SETTLEMENT AND RETENTION AGREEMENT

Exhibit 10.3

SETTLEMENT AND RETENTION AGREEMENT

THIS SETTLEMENT AND RETENTION AGREEMENT (this “Agreement”) is entered into and made effective for all purposes as of February 28, 2005 (the “Effective Date”) by and between CERBCO, Inc., a Delaware corporation (the “Company”), and Robert F. Hartman (the “Executive”).

WHEREAS, the Company and the Executive are parties to a Supplemental Executive Retirement Income Agreement, which was entered into effective as of January 1, 1994, and which was subsequently amended effective as of July 1, 1997 and as of June 11, 1999 (the “SERP”); and

WHEREAS, the Board of Directors of the Company (the “Board”) and the Executive have agreed to terminate the SERP effective as of February 28, 2005, and in connection with such termination to amend the SERP to provide the Executive with a lump sum payment that is actuarially equivalent to the benefit that the Executive has earned under the SERP as of February 28, 2005, which benefit is payable pursuant to the terms of the SERP in the form of a monthly single life annuity, with 180 monthly payments certain; and

WHEREAS, the Board and the Executive have agreed that the annual amount that the Executive is entitled to receive under the SERP as of February 28, 2005 is Seventeen Thousand Nine Hundred Fifty-Two Dollars ($17,952) (the “SERP Annuity Payment”); and

WHEREAS, the Board and the Executive have agreed that the Company shall make a payment to the Executive, based upon assumptions set forth herein, which are mutually agreeable to the Board and the Executive, to provide compensation to the Executive for the anticipated economic impact of the loss of tax deferral resulting from the payment of the Executive’s SERP benefit in the form of a lump sum payment as opposed to monthly annuity payments; and

WHEREAS, INEI Corporation, a Delaware corporation (“INEI”), is a subsidiary of the Company; and

WHEREAS, INEI has sold substantially all of its operating assets and substantially all of its material real property and has dissolved and is in the process of winding up its affairs; and

WHEREAS, the stock of INEI owned by the Company represents a significant portion of the assets of the Company; and

WHEREAS, the Board has approved a plan of complete dissolution and liquidation of the Company in connection with the receipt of the proceeds of the dissolution of INEI; and

WHEREAS, in the event that the stockholders of the Company approve the dissolution of the Company, the Board desires to provide compensation to the Executive in order to obtain the Executive’s commitment to provide services in connection with the liquidation of the Company and its final winding-up; and

WHEREAS, the Board and the Executive desire to enter into a written agreement which sets forth their agreements and understandings.

NOW THEREFORE, in consideration of the mutual promises contained herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the undersigned parties, intending to be legally bound, agree as follows:

1. Recitals . The foregoing recitals are incorporated herein and made a substantive part of this Agreement.

2. Term . The term of this Agreement shall commence as of the Effective Date and shall continue through the date that is three (3) years following the effective date of the Company’s dissolution or, if earlier, through the date that the Board authorizes a final liquidating distribution to the Company’s stockholders or to a liquidating trust (the “Term”).

3. Termination of the SERP .

A. The Company and the Executive hereby agree that the SERP shall be, and hereby is, terminated effective as of February 28, 2005 and that a lump sum amount shall be calculated (the “SERP Payment”) and, subject to Section 9A hereof, paid by the Company to the Executive in accordance with the Amendment to the SERP, a copy of which is attached hereto as Exhibit A and made a part hereof, no later than 90 days after February 28, 2005.

B. The Company and the Executive agree that subject to Section 9A hereof, on the same date that the SERP Payment is made to the Executive, the Company shall pay the Executive a lump sum amount (the “Make-Up Payment”) equal to the amount by which the aggregate of the SERP Annuity Payments, accumulated with interest to age 84, exceed the SERP Payment, accumulated with interest to age 84, calculated on the basis of the following assumptions:

(i) As provided in the SERP, that the SERP Annuity Payments would begin at age 62, and that the payments would be paid over 22 years, which is the life expectancy of a person who attains age 62; and

(ii) That the SERP Payment and each SERP Annuity Payment (as well as all future income with respect to the SERP Payment and all future income with respect to each SERP Annuity Payment) would be taxed at a combined Federal, state and local tax rate of 40%; and

(iii) That the SERP Payment and each SERP Annuity Payment would earn annually compound interest at the same rate of interest that is used to discount the Executive’s SERP benefit to a lump sum amount pursuant to the Amendment to the SERP.

C. The Executive acknowledges and agrees that the calculations performed by Milliman, Inc. (copies of which the Executive acknowledges he was provided on or about

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February 14, 2005), accurately reflect the calculation of a SERP Payment in the amount of One Hundred Eighty-Nine Thousand Three Hundred Seven Dollars ($189,307) and a Make-Up Payment in the amount of Twenty-Nine Thousand One Hundred Twelve Dollars ($29,112), in accordance with Section 3A and Section 3B hereof, if such SERP Payment and Make-Up Payment were determined as of December 31, 2004.

A. In the event that the stockholders of the Company approve the dissolution of the Company, as full and complete compensation for the Executive’s commitment to remain in the employ of the Company and to perform the duties set forth in Section 4C hereof, but subject to Section 8B and Section 9B hereof, and except as provided in Section 5 hereof, the Executive shall be entitled to the following:

(i) For the ten (10)-month period beginning March 1, 2005 and ending December 31, 2005, the Company shall pay the Executive a monthly salary of One Thousand Dollars ($1,000); provided, that if prior to January 1, 2006 the Executive shall cease receiving salary payments from INEI, thereafter, until December 31, 2005, the Company shall pay the Executive a monthly salary of Three Thousand Dollars ($3,000);

(ii) In the event that the Executive ceases to be covered by a group health plan maintained by INEI or Cerberonics, Inc., the Company shall make a monthly payment, until December 31, 2005, equal to the monthly cost to INEI, as of the Effective Date, of covering the Executive under its group health plan (the “Monthly Health Coverage Payment”). Such Monthly Health Coverage Payment may be made directly to the Executive or to such insurance company or companies as may be designated by the Executive in writing to the Board;

(iii) The Company shall pay the Executive a bonus of Twenty-Five Thousand Dollars ($25,000) (the “Stay Bonus”), in a lump sum, eight (8) days after the Executive executes the Release of Employment Claims within the time period provided for under Section 9B(i) hereof without revocation; and

(iv) The Company shall pay the Executive a severance payment equal to the sum of (x) Twelve Thousand Dollars ($12,000), plus (y) twelve (12) times the amount of the Monthly Health Coverage Payment (such aggregate amount being referred to as the “Severance Payment”), in a lump sum, on the date that the Company makes the initial liquidating distribution to the Company’s stockholders.

B. The Executive acknowledges and agrees that the Stay Bonus and the Severance Payment, payable in accordance with the terms and conditions of this Agreement, are in lieu of and in full and complete satisfaction of any and all amounts to which the Executive might otherwise be entitled pursuant to the Severance Agreement between the Company and the Executive dated as of September 11, 2001, as a result of the dissolution of the Company.

C. The Executive hereby agrees that in the event that the stockholders of the Company approve the dissolution of the Company, the Executive’s principal duties during the

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Term of this Agreement shall be to take any and all actions as are needed to complete the orderly liquidation and winding up of the Company, including without limitation, all actions needed to evaluate and resolve any and all claims made against the Company, including any claims made by or with respect to any of the Company’s assets or obligations, or with respect to any of its employees or agents, and to see to the sale of all of the Company’s remaining assets.

5. Termination of this Agreement . This Agreement may be terminated prior to the end of the Term (which earlier termination date is referred to under this Agreement as the “Termination Date”) as follows:

A. Either the Board or the Executive may terminate this Agreement at any time upon written notice to the other; provided, that if the Board terminates this Agreement for Cause, the notice to the Executive shall specify the grounds constituting Cause.

B. This Agreement shall automatically terminate upon the death of the Executive.

C. At the election of the Board, this Agreement may be terminated upon the Total Disability of the Executive, by written notice to the Executive.

D. In the event that the Board terminates this Agreement for Cause, or in the event that the Executive terminates this Agreement:

(i) As of the Termination Date, all remaining salary payments and Monthly Health Coverage Payments, if any, shall cease; and

(ii) The Executive shall not be entitled to the Stay Bonus or the Severance Payment.

E. In the event that the Board terminates this Agreement without Cause:

(i) As of the Termination Date, all remaining salary payments and Monthly Health Coverage Payments, if any, shall cease; and

(ii) Subject to the execution by the Executive of the Release of Employment Claims within the time period provided for under Section 9B(ii) hereof without revocation, and subject to Section 8B hereof, the Executive shall be paid the Stay Bonus and the Severance Payment.

F. In the event that this Agreement is terminated as a result of the death or Total Disability of the Executive:

(i) As of the Termination Date, all remaining salary payments and Monthly Health Coverage Payments, if any, shall cease;

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(ii) The Executive shall not be entitled to the Stay Bonus; but

(iii) Subject to the execution by the Executive of the Release of Employment Claims within the time period provided for under Section 9B(ii) hereof without revocation, and subject to Section 8B hereof, the Executive shall be paid the Severance Payment eight (8) days after he executes the Release of Employment Claims without revocation; provided, that in the event of the death of the Executive, the Severance Payment shall be paid to the Executive’s estate eight (8) days after the executor of his estate executes a Release of Employment Claims in substantially the same form as the Release of Employment Claims attached hereto as Exhibit C, without revocation, within the time period provided for under Section 9B(ii) hereof or sixty (60) calendar days after the death of the Executive, whichever is longer.

G. The Board and the Executive agree that the termination of this Agreement pursuant to this Section 5 shall in no event, in and of itself, provide a basis for denying the Executive the SERP Payment or the Make-Up Payment.

6. Definition of Cause . For purposes of this Agreement, “Cause” shall mean: (i) the Executive’s conviction of, or the entering of a plea of guilty or nolo contendere by the Executive to, any felony or any crime involving moral turpitude; (ii) dishonesty or other willful misconduct on the part of the Executive that is materially harmful to the Company or any subsidiary of the Company; (iii) the failure of the Executive, within ten (10) days after receipt by the Executive of written notice from the Board, to comply with lawful and reasonable instructions of the Board; or (iv) the failure of the Executive to perform the duties specified in Section 4C hereof in any material respect, other than as a result of illness or other disability, following written notice thereof from the Board and ten (10) days’ opportunity to cure such failure.

7. Definition of Total Disability . For purposes hereof, “Total Disability” shall mean the inability of the Executive to perform the duties set forth in Section 4C hereof by reason of any physical or mental impairment, as determined by a physician or other appropriate medical evidence acceptable to the Board, which continues for sixty (60) substantially consecutive days. The Executive agrees to submit to reasonable examination and/or provide other satisfactory proof of disability as the Board may request.

8. Nonsolicitation and Noncompetition .

A. The Executive covenants and agrees that through the date that is three (3) years following the effective date of the Company’s dissolution, the Executive shall not, directly or indirectly:

(i) Perform services which are, or own any interest in any entity whose business is, competitive with any business historically conducted by any of the Company’s subsidiaries,