NORWOOD FINANCIAL CORP.
2006 STOCK OPTION PLAN
1.
PURPOSE OF PLAN.
The purpose of this 2006 Stock Option Plan is to provide
incentives and
rewards
to officers, employees
and directors that
contribute to the success and growth
of Norwood Financial Corp., and its Affiliates, and to assist all
these entities
in attracting and retaining directors, executives and other key employees
with
experience and ability.
2.
DEFINITIONS.
"AFFILIATE" means any
"PARENT CORPORATION"
or "SUBSIDIARY
CORPORATION" of the
Company, as such terms
are defined in
Sections 424(e) and
424(f) of the Code,
including the Bank.
"AWARD" means Stock Options, as set forth in Section 6 of the
Plan.
"BANK" means Wayne Bank, and any successors thereto.
"BENEFICIARY" means
the person or persons
designated
by the Participant to
receive any benefits
payable under the Plan in the event of such Participant's
death. Such person or
persons shall be designated in writing by the Participant
and addressed to the Company or the Committee on forms provided for
this purpose
by the Committee, and delivered to the Company or the Committee. Such
Beneficiary
designation may be
changed from time to
time by similar
written
notice to the Committee. A Participant's last will and
testament or any codicil
thereto shall not
constitute
written designation of a Beneficiary. In the
absence of such written designation, the Beneficiary shall be the
Participant's
surviving spouse, if any, or if none, the Participant's estate.
"BOARD OF DIRECTORS" means the board of directors of the
Company.
"CAUSE" means the personal dishonesty, incompetence, willful misconduct,
breach
of fiduciary duty involving personal profits, intentional failure to perform
stated duties,
willful violation of a material
provision of any law,
rule or
regulation (other than traffic violations and similar
offense), or a material
violation of a final cease-and-desist order or any other action
which results in
a substantial financial loss to the Company or its Affiliates.
"CHANGE IN CONTROL" shall mean: (i) the sale of all, or a material
portion, of
the assets of the Company or its Affiliates; (ii) the merger or
recapitalization
of the Company whereby the Company is not the surviving
entity; (iii) a change
in control
of the Company, as otherwise defined or determined by the
Pennsylvania
Department of
Banking, the Federal Reserve Board or other
applicable banking regulatory agency ("Regulators") or regulations
promulgated
by such Regulators;
or (iv) the
acquisition,
directly or
indirectly, of the
beneficial ownership
(within the meaning of
that term as it is used in Section
13(d) of the
Securities Exchange
Act of 1934 and the
rules and regulations
promulgated
thereunder) of more than 19.9% of the outstanding voting
securities
of the Company by any person, trust, entity or group. This
limitation shall not
apply to the purchase
of shares by
underwriters in
connection
with a public
offering of Company
stock. The term "person" refers to an individual or a
corporation,
partnership, trust,
association, joint
venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form
of entity not
specifically listed herein.
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"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the
Board of Directors of
the Company or the
administrative
committee designated, pursuant to Section 3 of the Plan, to
administer the Plan.
"COMMON STOCK" means the common stock of the Company.
"COMPANY" means Norwood Financial Corp., and any successor entity
or any future
parent corporation of the Bank.
"DIRECTOR" means a
person serving as a
member of the Board of Directors of the
Company from time to time.
"DIRECTOR EMERITUS"
means a person
serving as a director
emeritus, advisory
director, consulting
director or other
similar position as may be appointed by
the Board of Directors of the Company or the Bank from time to
time.
"DISABILITY" means (a)
with respect to Incentive Stock Options, the "permanent
and total disability"
of the Employee as such term is defined at Section
22(e)(3) of the Code;
and (b) with respect
to other Awards,
any physical or
mental impairment
which renders the Participant incapable of continuing in the
employment or
service of the Company or its Affiliates in his or her then
current capacity as determined by the Committee.
"EFFECTIVE DATE" shall mean the date of stockholder approval of the Plan by the
stockholders of the Company.
"ELIGIBLE PARTICIPANT"
means an Employee or Outside Director who may receive an
Award under the Plan.
"EMPLOYEE" means any
person employed by the Company or an Affiliate. Directors
who are also employed
by the Company or an Affiliate shall be considered
Employees under the Plan.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXERCISE PRICE" means
the price at which an individual may purchase a share of
Common Stock pursuant to an Option.
"FAIR MARKET
VALUE" means the closing sales price reported on the Nasdaq
National Market (as published by The Wall Street Journal,
if published) on
such
date or, if the Common
Stock was not traded on such date, on the immediately
preceding day on which the Common Stock was traded thereon or the last previous
date on which a sale is reported.
"INCENTIVE STOCK
OPTION" means a Stock Option granted under the Plan,
that is
intended to meet the requirements of Section 422 of the Code.
"NON-STATUTORY STOCK OPTION" means a Stock Option granted to an
individual under
the Plan that is not intended to be and is not identified as an
Incentive Stock
Option, or an
Option granted under the Plan that is intended to be and is
identified as an Incentive Stock Option, but that does not meet the
requirements
of Section 422 of the Code.
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"OPTION" or "STOCK
OPTION" means an Incentive Stock Option or a Non-Statutory
Stock Option, as applicable.
"OUTSIDE DIRECTOR"
means a member of the
Board of Directors of the Company who
is not also an Employee.
"PARENT" means any
present or future corporation which would be a "parent
corporation" of the Bank or the Company as defined in Sections
424(e) and (g) of
the Code.
"PARTICIPANT" means an
individual who is granted an Award pursuant to the terms
of the Plan.
"PLAN" means this Norwood Financial Corp. 2006 Stock Option
Plan.
3.
ADMINISTRATION.
(a)
The Committee
shall administer the Plan. The Committee
shall consist
of two or more
disinterested
directors of the Company, who shall be
appointed by the
Board of Directors. A member of the Board of
Directors shall
be deemed to be disinterested only if he or she
satisfies: (i)
such requirements as the Securities and Exchange
Commission may
establish for
non-employee
directors administering
plans intended
to qualify for exemption under Rule 16b-3 (or its
successor) of the
Exchange Act and (ii) and to the extent deemed
appropriate by the
Board of Directors, such requirements as the
Internal Revenue
Service may establish for outside directors acting
under plans
intended
to qualify for exemption under Section
162(m)(4)(C) of the Code; provided, however, a failure to comply
with
the requirements of
this subparagraph
(ii) shall not
disqualify any
actions taken by the
Committee.
A majority of the
entire Committee
shall constitute a
quorum and the action of a majority of the members
present at any meeting
at which a quorum is
present shall be
deemed
the action of the
Committee.
In no event may the
Committee revoke
outstanding Awards
without the consent of the Participant. All
decisions,
determinations and
interpretations of the Committee shall
be final and conclusive on all persons affected thereby.
(b)
Subject to paragraph
(a) of this Section 3, the Committee shall:
(i) select the
individuals who are to receive grants of Awards under
the Plan;
(ii) determine the
type, number, vesting requirements and other
features and conditions of Awards made under the Plan;
(iii) interpret the Plan and Award Agreements (as defined below);
and
(iv) make all other
decisions related to the operation of the Plan.
(c)
Each Award granted under the Plan shall be
evidenced by a written
agreement (i.e.,
an "Award Agreement"). Each Award Agreement shall
constitute a binding
contract between the Company or an Affiliate and
the Participant, and
every Participant,
upon acceptance of an
Award
Agreement, shall be
bound by the terms and
restrictions of the
Plan
and the Award
Agreement.
The terms of each
Award Agreement shall
be
set in accordance
with the Plan,
but each Award
Agreement may also
include any additional
provisions and restrictions determined by the
Committee. In
particular, and at a
minimum, the Committee
shall set
forth in each Award Agreement:
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(i) the type of Award
granted;
(ii) the Exercise Price for any Option;
(iii) the number of shares or rights subject to the Award;
(iv) the expiration date of the Award;
(v) the manner,
time and rate
(cumulative or
otherwise) of exercise
or vesting of the Award; and
(vi) the restrictions,
if any, placed on the Award, or upon shares
which may be issued upon the exercise or vesting of the Award.
The
Chairman of the Committee and/or the President of the Company are
hereby authorized to
execute Award
Agreements on behalf of the Company or
an
Affiliate and to cause them to be delivered to the Participants
granted
Awards under the Plan.
(d)
Six Month Holding Period. Subject to vesting requirements, if
applicable, except
in the event of death or Disability of the
Participant or a
Change in Control of the Company, a minimum of six
months must elapse
between the date of the grant of an Option and the
date of the sale of the Common Stock received through the exercise of
such Option.
4.
ELIGIBILITY.
Subject to the terms
of the Plan,
Employees and Outside Directors, as the
Committee shall determine from time to time, shall be eligible to
receive Awards
in accordance with the Plan.
5. SHARES OF
COMMON STOCK SUBJECT TO THE PLAN; SHARE LIMITS.
5.1 Shares Available.
Subject to the
provisions of Section 7, the Common Stock
that may be
delivered under this Plan shall be shares of the Company's
authorized but unissued Common Stock, shares of Common Stock
purchased in the
open-market by the
Company and any shares of Common
Stock held as treasury
shares.
5.2 Share Limits.
The maximum number of shares of Common
Stock that may be
delivered pursuant to
Awards granted under this Plan (the "Share Limit") equals
250,000 shares. The
following limits also
apply with respect to Awards granted
under this Plan:
(a)
The maximum number of shares of Common
Stock that may be
delivered
pursuant to the exercise of Stock Options granted under this Plan to
Outside Directors in
the aggregate
shall be 40,000 shares
of Common
Stock.
(b)
The maximum number of shares of Common
Stock that may be
delivered
pursuant to the exercise of Stock Options granted under this Plan to
any one individual shall not exceed 50,000 shares of Common
Stock.
5.3 Awards Settled in Cash, Reissue of Awards and Shares. To
the extent that an
Award is settled in cash or a form other than shares of Common
Stock, the shares
that would have been
delivered had there been no such cash or other settlement
shall be counted
against the shares
available for
issuance under this Plan.
Shares that are subject to or underlie Awards which expire or for
any reason are
cancelled or terminated, are forfeited, fail to vest, or for any other
reason
are not paid or
delivered under this Plan shall again be available for
subsequent Awards under this Plan.
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5.4 Reservation of
Shares; No Fractional
Shares; Minimum Issue. The Company
shall at all times
reserve a number of
shares of Common Stock
sufficient
to
cover the Company's
obligations and
contingent
obligations to deliver
shares
with respect to Awards then outstanding under this Plan. No fractional
shares
shall be delivered
under this Plan. The
Committee may pay cash
in lieu of any
fractional shares in
settlements
of Awards under this
Plan. No fewer than 100
shares may be purchased on exercise of any Stock Option
unless the total
number
purchased or exercised is the total number at the time available
for purchase or
exercise by the Participant.
6. AWARDS.
6.1 Stock Options.
Except as otherwise
detailed herein,
the Committee
shall
determine the type or types of Award(s) to be made to each Eligible
Participant
or Outside Director.
Awards may be granted
singularly,
in combination or in
tandem. Awards also may be made in combination or in tandem with,
in replacement
of, as alternatives
to, or as the payment
form for grants or
rights under any
other employee or compensation plan of the Company. The types of
Awards that may
be granted under this Plan are Stock Options, either Incentive Stock Options
and/or Non-Statutory Stock Options.
(a)
The Committee
may, subject to the limitations of this Plan and the
availability of shares
of Common Stock
reserved but not
previously
awarded under the
Plan, grant Stock
Options to Employees and Outside
Directors, subject to terms and conditions as it may determine, to
the
extent that
such terms and conditions are consistent with the
following provisions:
(i) EXERCISE PRICE.
The Exercise Price of
Stock Options shall not be
less than one hundred
percent (100%) of the Fair Market Value of
the Common Stock on the date of grant.
(ii) TERMS OF OPTIONS.
In no event
may an individual exercise an
Option, in whole or in
part, more than ten
(10) years from
the
date of grant.
(iii) NON-TRANSFERABILITY. Unless otherwise determined by the
Committee, an individual may not transfer, assign, hypothecate,
or dispose of an Option in any manner, other than by will or the
laws of intestate succession. The Committee may, however, in
its
sole discretion,
permit
the transfer or assignment of a
Non-Statutory Stock Option, if it determines that the transfer
or
assignment is for valid estate planning purposes and is
permitted
under the Code and Rule 16b-3 of the Exchange Act. For purposes
of this Section 6.1(a)(iii), a transfer for valid estate
planning
purposes includes, but is not limited to, transfers:
(1) to a revocable
INTER VIVOS trust, as
to which an individual
is both settlor and trustee;
(2) for no
consideration to: (a)
any member of the individual's
Immediate Family;
(b) a trust
solely for the benefit of
members of
the individual's Immediate Family; (c) any
partnership
whose only
partners
are members of the
individual's Immediate
Family; or (d) any limited liability
corporation or other corporate entity whose only members or
equity owners
are members of the individual's Immediate
Family.
For purposes of this
Section 6.1,
"Immediate Family"
includes, but is not necessarily limited to, a Participant's
parents,
grandparents,
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spouse, children,
grandchildren,
siblings (including
half
brothers and
sisters), and individuals who are family
members by adoption.
Nothing contained in
this Section 6.1
shall be construed
to require
the Committee to give its
approval to any transfer or assignment of any Non-Statutory
Stock Option or portion thereof, and approval to transfer or
assign any
Non-Statutory Stock
Option or portion
thereof
does not mean that such approval will be given with
respect
to any other
Non-Statutory Stock Option or portion thereof.
The transferee or assignee of any Non-Statutory Stock Option
shall be subject to all of the terms and conditions
applicable to such
Non-Statutory Stock
Option immediately
prior to the transfer or assignment and shall be subject to
any other conditions prescribed by the Committee with
respect to
such Non-Statutory Stock Option.
(iv) SPECIAL RULES FOR INCENTIVE STOCK OPTIONS. Notwithstanding the
foregoing provisions,
the following rules shall further apply to
grants of Incentive Stock Options:
(1) If an Employee
owns or is treated as owning, for purposes of
Section 422 of the Code, Common Stock representing more than
ten percent (10%) of the total combined voting securities of
the Company at the time the Committee grants the Incentive
Stock Option (a "10% Owner"), the Exercise Price shall not
be less than one hundred and ten percent (110%) of the Fair
Market Value of the Common Stock on the date of grant.
(2) An Incentive
Stock Option
granted to a 10% Owner
shall not
be exercisable
more than five (5) years from the
