Document:

Unassociated Document

     

    Exhibit
10.5

     

    
       

      CORNERSTONE
ONDEMAND, INC.

       

      2010
EMPLOYEE STOCK PURCHASE PLAN

       

      1.      Purpose.  The
purpose of the Plan is to provide employees of the Company and its Designated
Subsidiaries with an opportunity to purchase Common Stock through accumulated
Contributions (as defined in Section 2(j) below).  The Company’s
intention is to have the Plan qualify as an “employee stock purchase plan” under
Section 423 of the Code.  The provisions of the Plan, accordingly,
will be construed so as to extend and limit Plan participation in a uniform and
nondiscriminatory basis consistent with the requirements of Section 423 of the
Code.

       

      2.      Definitions.

       

      (a)           “Administrator” means
the Board or any Committee designated by the Board to administer the Plan
pursuant to Section 14.

       

      (b)           “Applicable Laws”
means the requirements relating to the administration of equity-based awards
under U.S. state corporate laws, U.S. federal and state securities laws, the
Code, any stock exchange or quotation system on which the Common Stock is listed
or quoted and the applicable laws of any foreign country or jurisdiction where
options are, or will be, granted under the Plan.

       

      (c)           “Board” means the
Board of Directors of the Company.

       

      (d)           “Change in Control”
means the occurrence of any of the following events:

       

      (i)                 A
change in the ownership of the Company which occurs on the date that any one
person, or more than one person acting as a group (“Person”), acquires
ownership of the stock of the Company that, together with the stock held by such
Person, constitutes more than fifty percent (50%) of the total voting power of
the stock of the Company; provided, however, that for purposes of this
subsection, the acquisition of additional stock by any one Person, who is
considered to own more than fifty percent (50%) of the total voting power of the
stock of the Company will not be considered a Change in Control; or

       

      (ii)                 A
change in the effective control of the Company which occurs on the date that a
majority of members of the Board is replaced during any twelve (12) month period
by Directors whose appointment or election is not endorsed by a majority of the
members of the Board prior to the date of the appointment or
election.  For purposes of this clause (ii), if any Person is
considered to be in effective control of the Company, the acquisition of
additional control of the Company by the same Person will not be considered a
Change in Control; or

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

         

      

      (iii)                 A
change in the ownership of a substantial portion of the Company’s assets which
occurs on the date that any Person acquires (or has acquired during the twelve
(12) month period ending on the date of the most recent acquisition by such
person or persons) assets from the Company that have a total gross fair market
value equal to or more than fifty percent (50%) of the total gross fair market
value of all of the assets of the Company immediately prior to such acquisition
or acquisitions; provided, however, that for purposes of this subsection, the
following will not constitute a change in the ownership of a substantial portion
of the Company’s assets: (A) a transfer to an entity that is controlled by the
Company’s stockholders immediately after the transfer, or (B) a transfer of
assets by the Company to: (1) a stockholder of the Company (immediately before
the asset transfer) in exchange for or with respect to the Company’s stock, (2)
an entity, fifty percent (50%) or more of the total value or voting power of
which is owned, directly or indirectly, by the Company, (3) a Person, that owns,
directly or indirectly, fifty percent (50%) or more of the total value or voting
power of all the outstanding stock of the Company, or (4) an entity, at least
fifty percent (50%) of the total value or voting power of which is owned,
directly or indirectly, by a Person described in this subsection
(iii)(B)(3).  For purposes of this subsection, gross fair market value
means the value of the assets of the Company, or the value of the assets being
disposed of, determined without regard to any liabilities associated with such
assets.

       

      For
purposes of this definition, persons will be considered to be acting as a group
if they are owners of a corporation that enters into a merger, consolidation,
purchase or acquisition of stock, or similar business transaction with the
Company.

       

      Notwithstanding
the foregoing, a transaction will not be deemed a Change in Control unless the
transaction qualifies as a change in control event within the meaning of Code
Section 409A, as it has been and may be amended from time to time, and any
proposed or final Treasury Regulations and Internal Revenue Service guidance
that has been promulgated or may be promulgated thereunder from time to
time.

       

      Further
and for the avoidance of doubt, a transaction will not constitute a Change in
Control if: (i) its sole purpose is to change the state of the Company’s
incorporation, or (ii) its sole purpose is to create a holding company that will
be owned in substantially the same proportions by the persons who held the
Company’s securities immediately before such transaction.

       

      (e)           “Code” means the
Internal Revenue Code of 1986, as amended.  Any reference to a section
of the Code herein will be a reference to any successor or amended section of
the Code.

       

      (f)           “Committee” means a
committee of the Board appointed in accordance with Section 14
hereof.

       

      (g)           “Common Stock” means
the common stock of the Company.

       

      (h)           “Company” means
Cornerstone OnDemand, Inc., a Delaware corporation, or any successor
thereto.

       

      (i)           “Compensation” means
an Eligible Employee’s base straight time gross earnings, commissions (to the
extent such commissions are an integral, recurring part of compensation),
payments for overtime and shift premium, but exclusive of payments for incentive
compensation, bonuses and other similar compensation.  The
Administrator, in its discretion, may, on a uniform and nondiscriminatory basis,
establish a different definition of Compensation for a subsequent Offering
Period.

       

      
        
          
          

        

        
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      (j)           “Contributions” means
the payroll deductions and other additional payments that the Company may permit
to be made by a Participant to fund the exercise of options granted pursuant to
the Plan.

       

      (k)           “Designated
Subsidiary” means any Subsidiary that has been designated by the
Administrator from time to time in its sole discretion as eligible to
participate in the Plan.

       

      (l)           “Director” means a
member of the Board.

       

      (m)           “Eligible Employee”
means any individual who is a common law employee of the Company or a Designated
Subsidiary and is customarily employed for at least twenty (20) hours per week
and more than five (5) months in any calendar year by the Employer, or any
lesser number of hours per week and/or number of months in any calendar year
established by the Administrator (if required under applicable local law) for
purposes of any separate Offering.  For purposes of the Plan, the
employment relationship will be treated as continuing intact while the
individual is on sick leave or other leave of absence that the Employer
approves.  Where the period of leave exceeds three (3) months and the
individual’s right to reemployment is not guaranteed either by statute or by
contract, the employment relationship will be deemed to have terminated three
(3) months and one (1) day following the commencement of such
leave.  The Administrator, in its discretion, from time to time may,
prior to an Enrollment Date for all options to be granted on such Enrollment
Date, determine (on a uniform and nondiscriminatory basis) that the definition
of Eligible Employee will or will not include an individual if he or she: (i)
has not completed at least two (2) years of service since his or her last hire
date (or such lesser period of time as may be determined by the
Administrator in its discretion), (ii) customarily works not more than
twenty (20) hours per week (or such lesser period of time as may be determined
by the Administrator in its discretion), (iii) customarily works not more than
five (5) months per calendar year (or such lesser period of time as may be
determined by the Administrator in its discretion), (iv) is a highly
compensated employee within the meaning of Section 414(q) of the Code with
compensation above a certain level or is an officer or subject to the disclosure
requirements of Section 16(a) of the Exchange Act, provided the exclusion is
applied with respect to each Offering in an identical manner to all highly
compensated individuals of the Employer whose Employees are participating in
that Offering.

       

      (n)           “Employer” means the
employer of the applicable Eligible Employee(s).

       

      (o)           “Enrollment Date”
means the first Trading Day of each Offering Period.

       

      (p)           “Exchange Act” means
the Securities Exchange Act of 1934, as amended, including the rules and
regulations promulgated thereunder.

       

      (q)           “Exercise Date” means
such dates on which each outstanding option granted under the Plan will be
exercised (except if the Plan has been terminated), as may be determined by the
Administrator, in its discretion and on a uniform and nondiscriminatory basis
from time to time prior to an Enrollment Date for all options to be granted on
such Enrollment Date.

       

      (r)           “Fair Market Value”
means, as of any date and unless the Administrator determines otherwise, the
value of Common Stock determined as follows:

       

      
        
          
          

        

        
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      (i)                 If
the Common Stock is listed on any established stock exchange or a national
market system, including without limitation the NASDAQ Global Select Market, the
NASDAQ Global Market or the NASDAQ Capital Market of The NASDAQ Stock Market,
its Fair Market Value will be the closing sales price for such stock as quoted
on such exchange or system on the date of determination (or the closing bid, if
no sales were reported), as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;

       

      (ii)                 If
the Common Stock is regularly quoted by a recognized securities dealer but
selling prices are not reported, its Fair Market Value will be the mean between
the high bid and low asked prices for the Common Stock on the date of
determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;

       

      (iii)                 In
the absence of an established market for the Common Stock, the Fair Market Value
thereof will be determined in good faith by the Administrator; or

       

      (iv)                 For
purposes of the Enrollment Date of the first Offering Period under the Plan, the
Fair Market Value will be the initial price to the public as set forth in the
final prospectus included within the registration statement on Form S-1 filed
with the Securities and Exchange Commission for the initial public offering of
the Common Stock (the “Registration
Statement”).

       

      (s)           “Fiscal Year” means
the fiscal year of the Company.

       

      (t)           “New Exercise Date”
means a new Exercise Date if the Administrator shortens any Offering Period then
in progress.

       

      (u)           “Offering” means an
offer under the Plan of an option that may be exercised during an Offering
Period as further described in Section 4.  For purposes of the Plan,
the Administrator may designate separate Offerings under the Plan (the terms of
which need not be identical) in which Eligible Employees of one or more
Employers will participate, even if the dates of the applicable Offering Periods
of each such Offering are identical.

       

      (v)           “Offering Periods”
means the period beginning on such date as may be determined by the
Administrator, in its discretion and on a uniform and nondiscriminatory basis,
and ending on an Exercise Date.  The duration and timing of Offering
Periods may be changed pursuant to Sections 4 and 20.

       

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

       

      (x)           “Participant” means an
Eligible Employee that participates in the Plan.

       

      (y)           “Plan” means this
Cornerstone OnDemand, Inc. 2010 Employee Stock Purchase Plan.

       

      (z)           “Purchase Period”
means the period, as determined by the Administrator in its discretion on a
uniform and nondiscriminatory basis, commencing on the Enrollment Date and
ending with the next Exercise Date, except that if the Administrator determines
that more than one Purchase Period should occur within an Offering Period,
subsequent Purchase Periods within such Offering Period commence after one
Exercise Date and end with the next Exercise Date at such time or times as the
Administrator determines prior to the commencement of the applicable Offering
Period.

       

      
        
          
          

        

        
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      (aa)           “Purchase Price” means
the price per share of the shares purchased under any option granted under the
Plan as determined by the Administrator from time to time, in its discretion and
on a uniform and nondiscriminatory basis for all options to be granted on an
Enrollment Date.  However, in no event will the Purchase Price be less
than eighty-five percent (85%) of the lower of the Fair Market Value of a share
of Common Stock on the Enrollment Date or the Fair Market Value of a share of
Common Stock on the Exercise Date and at all times in compliance with Section
423 of the Code.

       

      (bb)           “Subsidiary” means a
“subsidiary corporation,” whether now or hereafter existing, as defined in
Section 424(f) of the Code.

       

      (cc)           “Trading Day” means a
day on which the national stock exchange upon which the Common Stock is listed
is open for trading.

       

      3.      Eligibility.

       

      (a)           Offering
Periods.  Any Eligible Employee on a given Enrollment Date will
be eligible to participate in the Plan, subject to the requirements of Section
5.

       

      (b)           Non-U.S.
Employees.  Employees who are citizens or residents of a
non-U.S. jurisdiction may be excluded from participation in the Plan or an
Offering if the participation of such employees is prohibited under the laws of
the applicable jurisdiction or if complying with the laws of the applicable
jurisdiction would cause the Plan or an Offering to violate Section 423 of the
Code.

       

      (c)           Limitations.  Any
provisions of the Plan to the contrary notwithstanding, no Eligible Employee
will be granted an option under the Plan (i) to the extent that, immediately
after the grant, such Eligible Employee (or any other person whose stock would
be attributed to such Eligible Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company or any Parent or Subsidiary of the
Company and/or hold outstanding options to purchase such stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of the capital stock of the Company or of any Parent or Subsidiary of the
Company, or (ii) to the extent that his or her rights to purchase stock under
all employee stock purchase plans (as defined in Section 423 of the Code) of the
Company or any Parent or Subsidiary of the Company accrues at a rate which
exceeds twenty-five thousand dollars ($25,000) worth of stock (determined at the
Fair Market Value of the stock at the time such option is granted) for each
calendar year in which such option is outstanding at any time, as determined in
accordance with Section 423 of the Code and the regulations
thereunder.

       

      4.      Offering
Periods.  Offering Periods will expire on the earliest to occur
of (a) the completion of the purchase of shares on the last Exercise Date
occurring within twenty-seven (27) months of the applicable Enrollment Date on
which the option to purchase shares was granted, or (b) such shorter period as
may be established by the Administrator from time to time, in its discretion and
on a uniform and nondiscriminatory basis, prior to an Enrollment Date for all
options to be granted on such Enrollment Date.  

       

      
        
          
          

        

        
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      5.      Participation.  An
Eligible Employee may participate in the Plan by (i) submitting to the Company’s
stock administration office (or its designee), on or before a date determined by
the Administrator prior to an applicable Enrollment Date, a properly completed
subscription agreement authorizing Contributions in the form provided by the
Administrator for such purpose, or (ii) following an electronic or other
enrollment procedure determined by the Administrator.

       

      6.      Contributions.

       

      (a)           At
the time a Participant enrolls in the Plan pursuant to Section 5, he or she will
elect to have payroll deductions made on each pay day or other Contributions (to
the extent permitted by the Administrator) made during the Offering Period in an
amount that the Administrator may establish from time to time, in its discretion
and on a uniform and nondiscriminatory basis, for all options to be granted on
any Enrollment Date, which he or she receives on each pay day during the
Offering Period; provided, however, that should a pay day occur on an Exercise
Date, a Participant will have any payroll deductions made on such day applied to
his or her account under the subsequent Purchase Period or Offering
Period.  The Administrator, in its sole discretion, may permit all
Participants in a specified Offering to contribute amounts to the Plan through
payment by cash, check or other means set forth in the subscription agreement
prior to each Exercise Date of each Offering Period, provided that payment
through means other than payroll deductions shall be permitted only if the
Participant has not already had the maximum permitted amount withheld through
payroll deductions during the Purchase Period or Offering Period.  A
Participant’s subscription agreement will remain in effect for successive
Offering Periods unless terminated as provided in Section 10
hereof.

       

      (b)           Payroll
deductions for a Participant will commence on the first pay day following the
Enrollment Date and will end on the last pay day prior to the Exercise Date of
such Offering Period to which such authorization is applicable, unless sooner
terminated by the Participant as provided in Section 10 hereof; provided,
however, that for the first Offering Period, payroll deductions will commence on
the first pay day on or following the end of the Enrollment Window.

       

      (c)           All
Contributions made for a Participant will be credited to his or her account
under the Plan and payroll deductions will be made in whole percentages
only.  A Participant may not make any additional payments into such
account.

       

      (d)           A
Participant may discontinue his or her participation in the Plan as provided in
Section 10.  If permitted by the Administrator, as determined in its
sole discretion, for an Offering Period, a Participant may increase or decrease
the rate of his or her Contributions during the Offering Period by
(i) properly completing and submitting to the Company’s stock
administration office (or its designee), on or before a date determined by the
Administrator prior to an applicable Exercise Date, a new subscription agreement
authorizing the change in Contribution rate in the form provided by the
Administrator for such purpose, or (ii) following an electronic or other
procedure prescribed by the Administrator.  If a Participant has not
followed such procedures to change the rate of Contributions, the rate of his or
her Contributions will continue at the originally elected rate throughout the
Offering Period and future Offering Periods (unless terminated as provided in
Section 10).  The Administrator may, in its sole discretion, limit the
nature and/or number of Contribution rate changes that may be made by
Participants during any Offering Period, and may establish such other conditions
or limitations as it deems appropriate for Plan administration.  Any
change in payroll deduction rate made pursuant to this Section 6(d) will be
effective as of the first full payroll period following five (5) business days
after the date on which the change is made by the Participant (unless the
Administrator, in its sole discretion, elects to process a given change in
payroll deduction rate more quickly).

       

      
        
          
          

        

        
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      (e)           Notwithstanding
the foregoing, to the extent necessary to comply with Section 423(b)(8) of
the Code and Section 3(c), a Participant’s Contributions may be decreased to
zero percent (0%) at any time during an Offering Period.  Subject to
Section 423(b)(8) of the Code and Section 3(c) hereof, Contributions will
recommence at the rate originally elected by the Participant effective as of the
beginning of the first Purchase Period or Offering Period scheduled to end in
the following calendar year, unless terminated by the Participant as provided in
Section 10.

       

      (f)           Notwithstanding
any provisions to the contrary in the Plan, the Administrator may allow Eligible
Employees to participate in the Plan via cash contributions instead of payroll
deductions if (i) payroll deductions are not permitted under applicable local
law, and (ii) the Administrator determines that cash contributions are
permissible under Section 423 of the Code.

       

      (g)           At
the time the option is exercised, in whole or in part, or at the time some or
all of the Common Stock issued under the Plan is disposed of (or any other time
that a taxable event related to the Plan occurs), the Participant must make
adequate provision for the Company’s or Employer’s federal, state, local or any
other tax liability payable to any authority including taxes imposed by
jurisdictions outside of the U.S., national insurance, social security or other
tax withholding obligations, if any, which arise upon the exercise of the option
or the disposition of the Common Stock (or any other time that a taxable event
related to the Plan occurs).  At any time, the Company or the Employer
may, but will not be obligated to, withhold from the Participant’s Compensation
the amount necessary for the Company or the Employer to meet applicable
withholding obligations, including any withholding required to make available to
the Company or the Employer any tax deductions or benefits attributable to sale
or early disposition of Common Stock by the Eligible Employee. In addition, the
Company or the Employer may, but will not be obligated to, withhold from the
proceeds of the sale of Common Stock or any other method of withholding the
Company or the Employer deems appropriate to the extent permitted by U.S.
Treasury Regulation Section 1.423-2(f).

       

      7.      Grant of
Option.  On the Enrollment Date of each Offering Period, each
Eligible Employee participating in such Offering Period will be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of Common Stock determined
by dividing such Eligible Employee’s Contributions accumulated prior to such
Exercise Date and retained in the Eligible Employee’s account as of the Exercise
Date by the applicable Purchase Price; provided that, unless and until otherwise
determined by the Administrator, in no event will an Eligible Employee be
permitted to purchase during each Purchase Period more than 5,000 shares of the
Company’s Common Stock (subject to any adjustment pursuant to Section 19) and
provided further that such purchase will be subject to the limitations set forth
in Sections 3(c) and 13.  The Eligible Employee may accept the grant
of such option (i) with respect to the first Offering Period by submitting a
properly completed subscription agreement in accordance with the requirements of
Section 5 on or before the last day of the Enrollment Window, and (ii) with
respect to any subsequent Offering Period under the Plan, by electing to
participate in the Plan in accordance with the requirements of Section
5.  The Administrator may, for future Offering Periods, increase or
decrease, in its absolute discretion, the maximum number of shares of Common
Stock that an Eligible Employee may purchase during each Purchase Period of an
Offering Period.  Exercise of the option will occur as provided in
Section 8, unless the Participant has withdrawn pursuant to Section
10.  The option will expire on the last day of the Offering
Period.

       

      
        
          
          

        

        
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      8.      Exercise of
Option.

       

      (a)           Unless
a Participant withdraws from the Plan as provided in Section 10, his or her
option for the purchase of shares of Common Stock will be exercised
automatically on the Exercise Date, and the maximum number of full shares
subject to the option will be purchased for such Participant at the applicable
Purchase Price with the accumulated Contributions from his or her
account.  No fractional shares of Common Stock will be purchased; any
Contributions accumulated in a Participant’s account which are not sufficient to
purchase a full share will be retained in the Participant’s account for the
subsequent Purchase Period or Offering Period, subject to earlier withdrawal by
the Participant as provided in Section 10.  Any other funds left over
in a Participant’s account after the Exercise Date will be returned to the
Participant.  During a Participant’s lifetime, a Participant’s option
to purchase shares hereunder is exercisable only by him or her.

       

      (b)           If
the Administrator determines that, on a given Exercise Date, the number of
shares of Common Stock with respect to which options are to be exercised may
exceed (i) the number of shares of Common Stock that were available for sale
under the Plan on the Enrollment Date of the applicable Offering Period, or (ii)
the number of shares of Common Stock available for sale under the Plan on such
Exercise Date, the Administrator may in its sole discretion (x) provide that the
Company will make a pro rata allocation of the shares of Common Stock available
for purchase on such Enrollment Date or Exercise Date, as applicable, in as
uniform a manner as will be practicable and as it will determine in its sole
discretion to be equitable among all Participants exercising options to purchase
Common Stock on such Exercise Date, and continue all Offering Periods then in
effect or (y) provide that the Company will make a pro rata allocation of the
shares available for purchase on such Enrollment Date or Exercise Date, as
applicable, in as uniform a manner as will be practicable and as it will
determine in its sole discretion to be equitable among all participants
exercising options to purchase Common Stock on such Exercise Date, and terminate
any or all Offering Periods then in effect pursuant to Section
20.  The Company may make a pro rata allocation of the shares
available on the Enrollment Date of any applicable Offering Period pursuant to
the preceding sentence, notwithstanding any authorization of additional shares
for issuance under the Plan by the Company’s stockholders subsequent to such
Enrollment Date.

       

      9.      Delivery.  As
soon as reasonably practicable after each Exercise Date on which a purchase of
shares of Common Stock occurs, the Company will arrange the delivery to each
Participant of the shares purchased upon exercise of his or her option in a form
determined by the Administrator (in its sole discretion) and pursuant to rules
established by the Administrator.  The Company may permit or require
that shares be deposited directly with a broker designated by the Company or to
a designated agent of the Company, and the Company may utilize electronic or
automated methods of share transfer.  The Company may require that
shares be retained with such broker or agent for a designated period of time
and/or may establish other procedures to permit tracking of disqualifying
dispositions of such shares.  No Participant will have any voting,
dividend, or other stockholder rights with respect to shares of Common Stock
subject to any option granted under the Plan until such shares have been
purchased and delivered to the Participant as provided in this Section
9.

       

      
        
          
          

        

        
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      10.      Withdrawal.

       

      (a)           A
Participant may withdraw all but not less than all the Contributions credited to
his or her account and not yet used to exercise his or her option under the Plan
at any time by (i) submitting to the Company’s stock administration office
(or its designee) a written notice of withdrawal in the form determined by the
Administrator for such purpose, or (ii) following an electronic or other
withdrawal procedure determined by the Administrator.  All of the
Participant’s Contributions credited to his or her account will be paid to such
Participant promptly after receipt of notice of withdrawal and such
Participant’s option for the Offering Period will be automatically terminated,
and no further Contributions for the purchase of shares will be made for such
Offering Period.  If a Participant withdraws from an Offering Period,
Contributions will not resume at the beginning of the succeeding Offering
Period, unless the Participant re-enrolls in the Plan in accordance with the
provisions of Section 5.

       

      (b)           A
Participant’s withdrawal from an Offering Period will not have any effect upon
his or her eligibility to participate in any similar plan that may hereafter be
adopted by the Company or in succeeding Offering Periods that commence after the
termination of the Offering Period from which the Participant
withdraws.

       

      11.      Termination of
Employment.  Upon a Participant’s ceasing to be an Eligible
Employee, for any reason, he or she will be deemed to have elected to withdraw
from the Plan and the Contributions credited to such Participant’s account
during the Offering Period but not yet used to purchase shares of Common Stock
under the Plan will be returned to such Participant or, in the case of his or
her death, to the person or persons entitled thereto under Section 15, and such
Participant’s option will be automatically terminated.

       

      12.      Interest.  No
interest will accrue on the Contributions of a participant in the Plan, except
as may be required by applicable law, as determined by the Company, and if so
required by the laws of a particular jurisdiction, shall apply to all
Participants in the relevant Offering except to the extent otherwise permitted
by U.S. Treasury Regulation Section 1.423-2(f).

       

      13.      Stock.

       

      (a)           Subject
to adjustment upon changes in capitalization of the Company as provided in
Section 19 hereof, the maximum number of shares of Common Stock that will be
made available for sale under the Plan will be 300,000 shares of Common Stock,
plus an annual increase to be added on the first day of each Fiscal Year
beginning with the 2012 Fiscal Year equal to the least of (i) 1,200,000
shares of Common Stock, (ii) one percent (1%) of the outstanding shares of
Common Stock on such date, or (iii) an amount determined by the
Administrator.

       

      
        
          
          

        

        
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      (b)           Until
the shares are issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), a Participant
will only have the rights of an unsecured creditor with respect to such shares,
and no right to vote or receive dividends or any other rights as a stockholder
will exist with respect to such shares.

       

      (c)           Shares
of Common Stock to be delivered to a Participant under the Plan will be
registered in the name of the Participant or in the name of the Participant and
his or her spouse.

       

      14.      Administration.  The
Plan will be administered by the Board or a Committee appointed by the Board,
which Committee will be constituted to comply with Applicable
Laws.  The Administrator will have full and exclusive discretionary
authority to construe, interpret and apply the terms of the Plan, to designate
separate Offerings under the Plan, to determine eligibility, to adjudicate all
disputed claims filed under the Plan and to establish such procedures that it
deems necessary for the administration of the Plan (including, without
limitation, to adopt such procedures and sub-plans as are necessary or
appropriate to permit the participation in the Plan by employees who are foreign
nationals or employed outside the U.S.).  Unless otherwise determined
by the Administrator, the Eligible Employees eligible to participate in each
sub-plan will participate in a separate Offering.  Without limiting
the generality of the foregoing, the Administrator is specifically authorized to
adopt rules and procedures regarding eligibility to participate, the definition
of Compensation, handling of Contributions, making of Contributions to the Plan
(including, without limitation, in forms other than payroll deductions),
establishment of bank or trust accounts to hold Contributions, payment of
interest, conversion of local currency, obligations to pay payroll tax,
determination of beneficiary designation requirements, withholding procedures
and handling of stock certificates that vary with applicable local
requirements.  Every finding, decision and determination made by the
Administrator will, to the full extent permitted by law, be final and binding
upon all parties.

       

      15.      Designation of
Beneficiary.

       

      (a)           If
permitted by the Administrator, a Participant may file a designation of a
beneficiary who is to receive any shares of Common Stock and cash, if any, from
the Participant’s account under the Plan in the event of such Participant’s
death subsequent to an Exercise Date on which the option is exercised but prior
to delivery to such Participant of such shares and cash.  In addition,
if permitted by the Administrator, a Participant may file a designation of a
beneficiary who is to receive any cash from the Participant’s account under the
Plan in the event of such Participant’s death prior to exercise of the
option.  If a Participant is married and the designated beneficiary is
not the spouse, spousal consent will be required for such designation to be
effective.

       

      (b)           Such
designation of beneficiary may be changed by the Participant at any time by
notice in a form determined by the Administrator.  In the event of the
death of a Participant and in the absence of a beneficiary validly designated
under the Plan who is living at the time of such Participant’s death, the
Company will deliver such shares and/or cash to the executor or administrator of
the estate of the Participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its discretion, may
deliver such shares and/or cash to the spouse or to any one or more dependents
or relatives of the Participant, or if no spouse, dependent or relative is known
to the Company, then to such other person as the Company may
designate.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

         

      

      (c)           All
beneficiary designations will be in such form and manner as the Administrator
may designate from time to time.  Notwithstanding Sections 15(a) and
(b) above, the Company and/or the Administrator may decide not to permit such
designations by Participants in non-U.S. jurisdictions to the extent permitted
by U.S. Treasury Regulation Section 1.423-2(f).

       

      16.      Transferability.  Neither
Contributions credited to a Participant’s account nor any rights with regard to
the exercise of an option or to receive shares of Common Stock under the Plan
may be assigned, transferred, pledged or otherwise disposed of in any way (other
than by will, the laws of descent and distribution or as provided in Section 15
hereof) by the Participant.  Any such attempt at assignment, transfer,
pledge or other disposition will be without effect, except that the Company may
treat such act as an election to withdraw funds from an Offering Period in
accordance with Section 10 hereof.

       

      17.      Use of
Funds.  The Company may use all Contributions received or held
by it under the Plan for any corporate purpose, and the Company will not be
obligated to segregate such Contributions except under Offerings in which
applicable local law requires that Contributions to the Plan by Participants be
segregated from the Company’s general corporate funds and/or deposited with an
independent third party for Participants in non-U.S.
jurisdictions.  Until shares of Common Stock are issued, Participants
will only have the rights of an unsecured creditor with respect to such
shares.

       

      18.      Reports.  Individual
accounts will be maintained for each Participant in the
Plan.  Statements of account will be given to participating Eligible
Employees at least annually, which statements will set forth the amounts of
Contributions, the Purchase Price, the number of shares of Common Stock
purchased and the remaining cash balance, if any.

       

      
        19.      Adjustments, Dissolution,
Liquidation, Merger or Change in Control.

      

       

      (a)           Adjustments.  In
the event that any dividend or other distribution (whether in the form of cash,
Common Stock, other securities, or other property), recapitalization, stock
split, reverse stock split, reorganization, merger, consolidation, split-up,
spin-off, combination, repurchase, or exchange of Common Stock or other
securities of the Company, or other change in the corporate structure of the
Company affecting the Common Stock occurs, the Administrator, in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, will, in such manner as it may deem
equitable, adjust the number and class of Common Stock that may be delivered
under the Plan, the Purchase Price per share and the number of shares of Common
Stock covered by each option under the Plan that has not yet been exercised, and
the numerical limits of Sections 7 and 13.

       

      (b)           Dissolution or
Liquidation.  In the event of the proposed dissolution or
liquidation of the Company, any Offering Period then in progress will be
shortened by setting a New Exercise Date, and will terminate immediately prior
to the consummation of such proposed dissolution or liquidation, unless provided
otherwise by the Administrator.  The New Exercise Date will be before
the date of the Company’s proposed dissolution or liquidation.  The
Administrator will notify each Participant in writing or electronically, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the Participant’s option has been changed to the New Exercise Date and
that the Participant’s option will be exercised automatically on the New
Exercise Date, unless prior to such date the Participant has withdrawn from the
Offering Period as provided in Section 10 hereof.

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

         

      

      (c)           Merger or Change in
Control.  In the event of a merger or Change in Control, each
outstanding option will be assumed or an equivalent option substituted by the
successor corporation or a Parent or Subsidiary of the successor
corporation.  In the event that the successor corporation refuses to
assume or substitute for the option, the Offering Period with respect to which
such option relates will be shortened by setting a New Exercise Date on which
such Offering Period shall end.  The New Exercise Date will occur
before the date of the Company’s proposed merger or Change in
Control.  The Administrator will notify each Participant in writing or
electronically prior to the New Exercise Date, that the Exercise Date for the
Participant’s option has been changed to the New Exercise Date and that the
Participant’s option will be exercised automatically on the New Exercise Date,
unless prior to such date the Participant has withdrawn from the Offering Period
as provided in Section 10 hereof.

       

      20.      Amendment or
Termination.

       

      (a)           The
Administrator, in its sole discretion, may amend, suspend, or terminate the
Plan, or any part thereof, at any time and for any reason.  If the
Plan is terminated, the Administrator, in its discretion, may elect to terminate
all outstanding Offering Periods either immediately or upon completion of the
purchase of shares of Common Stock on the next Exercise Date (which may be
sooner than originally scheduled, if determined by the Administrator in its
discretion), or may elect to permit Offering Periods to expire in accordance
with their terms (and subject to any adjustment pursuant to Section
19).  If the Offering Periods are terminated prior to expiration, all
amounts then credited to Participants’ accounts that have not been
used to purchase shares of Common Stock will be returned to the Participants
(without interest thereon, except as otherwise required under local laws, as
further set forth in Section 12 hereof) as soon as administratively
practicable.

       

      (b)           Without
stockholder consent and without limiting Section 20(a), the Administrator will
be entitled to change the Purchase Periods or Offering Periods, designate
separate Offerings, limit the frequency and/or number of changes in the amount
withheld during an Offering Period, establish the exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, permit payroll
withholding in excess of the amount designated by a Participant in order to
adjust for delays or mistakes in the Company’s processing of properly completed
withholding elections, establish reasonable waiting and adjustment periods
and/or accounting and crediting procedures to ensure that amounts applied toward
the purchase of Common Stock for each Participant properly correspond with
Contribution amounts, and establish such other limitations or procedures as the
Administrator determines in its sole discretion advisable that are consistent
with the Plan.

       

      (c)           In
the event the Administrator determines that the ongoing operation of the Plan
may result in unfavorable financial accounting consequences, the Administrator
may, in its discretion and, to the extent necessary or desirable, modify, amend
or terminate the Plan to reduce or eliminate such accounting consequence
including, but not limited to:

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

         

      

      (i)       
amending the Plan to conform with the safe harbor definition under the Financial
Accounting Standards Board Accounting Standards Codification Topic 718 (or any
successor thereto), including with respect to an Offering Period underway at the
time;

       

      (ii)      
altering the Purchase Price for any Purchase Period or Offering Period including
a Purchase Period or Offering Period underway at the time of the change in
Purchase Price;

       

      (iii)     
shortening any Purchase Period or Offering Period by setting a New Exercise
Date, including a Purchase Period or Offering Period underway at the time of the
Administrator action;

       

      (iv)     
reducing the maximum percentage of Compensation a Participant may elect to set
aside as Contributions; and

       

      (v)      
reducing the maximum number of Shares a Participant may purchase during any
Purchase Period or Offering Period.

       

      Such
modifications or amendments will not require stockholder approval or the consent
of any Plan Participants.

       

      21.      Notices.  All
notices or other communications by a Participant to the Company under or in
connection with the Plan will be deemed to have been duly given when received in
the form and manner specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof.

       

      22.      Conditions Upon Issuance of
Shares.  Shares of Common Stock will not be issued with respect
to an option unless the exercise of such option and the issuance and delivery of
such shares pursuant thereto will comply with all applicable provisions of law,
domestic or foreign, including, without limitation, the Securities Act of 1933,
as amended, the Exchange Act, the rules and regulations promulgated thereunder,
and the requirements of any stock exchange upon which the shares may then be
listed, and will be further subject to the approval of counsel for the Company
with respect to such compliance.

       

      As a
condition to the exercise of an option, the Company may require the person
exercising such option to represent and warrant at the time of any such exercise
that the shares are being purchased only for investment and without any present
intention to sell or distribute such shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
applicable provisions of law.

       

      23.      Code Section
409A.  The Plan is exempt from the application of Code Section
409A.  In furtherance of the foregoing and notwithstanding any
provision in the Plan to the contrary, if the Administrator determines that an
option granted under the Plan may be subject to Code Section 409A or that any
provision in the Plan would cause an option under the Plan to be subject to Code
Section 409A, the Administrator may amend the terms of the Plan and/or of an
outstanding option granted under the Plan, or take such other action the
Administrator determines is necessary or appropriate, in each case, without the
Participant’s consent, to exempt any outstanding option or future option that
may be granted under the Plan from or to allow any such options to comply with
Code Section 409A, but only to the extent any such amendments or action by the
Administrator would not violate Code Section 409A.  Notwithstanding
the foregoing, the Company shall have no liability to a Participant or any other
party if the option to purchase Common Stock under the Plan that is intended to
be exempt from or compliant with Code Section 409A is not so exempt or compliant
or for any action taken by the Administrator with respect
thereto.  The Company makes no representation that the option to
purchase Common Stock under the Plan is compliant with Code Section
409A.

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

         

      

      24.      Term of
Plan.  The Plan will become effective upon the earlier to occur
of its adoption by the Board or its approval by the stockholders of the Company.
It will continue in effect for a term of twenty (20) years, unless sooner
terminated under Section 20.

       

      25.      Stockholder
Approval.  The Plan will be subject to approval by the
stockholders of the Company within twelve (12) months after the date the Plan is
adopted by the Board.  Such stockholder approval will be obtained in
the manner and to the degree required under Applicable Laws.

       

      26.      Governing Law. The
Plan shall be governed by, and construed in accordance with, the laws of the
State of California (except its choice-of-law provisions).

       

      27.      Severability.  If
any provision of the Plan is or becomes or is deemed to be invalid, illegal, or
unenforceable for any reason in any jurisdiction or as to any Participant, such
invalidity, illegality or unenforceability shall not affect the remaining parts
of the Plan, and the Plan shall be construed and enforced as to such
jurisdiction or Participant as if the invalid, illegal or unenforceable
provision had not been included.

       

      28.      Automatic Transfer to Low
Price Offering Period.  To the extent permitted by Applicable
Laws, if the Fair Market Value of the Common Stock on any Exercise Date in an
Offering Period is lower than the Fair Market Value of the Common Stock on the
Enrollment Date of such Offering Period, then all participants in such Offering
Period will be automatically withdrawn from such Offering Period immediately
after the exercise of their option on such Exercise Date and automatically
re-enrolled in the immediately following Offering Period as of the first day
thereof.

       

      
        
          
          

        

        
          14Exhibit
10.1

     

    ADDENDUM
TO THE

    

    NORTH
PENN BANK AND NORTH PENN BANCORP, INC.

    FORM OF AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

     

    THIS
ADDENDUM (this “Addendum”) to the AMENDED AND RESTATED EMPLOYMENT AGREEMENT by
and among Frederick L.
Hickman (the “Executive”) and North Penn Bank (“Bank” and North Penn
Bancorp, Inc. (“Bancorp”) dated May 28, 2008 (“Agreement”), is made by and among
the Executive, the Bank, Bancorp and Norwood Financial Corp. (“Norwood“) as of
December 14, 2010 (“Effective Date”).

     

    WHEREAS,
the Executive is currently employed by the Bank and Bancorp as President and
Chief Executive Officer, and is experienced in certain phases of the business of
the Bank and Bancorp; and

    

    WHEREAS,
the parties desire to set forth certain modifications to the Agreement as set
forth in this Addendum prior to execution of an Agreement and Plan of Merger by
and between Norwood, Wayne Bank, Bancorp and the Bank (the “Merger Agreement”),
with this Addendum to be effective as of the Effective Date.

    

    NOW,
THEREFORE, the parties hereto, intending to be legally bound do hereby agree,
that in exchange for the good and valuable consideration to be paid by Norwood,
the Bank and Bancorp, this Addendum by and among the Bank, Bancorp, Norwood and
the Executive, is hereby made, as follows:

    

    1.
 Payment
Calculation Limits.

    

    
      	
              a)

            	
              Notwithstanding
      anything herein or in the Agreement to the contrary, in the calculation of
      any payments due to the Executive in accordance with Section 5(c) of the
      Agreement, compensation attributable to the Executive as a result of the
      exercise of any stock options to acquire Bancorp common stock or the sale
      of any stock received upon the exercise of any incentive stock options
      resulting in a disqualifying disposition (in each case where such
      transaction occurs after October 1, 2010) shall not be taken into account
      in the calculation of such payment.

            

    

    
      	
              b)

            	
              Notwithstanding
      anything herein or in the Agreement to the contrary, in the calculation of
      any payments due to the Executive in accordance with Section 5(c) of the
      Agreement, the maximum amount of such payment to be made to the Executive
      in accordance with such Section 5(c) shall be $597,344.

            

    

    

    2.
 Execution of
Release Agreement.

    

    Notwithstanding
anything herein or in the Agreement to the contrary, the Executive shall execute
and deliver a Release Agreement between the Executive, the Bancorp, the Bank and
Norwood substantially in the form attached hereto as Exhibit A to the
Bancorp, the Bank and Norwood not later than eight business days prior to the
date of the merger of Bancorp with and into Norwood.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    3.
 Addendum to
SERP

    

    Attached
hereto as Appendix
A. is an Addendum to the North Penn Bank Supplemental Executive
Retirement Plan for the Benefit of Frederick L. Hickman (“SERP”).

    

    4.
 Termination of
the Merger Agreement.

    

    In the
event that the Merger Agreement is terminated by the parties prior to the
consummation of the merger between Norwood and Bancorp, then this Addendum shall
automatically terminate as of the date of such termination of the Merger
Agreement, and thereafter this Addendum will be of no further force and
effect.

    

    5.        Defined Terms.

     

    Capitalized
terms set forth in this Addendum shall have such meaning as defined herein, and
if not otherwise defined, then as defined in the Agreement. Except as otherwise
set forth herein, the Agreement shall remain in full force and effect as
otherwise written.

     

    THE
REMAINDER OF THIS PAGE IS BLANK.

       

    SIGNATURE
PAGES FOLLOWS.

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

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

     

    
      
        	
                /s/
      Bridget A. Orue

              	 
      	
                /s/ Frederick L. Hickman

              
	
                Witness

              	 
      	
                Frederick
      L. Hickman, Executive

              
	 
      	 
      	 
      
	 
      	 
      	
                NORTH
      PENN BANCORP, INC.

              
	 
      	 
      	 
      	 
      
	
                ATTEST:

              	 
      	
                By:

              	/s/
      Thomas A. Byrne
	 
      	 
      	 
      	 
      
	
                /s/
      Bridget A. Orue

              	 
      	 
      	 
      
	
                Asst.
      Secretary

              	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	
                NORTH
      PENN BANK

              
	 
      	 
      	 
      	 
      
	
                ATTEST:

              	 
      	
                By:

              	/s/
      Thomas A. Byrne
	 
      	 
      	 
      	 
      
	
                /s/
      Bridget A. Orue

              	 
      	 
      	 
      
	
                Asst.
      Secretary

              	 
      	 
      	 
      
	 
      	 
      	
                NORWOOD
      FINANCIAL CORP.

              
	 
      	 
      	 
      	 
      
	
                ATTEST:

              	 
      	
                By:

              	/s/
      Lewis J. Critelli
	 
      	 
      	 
      	 
      
	
                /s/
      Edward C. Kasper

              	 
      	 
      	 
      
	
                Secretary

              	 
      	 
      	 
      

      

    

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    ACKNOWLEDGMENT AND RELEASE
AGREEMENT

    

    This
Acknowledgment and Release Agreement (this “Agreement”) is entered into as
of                      , 2011, by and among
Frederick L. Hickman (“Executive”), Wayne Bank (the “Bank”), Norwood Financial
Corp. (“Norwood”), North Penn Bancorp, Inc. (“NPB”) and North Penn Bank (“NP
Bank”) (collectively, the “Company”).

    

    WHEREAS, NPB and NP Bank have entered into a
Amended and Restated Employment Agreement with Executive, effective as of May
28, 2008 (the “Employment Agreement”) and modified by an Addendum dated as of
December 14, 2010 (the “Addendum”) which Employment Agreement provides Executive
with certain severance benefits in the event of the termination of Executive’s
employment following a change in control of NPB; and

    

    WHEREAS, NPB and NP Bank entered into an
Agreement and Plan of Merger by and among NPB, NP Bank, the Bank and Norwood,
dated as of December ___, 2010 (the “Merger Agreement”), pursuant to which
Norwood will acquire all of the issued and outstanding shares of capital stock
of NPB through the merger of NPB with and into Norwood (the “Merger”) and NP
Bank will merge with and into the Bank; and

    

    WHEREAS, pursuant to section 6.3(b) of the
Merger Agreement, the Bank and Norwood have agreed to honor the Employment
Agreement and at this time have decided to terminate the employment of the
Executive in accordance with Section 5(b) of such Employment Agreement;
and

    

    WHEREAS, Section 6.7 of the Merger Agreement
and the Addendum provide that the Executive shall execute an acknowledgment and
release with respect to payments to be made to the Executive; and

    

    NOW THEREFORE, in
consideration of the foregoing and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, it is agreed as
follows:

    

    1.    
      Payment. The
employment of the Executive shall terminate on______, 2011(the
“Termination Date”). On the Termination Date, the Bank shall make payment to the
Executive in the amount of $______(“Payment”), which is compensation to be
reported on IRS Form W-2, less applicable withholding.

    

    Notwithstanding
the foregoing, the Payment will be paid by the Bank to the Executive as of the
date specified in this Agreement or as soon as permissible thereafter such that
there will not be the imposition of additional taxes and penalties levied
against the Executive under Code Section 409A(a)(1)(B) resulting from the timing
of such Payment.

    

    2.       
  Release
and Waiver. Executive
hereby agrees that the employment of the Executive will terminate on the
Termination Date, and Payment will be made by NPB or NP Bank on the Termination
Date in accordance with Sections 5 and 6 of the Employment Agreement, and such
Payment shall release the Bank, Norwood, NP Bank and NPB from all obligations
due to the Executive under the Employment Agreement. Executive and the Company
hereby expressly understand and acknowledge that such Payment shall not affect
or reduce Executive’s right to receive (a) continued eligibility to participate
in the health insurance coverage under applicable state and federal group health
care continuation coverage laws (e.g., Code Section 4980B(f)) following the date
of termination of Executive’s employment with the Bank; (b) the continuation of
life insurance, medical insurance and dental insurance (including dependent
medical and dental coverage) substantially equivalent to the coverage maintained
by NPB or NP Bank on behalf of the Executive prior to the Executive’s
Termination Date at no premium cost to the Executive for a period of thirty-six
(36) months following such Executive’s Termination Date, and (c) any benefit
vested in Executive under any tax-qualified or non-tax qualified employee
benefit plan of NP Bank or the Bank. The Executive does hereby waive and release
the Company from any claim or right to payment for any accrued but unused sick
leave pay maintained by NPB or NP Bank calculated as of the Executive’s
Termination Date.

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    3.        
  Covenants;
Release of Claims. For
all time periods before and after the Termination Date, Executive covenants and
agrees as follows:

    

    
      	
               
      

            	
              (a)

            	
              Full
      Release
      of Claims. In consideration for the Bank’s promise to pay to
      Executive the compensation and benefits specified in Section 1 of this
      Agreement, and the Bank’s and Norwood’s other promises set forth in this
      Agreement, Executive, for himself and his heirs, personal representatives,
      successors, and assigns, and anyone claiming by or through any of them,
      does hereby forever discharge and release the Bank Released Parties (as
      hereinafter defined), jointly and severally, from any and all Claims,
      regardless of whether such Claims or the nature thereof are known or
      unknown as of the date hereof or which thereafter arise from any matter,
      fact, circumstance, event, happening or thing whatsoever occurring or
      failing to occur, which Executive may have or which could be asserted by
      another on Executive’s behalf against the Bank, Norwood, NP Bank and NPB
      relating to Executive’s employment at the Bank and NP Bank and/or the
      cessation thereof through the Termination Date, including, but not limited
      to, any rights or claims for compensation or benefits for periods of
      employment with the Bank or NP Bank ending on the Termination Date
      (collectively, the “General Release”); provided,
      however, that the foregoing
      release shall not cover or include Claims related to enforcement of this
      Agreement. Executive covenants and agrees that the Executive Parties (as
      hereinafter defined), shall not, and shall have no right to, commence or
      maintain any suit, action or proceeding in respect of any Claim released
      hereby. Executive represents and warrants with respect to each Claim
      released hereby that the Executive Parties have not in any manner
      assigned, pledged or otherwise voluntarily or involuntarily disposed of or
      transferred to any Person (as hereinafter defined) any interest in any
      Claim released hereby, and that each Claim of the Executive Parties
      against the Bank Released Parties described herein is fully and finally
      discharged, settled and satisfied. The Executive Parties shall indemnify
      and hold the Bank Released Parties harmless from any and all reasonable
      costs, expenses, liabilities and damages, including, without limitation,
      all reasonable attorneys’ fees and disbursements, incurred by reason of
      any breach of any of the covenants, warranties and representations
      contained in this Section 3. The General Release set forth in this Section
      3 shall (i) be binding upon the Executive Parties, and shall inure to the
      benefit of the successors, heirs, personal representatives and assigns of
      the Bank Released Parties; and (ii) be severable, so that the invalidity,
      illegality or unenforceability of any provision hereof shall not affect
      the remaining provisions hereof. The obligations of the Executive Parties
      hereunder shall be, jointly and severally, binding upon each party
      identified as included in the Executive Parties. With the exception of
      this Agreement, Executive specifically acknowledges and agrees that he is
      not a participant in, nor is he entitled to any benefits pursuant to, any
      severance pay plan maintained or administered by Bank or NP
      Bank.

            

    

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    
      
        	
              	
                (b)

              	
                Acknowledgement
      as to Workplace Injuries, Occupational Diseases, Leave Requests
      or Complaints. Executive acknowledges and affirms that Executive
      has no known workplace injuries or occupational diseases, and has been
      provided and/or has not been denied any leave requested under the Family
      and Medical Leave Act or any related state or local leave or disability
      laws. Executive affirms that Executive has not filed, caused to be filed,
      or presently is a party to any claim, complaint, or action against the
      Bank or NP Bank in any forum or
form.

              

      

    

    

    
      	
               
      

            	
              (c)

            	
              Ability
      to Enforce Agreement and Assist Government Investigation. Nothing
      in this Agreement prohibits or otherwise restricts Executive from: (i)
      instituting any legal action for the sole purpose of enforcing this
      Agreement; (ii) making any disclosure of information required by law; (ii)
      assisting any federal regulatory or law enforcement agency or legislative
      body to the extent Executive maintains a legal right to do so
      notwithstanding this Agreement; or (iv) filing, testifying, participating
      in or otherwise assisting in a proceeding relating to the alleged
      violation of any federal, state, or local law, regulation, or rule, to the
      extent Executive maintains a legal right to do so notwithstanding this
      Agreement.

            

    

    

    4.           Definitions. For
purposes of this Agreement, the following terms shall have the meaning set forth
opposite each:

    

    
      
        	 	
                (a)

              	
                “Executive Parties” shall mean Executive and his
      heirs, personal representatives, successors and assigns, and anyone
      claiming by or through any of
them.

              

      

    

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    
      
        	
              	
                (b)

              	
                “Claims” shall mean any and all, and all
      manner of, actions and causes of action, suits of any kind whatsoever
      (whether under state or federal statute, local regulations or at common
      law, and whether known or unknown), debts, liabilities, obligations, dues,
      sums of money, accounts, reckonings, bonds, bills, covenants, contracts,
      agreements, controversies, trespasses, promises, judgments, damages,
      costs, expenses, claims, and demands of any kind or nature whatsoever,
      whether in law or in equity, whether known or unknown, whether asserted or
      unasserted, including, without limitation, any and all claims for
      employment discrimination, wrongful discharge, compensation, benefits,
      bonuses, incentives, expenses, options, wages, severance pay, vacation
      pay, fringe benefits, or other monies or accountings, including punitive
      damages, liquidated damages, exemplary damages, or compensatory damages,
      physical, mental, or emotional distress, pain and suffering, back pay,
      front pay, costs, and attorneys’ fees, and any other legal or equitable
      relief, arising out of or in relation to the employment or termination of
      employment of Executive by or with the Bank or NP Bank or any other
      subsidiary or affiliate of the Bank, and the General Release includes any
      state and federal discrimination statutes including, but not limited
      to:

              

      

    

    

    
      	
               
      

            	
              (i)

            	
              the
      Americans with Disabilities Act of 1990, as
  amended;

            

    

    

    
      	
               
      

            	
              (ii)

            	
              the
      Rehabilitation Act of 1973 (29 U.S.C. Sections
  701-794);

            

    

     

    
      	
               
      

            	
              (iii)

            	
              Title
      VII of the Civil Rights Act of 1964 (42 U.S.C. Section 2000e et seq.);

            

    

    

    
      
        	
                 
      

              	
                (iv)

              	
                the
      Civil Rights Acts of 1866 (42 U.S.C. Section 1981);

              
	 	 	 

      

    

    
      	
               
      

            	
              (ii)

            	
              Executive
      Order 11246, as amended;

            

    

    

    
      
        	
                 
      

              	
                (iii)

              	
                the
      Age Discrimination in Employment Act (“ADEA”) (29 U.S.C. Section 621 et seq.);

              
	 	 	 

      

    

    
      	
               
      

            	
              (iv)

            	
              the
      Older Workers Benefit Protection Act of 1990
  (“OWBPA”);

            

    

    

    
      	
               
      

            	
              (v)

            	
              the
      Employee Retirement Income Security Act of 1974 as amended
      (“ERISA”);

            

    

    

    
      	
               
      

            	
              (vi)

            	
              the
      Equal Pay Act of 1963 (29 U.S.C. Section 206(d)(1)); (10) the Civil Rights
      Act of 1991;

            

    

    

    
      
        	
                 
      

              	
                (vii)

              	
                the
      Family and Medical Leave Act of 1993;

              
	 	 	 

      

    

    
      	
               
      

            	
              (viii)

            	
              the
      National Labor Relations Act;

            

    

     

    
      
        	
                 
      

              	
                (ix)

              	
                the
      Uniformed Services Employment and Re-employment Rights Act of
      1994;

              
	 	 	 

      

    

    
      	
               
      

            	
              (x)

            	
              the
      Immigration Reform Control Act;

            

    

    

    
      	
               
      

            	
              (xi)

            	
              the
      Vocational Rehabilitation Act of
1973;

            

    

    

    
      	
               
      

            	
              (xii)

            	
              the
      Vietnam Era Veteran’s Readjustment Assistance Act of
  1974;

            

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    
      
        	 	
                (xiii)

              	
                the
      United States Constitution;

              

      

    

     

    
      	 	
              
                (xiv)

              

            	
              
                the
      Pennsylvania Human Relations Act,

              

            
	 	 	 

    

    
      	 	
              
                (xv)

              

            	
              
                the
      federal Fair Labor Standards Act;

              

            
	  	 	 

    

    
      
        
          	 	
                  (xvi)

                	
                  the
      federal Worker Adjustment and Retraining Notification
  Act;

                
	 	 	 

        

      

    

    
      
        
          	 	
                  (xvii)

                	
                  the
      Pennsylvania Workers’ Compensation Act;

                
	 	 	 

        

      

    

    
      	 	
              
                (xviii)

              

            	
              
                any
      other federal, state, or local laws or regulations of any kind;
      and

              

            
	 	 	 

    

    
      	 	
              
                (xix)

              

            	
              
                any
      amendments to the foregoing laws or
  regulations.

              

            

    

     

    The
General Release also includes, but is not limited to, all claims arising under
the common law, including, but not limited to, the following: (A) claims for
negligent retention; (B) claims for negligent supervision; (C) claims for
intentional or negligent infliction of emotional or mental distress or
outrageous conduct; (D) claims for hostile work environment; (E) claims for
retaliation; (F) breach of express or implied contract; (G) claims for sexual
harassment; (H) claims for discrimination; (I) claims for wrongful termination;
(J) claims for defamation; (K) claims for conversion; (L) claims for invasion of
privacy; (M) claims for tortuous interference with contract; (N) claims for
attorneys’ fees and costs; and (O) any and all other claims which Executive ever
had or has, arising by reason of or in any way connected with any employment
relationship
which has existed between Executive and the Bank and NP Bank, including the
termination thereof.

    

    The
parties agree that the General Release provided by Executive in this Agreement
does not include a release for claims under ADEA arising after the date
Executive signs this Agreement.

    

    
      	
               
      

            	
              (c)

            	
              “Confidential Information” shall mean any and all, and all
      manner of, procedures, processes, property, methods of doing business,
      trade secrets, marketing and other confidential or
      proprietary information of or relating to the Bank and NP Bank and its
      respective directors and affiliates and also the respective information
      and documentation of the financial condition, assets, liabilities,
      business, operations, bank regulators, customers, and prospects of each,
      coming into the possession or knowledge of Executive during the course of
      his employment or association with the Bank and NP Bank, except to the
      extent that such information becomes publicly available (other than by
      reason of the breach by Executive of any of the terms or provisions
      hereof).

            

    

    

    
      	
               
      

            	
              (d)

            	
              “Bank Released Parties” shall mean the Bank, NP Bank,
      NPB and Norwood, and their past and present parents, subsidiaries,
      divisions and related and affiliated organizations, and their respective
      past and present respective officers, shareholders, directors, attorneys,
      accountants, agents, servants and employees and their successors, heirs
      and assigns.

            

    

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    
      
        	 	
                (e)

              	
                “Person” shall mean any individual,
      corporation, partnership, business trust, firm, association or other
      entity.

              

      

    

     

    5.           Representations and Warranties of
Executive.

    

    
      	
               
      

            	
              (a)

            	
              Executive
      acknowledges and agrees that, before signing this Agreement, Executive was
      advised to review it and consult with any attorney Executive chooses, and
      that, to the extent Executive desired, Executive has availed himself of
      these opportunities. Having read and understanding this Agreement,
      Executive agrees that he is entering into the Agreement freely, willingly,
      knowingly, voluntarily, without duress and with the intent to be bound by
      it. Executive acknowledges that he has read and fully understands the
      Agreement’s terms, conditions, meaning and intent, including the final
      binding effect of the waiver and release of his rights under this
      Agreement. Executive also represents and warrants to the Bank that
      Executive is not aware of any fraud, improprieties, or any irregularities
      in connection with any of the duties performed by Executive or others
      while in the employment with the Bank. In addition, Executive is not aware
      of any fraud or misrepresentations, whether material or not, that involve
      management or other employees who have or had a role in Bank’s internal
      controls over financial reporting.

            

    

    

    
      	
               
      

            	
              (b)

            	
              Executive
      agrees that neither he or any of his representatives or agents will
      discuss any Confidential Information with any Person other than the Bank.
      Each party to this Agreement agrees that this Agreement and the terms
      hereof constitutes Confidential Information and agrees not to disclose any
      information regarding the terms of this Agreement, except that Executive
      may disclose such information to his immediate family and any personal
      tax, legal or other counsel that he has in order to consult with such
      advisor regarding the meaning or effect hereof or as required by law, and
      the Executive will instruct each of the foregoing not to disclose the same
      to anyone.

            

    

     

    6.           General
Provisions.

    

    
      	
               
      

            	
              (a)

            	
              Heirs,
      Successors and
      Assigns. The terms of this Agreement shall be binding upon the
      parties hereto and their respective heirs, successors and assigns,
      including, but not limited to, the Bank, Norwood, NP Bank and
      NPB.

            

    

     

    
      	
               
      

            	
              (b)

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

            

    

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (c)

            	
              Governing Law.
      This Agreement shall be construed, enforced and interpreted in
      accordance with and governed by the laws of the Commonwealth of
      Pennsylvania, without reference to its principles of conflicts of
      law.

            

    

     

    
      	
               
      

            	
              (d)

            	
              Counterparts.
      This Agreement may be executed in one or more counterparts, each of
      which counterpart, when so executed and delivered, shall be deemed an
      original and all of which counterparts, taken together, shall constitute
      but one and the same agreement.

            

    

     

    7.           No
Other Obligations. Upon
payment to Executive of the amount set forth in Section 1 hereof, neither the
Bank, Norwood, NP Bank or NPB shall have any further obligation to Executive
under the Employment Agreement, other than with respect to the payments and
other benefits described herein.

    

    8.           Severability. Any
term or provision of this Agreement which is held to be invalid or unenforceable
shall be ineffective to the extent of such invalidity or unenforceability
without rendering invalid or unenforceable the remaining terms and provisions of
this Agreement.

    

    9.           EEOC
Claims. To
the extent permitted by law, Executive agrees that he will not file, or permit
to be filed in his name or on his behalf, any lawsuit in court against any of
the Persons or entities released in this Agreement, based upon any act or event
which occurred on or before his execution of this Agreement. Executive further
agrees that, although he has the right to file a charge with the Equal
Employment Opportunity Commission, should he file such a charge, or should any
charge, lawsuit, complaint or other claim be filed in his name or on his behalf
with the Equal Employment Opportunity Commission or with any other
administrative agency or organization, or in any other forum, against any of the
persons or entities released herein, based upon any act or event which occurred
on or before the Termination Date, to the extent permitted by law, he will not
seek or accept any personal relief based upon such charge, lawsuit, complaint or
other claim, including, but not limited to, an award of monetary damages or
reinstatement to his employment with the Bank. Executive is not waiving any
right to file a complaint with a government agency.

    

    10.         Review
Period. Executive
shall have a period of twenty-one (21) calendar days within which to consider
and execute this Agreement. Prior to executing this Agreement, Executive may
choose to use as little or as much of the twenty-one (21) calendar day period as
he chooses.

    

    11.          Acknowledgements. Executive
acknowledges that he was provided the opportunity to review and consider the
terms of this Agreement for at least twenty-one (21) calendar days. Executive
further acknowledges that he has been advised to discuss all aspects of this
Agreement with his private attorney and/or other individuals of his choice who
are not associated with the Bank. Executive further acknowledges that he has
read this Agreement and fully understands the significance of all of its
provisions. Executive acknowledges, warrants and agrees that he has signed this
Agreement voluntarily and accepts all obligations contained in it in exchange
for a portion of the consideration Executive will receive pursuant to this
Agreement and the Consulting Agreement, which Executive acknowledges is adequate
and satisfactory. Executive further acknowledges the Bank or Norwood is not
otherwise obligated to provide to Executive the benefits to be provided under
the Consulting Agreement. Executive acknowledges, warrants and agrees that
neither the Employer, nor its agents, representatives, directors, officers or
employees have made any representations to Executive concerning the terms of
effects of this Agreement, other than those explicitly contained in this
Agreement. No inducements, representations, or Agreement have been made or
relied upon to make this Agreement except as stated herein.

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    12.         Revocation
Period. Once
this Agreement is executed by Executive, Executive shall have a seven (7)
calendar day period during which Executive may revoke his decision to execute
the Agreement (the “7-day Revocation Period”). A revocation made pursuant to
this Section 12 shall be effective only if it is in
writing and is delivered to Mr. Lewis J. Critelli, President, Norwood Financial
Corp., at the following address: 717 Main Street, Honesdale, Pennsylvania 18431,
in a manner reasonably calculated to provide Executive with proof of receipt and
delivered at or prior to 5:00 p.m. on the seventh (7th) calendar day, or the
first business day thereafter if that day is a Saturday, Sunday, or bank
Holiday, following execution of this Agreement by Executive. This Agreement
shall not become effective or enforceable until the revocation period has
expired.

    

    This
Agreement was drafted so that it should be readily understood by Executive. By
signing this Agreement, Executive certifies that he understands all the
provisions contained in the Agreement and that this Agreement complies with the
requirements of the Older Workers Benefit Protection Act.

    

    Executive
agrees that any modifications, material or otherwise, made to this Agreement do
not restart or affect in any manner the original twenty-one (21) calendar day
consideration.

    

    Having
elected to execute this Agreement, to fulfill the promises and to receive the
consideration set forth in Section 1 above, Executive freely and
knowingly, after due consideration,
enters into this Agreement and signs the same as Executive’s free and
independent act intending to waive, settle and release all claims Executive has
or might have against the Bank, Norwood, NPB and NP Bank.

    

    I
have read this Agreement, and I am fully aware of the legal effects of the
Agreement. I have chosen to execute the Agreement freely, without reliance upon
any promises or representations made by the Bank other than those contained in
this Agreement, and I understand that, under the terms of the Agreement, I will
receive the compensation as described in the Agreement, less applicable tax
withholdings, after the expiration of the 7-day Revocation Period, provided I do
not revoke this Agreement within the 7-day Revocation Period described
herein.

     

    Please
carefully read this Agreement in full. It contains a covenant not to sue and a
general release of all known and unknown claims arising out of your employment
with the Company, including, but not limited to, the release of all claims under
Title VII of the 1964 Civil Rights Act, the Americans With Disabilities Act, the
Age Discrimination in Employment Act as amended by the Older Workers Benefit
Protection Act, and/or any other federal or state fair employment or anti
discrimination statutes or regulations.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    Statement by Executive who
is signing below. By signing this Agreement, I acknowledge that I have
carefully read and fully understand the provisions of this Agreement and have
had sufficient time and opportunity (over a period of 21 days) to consult with
my personal tax, financial and legal advisors prior to executing this Agreement
and I intend to be legally bound by its terms.

     

    **REMAINDER
OF THIS PAGE IS INTENTIONALLY BLANK**

     

    **SIGNATURE
PAGE FOLLOWS**

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    IN WITNESS WHEREOF, the parties hereto have
signed this Acknowledgment and Release.

    

    
      
        
          	
                  EXECUTIVE

                	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                  Frederick
      L. Hickman

                	 
      	
                  Date

                
	 
      	 
      	 
      
	
                  WAYNE
      BANK

                	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                  By:

                	 
      	
                  Date

                
	 
      	 
      	 
      
	
                  NORWOOD
      FINANCIAL CORP.

                	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                  By:

                	 
      	
                  Date

                
	 
      	 
      	 
      
	
                  NORTH
      PENN BANCORP, INC.

                	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                  By:

                	 
      	
                  Date

                
	 
      	 
      	 
      
	
                  NORTH
      PENN BANK

                	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                  By:

                	 
      	
                  Date

                

        

      

    

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    ELECTION
TO EXECUTE PRIOR TO EXPIRATION

    OF TWENTY ONE DAY
CONSIDERATION PERIOD

     

    I,
Frederick L. Hickman, understand that I have at least twenty-one (21) calendar
days to consider and execute this Agreement. After having had the opportunity to
consult with counsel, however, I have freely and voluntarily elected to execute
this Agreement prior to the expiration of the twenty-one (21) calendar day
period.

     

    
      
        	 
      	 
      	 
      
	
                Frederick
      L. Hickman, Executive

              	 
      	
                Date

              

      

    

    

    
      
         

      

      
        11

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