terms of the Award by the person entitled to exercise the
Award and full payment for the Shares with respect to which the Award is
exercised has been received by the Company or the brokerage firm or firms, as applicable.
The notification to the brokerage firm shall be made in accordance with
procedures of such brokerage firm approved by the Company. Full payment may, as
authorized by the Committee, consist of any consideration and method of payment
allowable under the terms of this Plan. The Company shall issue (or cause to be
issued) such share certificate promptly upon exercise of the Award. In the
event that the exercise of an Award is treated in part as the exercise of an
Incentive Stock Option and in part as the exercise of a Nonqualified Stock
Option pursuant to Section 7(a), the Company shall issue a share certificate
evidencing the Shares treated as acquired upon the exercise of an Incentive
Stock Option and a separate share certificate evidencing the Shares treated as
acquired upon the exercise of a Nonqualified Stock Option, and shall identify
each such certificate accordingly in its share transfer records. No adjustment
will be made for a dividend or other right for which the record date is prior
to the date the share certificate is issued, except as provided in Section 4 of
the Plan.

 

(b)           Method of
Payment.  The consideration to be paid for any Shares
to be

 

11

 

issued upon exercise or other required settlement of an Award,
including a method of payment, shall be determined by the Committee at the time
of settlement, and which forms may include: (i) check; (ii) wire transfer;
(iii) tender of shares of Common Stock owned by the Participant in accordance
with rules established by the Committee from time to time; and (iv) a request
that the Company or a designated brokerage firm conduct a cashless exercise of
the Option. Shares used to pay the Option Price shall be valued at their Fair
Market Value on the exercise date. Payment of the aggregate Option Price by
means of tendering previously-owned shares of Common Stock shall not be
permitted when the same may, in the reasonable opinion of the Company, cause
the Company to record a loss or expense as a result thereof.

 

(c)           Withholding
Obligations.  To the extent required by applicable federal,
state, local or foreign law, the Committee may and/or a Participant shall make
arrangements satisfactory to the Company for the satisfaction of any
withholding tax obligations that arise with respect to any Incentive Stock
Option. Nonqualified Stock Option, SAR, Restricted Stock or Restricted Stock
Units, or any sale of Shares. The Company shall not be required to issue Shares
or to recognize the disposition of such Shares until such obligations are
satisfied. These obligations may be satisfied by having the Company withhold a
portion of the Shares that otherwise would be issued to a Participant under
such Award (provided, however, that no Shares are withheld with a value exceeding
the minimum amount of tax required to be withheld by law) or by tendering
Shares previously acquired by the Participant in accordance with rules
established by the Committee from time to time.

 

(d)           Shareholder
Rights.  Except as otherwise provided in this Plan,
until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the share
certificate evidencing such Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Shares
subject to the Award, notwithstanding the exercise of the Award.

 

(e)           Non-Transferability
of Awards.  An Award may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in exchange for consideration, and
may not be transferred other than by will or by the laws of descent or
distribution and may be exercised, during the lifetime of the Participant, only
by the Participant; unless the Committee permits further transferability, on a general
or specific basis, in which case the Committee may impose conditions and
limitations on any permitted transferability.

 

11.           Expiration of Awards.

 

(a)           Expiration,
Termination or Forfeiture of Awards.  Unless otherwise provided in the applicable
Award Agreement or any severance agreement, vested Awards granted under this
Plan shall expire, terminate, or otherwise be forfeited as follows:

 

(i)            ninety (90) days after the date of
termination of a Participant’s Continuous Status as a Participant other than in
circumstances covered by (ii), (iii), (iv) or (v) below;

 

(ii)           immediately upon termination of a Participant’s
Continuous Status as a Participant for cause (as defined in a Company subplan
or Award Agreement, as applicable);

 

12

 

(iii)          twelve (12) months after the date on which a
Participant ceased performing services as a result of his or her Disability;
and

 

(iv)          twelve (12) months after the date of the
death of a Participant who was a Participant whose Continuous Status as a
Participant terminated as a result of his or her death.

 

(b)           Extension
of Term.  Notwithstanding subsection (a) above, the
Committee shall have the authority to extend the expiration date of any
outstanding Options or SARs other than an Incentive Stock Option in
circumstances in which it deems such action to be appropriate (provided that no
such extension shall extend the term of an Option or SAR beyond the date on
which the Award would have expired or been forfeited if there had been no
termination of the Employee’s Continuous Status as a Participant).

 

12.           Term, Amendment and Termination of the Plan.

 

(a)           Term of
Plan.  The Plan shall become effective as of the Effective Date. It shall
continue in effect until the tenth anniversary of the Effective Date or until
terminated under this Section 12 of the Plan or extended by an amendment
approved by the shareholders of the Company pursuant to Section 12(a).

 

(b)           Amendment
and Termination.  The Board or the Committee may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable (including, but not limited to amendments which the Board deems
appropriate to enhance the Company’s ability to claim deductions related to
stock option exercises); provided that to the extent required by the Code or
the rules of the NYSE or the SEC, shareholder approval shall be required for
any amendment of the Plan. Subject to the foregoing, it is specifically
intended that the Board or Committee may amend the Plan without shareholder
approval to comply with legal, regulatory and listing requirements and to avoid
unanticipated consequences deemed by the Committee to be inconsistent with the
purpose of the Plan or any Award Agreement.

 

(c)           Participants
in Foreign Countries.  The Committee shall have the authority to
adopt such modifications, procedures, and subplans as may be necessary or
desirable to comply with provisions of the laws of foreign countries in which
the Company or its Subsidiaries may operate to assure the viability of the
benefits from Awards granted to Participants performing services in such
countries and to meet the objectives of the Plan.

 

(d)           Effect of
Amendment or Termination.  Any such amendment or termination of the Plan
shall not affect Awards already granted and such Awards shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Participant and the Committee, which
agreement must be in writing and signed by the Participant and the Company.

 

(e)           Shareholder
Approval.  The Plan is subject to approval by the
shareholders of the Company in accordance with applicable NYSE rules.

 

13

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