<PAGE> 1
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended.......................................March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from............................................
Commission File No.................................................0-27942
Commonwealth Bancorp, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Pennsylvania 23-2828883
---------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Commonwealth Bank Plaza
2 West Lafayette Street
Norristown, Pennsylvania 19401-4758
---------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code:
(610) 313-1600
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: As of May 4, 1998, there
were 18,019,015 issued and 16,061,415 outstanding shares of the Registrant's
Common Stock.
1
<PAGE> 2
Commonwealth Bancorp, Inc. and Subsidiaries
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
No. No.
<S> <C> <C>
PART I - CONSOLIDATED FINANCIAL INFORMATION
1 Consolidated Financial Statements
Consolidated Balance Sheets at March 31, 1998 and December 31, 1997 3
Consolidated Statements of Income for the Quarter Ended
March 31, 1998 and 1997 4
Consolidated Statements of Changes in Shareholders' Equity for the Quarter Ended
March 31, 1998 and 1997 5
Consolidated Statements of Cash Flows for the Quarter Ended
March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial Condition and Results of
2 Operations 11
PART II - OTHER INFORMATION
1 Legal Proceedings 23
2 Changes in Securities 23
3 Default Upon Senior Securities 23
4 Submission of Matters to a Vote of Security Holders 23
5 Other Information 24
6 Exhibits and Reports on Form 8-K 24
</TABLE>
2
<PAGE> 3
Commonwealth Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
Assets: (Unaudited)
<S> <C> <C>
Cash and due from banks $38,819 $43,251
Interest-bearing deposits - 4,391
Short-term investments available for sale 6,995 6,296
Mortgage loans held for sale 96,655 37,574
Investment securities
Securities available for sale (cost of $50,945
and $50,428, respectively), at market value 51,834 51,326
Mortgage-backed securities
Securities held to maturity (market value of $186,661
and $199,048, respectively), at cost 183,708 196,213
Securities available for sale (cost of $565,161
and $534,573, respectively), at market value 568,583 539,078
Loans receivable, net 1,314,381 1,259,596
Accrued interest receivable, net 13,794 13,271
FHLB stock, at cost 14,900 14,175
Premises and equipment, net 17,970 18,590
Intangible assets 43,826 45,244
Mortgage servicing rights 8,497 8,039
Other assets, including net deferred taxes of $1,445
and $482, respectively 30,455 31,551
----------- -----------
Total assets $2,390,417 $2,268,595
============ ============
Liabilities:
Deposits $1,579,284 $1,552,824
Notes payable and other borrowings:
Secured notes due to Federal Home Loan Bank of Pittsburgh 293,000 213,000
Securities sold under agreements to repurchase 218,076 246,099
Advances from borrowers for taxes and insurance 29,578 24,071
Accrued interest payable, accrued expenses and other
liabilities 52,335 17,749
----------- -----------
Total liabilities 2,172,273 2,053,743
----------- -----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.10 par value; 5,000,000 shares
authorized; none issued - -
Common stock, $0.10 par value; 30,000,000 shares authorized;
18,016,063 shares issued and 16,264,463 outstanding at March
31, 1998;
17,998,736 shares issued and 16,247,136 outstanding at
December 31, 1997 1,802 1,800
Additional paid-in capital 134,277 133,541
Retained earnings 120,205 117,582
Unearned stock benefit plan compensation (12,260) (12,900)
Unrealized gain on marketable securities, net 2,803 3,512
Treasury stock, at cost; 1,751,600 shares at March 31, 1998 (28,683) (28,683)
----------- -----------
Total shareholders' equity 218,144 214,852
----------- -----------
Total liabilities and shareholders' equity $2,390,417 $2,268,595
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
Commonwealth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except share amounts)
<TABLE>
<CAPTION>
For the Quarter
Ended March 31,
1998 1997
(Unaudited)
<S> <C> <C>
Interest income:
Interest on loans $25,383 $22,055
Interest and dividends on deposits and money
market investments 683 565
Interest on investment securities 743 1,014
Interest on mortgage-backed securities 12,270 13,821
Total interest income 39,079 37,455
Interest expense:
Interest on deposits 14,944 13,915
Interest on notes payable and other borrowings 6,620 5,692
Total interest expense 21,564 19,607
---------- ----------
Net interest income 17,515 17,848
Provision for loan losses 500 300
Net interest income after provision for loan losses 17,015 17,548
Noninterest income:
Deposit fees and related income 2,051 1,534
Servicing fees 1,047 1,202
Net gain on sale of mortgage loans 2,092 719
Net loss on sale of foreclosed real estate (32) (69)
Other 848 1,982
Total noninterest income 6,006 5,368
Noninterest expense:
Compensation and employee benefits 8,989 7,938
Occupancy and office operations 2,600 2,427
FDIC premium 193 (31)
Advertising and promotion 437 418
Amortization of intangible assets 1,417 1,578
Other 3,735 3,397
Total noninterest expense 17,371 15,727
---------- ----------
Income before income taxes 5,650 7,189
Income tax provision 1,798 2,519
Net income $3,852 $4,670
=========== ===========
Basic weighted average number of shares outstanding 14,983,836 16,117,662
========== ==========
Basic earnings per share $0.26 $0.29
=========== ===========
Diluted weighted average number of shares outstanding 15,640,878 16,556,570
========== ==========
Diluted earnings per share $0.25 $0.28
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
Commonwealth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Unearned Unrealized
Common Additional Stock Gain/(Loss)
Shares Common Paid-In Retained Benefit Plan On Marketable Treasury
Outstanding Stock Capital Earnings Compensation Securities, net Stock Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fiscal 1997
- -----------
Balance at December 31, 1996 17,954 $1,795 $132,931 $105,577 ($10,510) $2,131 $ - $231,924
Net income 4,670 4,670
Dividends (1,078) (1,078)
Release of ESOP shares (a) 170 230 400
Amortization of unearned compensation 324 324
Exercise of stock options 81 8 375 383
Cash in lieu of fractional shares (2) (21) (21)
Stock retired (24) (2) (358) (360)
Decrease in unrealized gain on marketable
securities, net of tax (4,050) (4,050)
Common stock acquired by stock benefit
plans (4,495) (4,495)
Purchase of Treasury stock (898) (13,767) (13,767)
----------------------------------------------------------------------------------------------
Balance at March 31, 1997 17,111 $1,801 $133,097 $109,169 ($14,451) ($1,919) ($13,767) $213,930
==============================================================================================
Fiscal 1998
- -----------
Balance at December 31, 1997 16,247 $1,800 $133,541 $117,582 ($12,900) $3,512 ($28,683) $214,852
Net income 3,852 3,852
Dividends (1,229) (1,229)
Release of ESOP shares (a) 302 230 532
Amortization of unearned compensation 410 410
Exercise of stock options 17 2 105 107
Decrease in unrealized gain on marketable
securities, net of tax (709) (709)
Tax benefit on employee stock plans 329 329
Balance at March 31, 1998 16,264 $1,802 $134,277 $120,205 ($12,260) $2,803 ($28,683) $218,144
==============================================================================================
</TABLE>
(a) Shares totaling 26,234 were released during the quarters ended March 31,
1998 and 1997.
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
Commonwealth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
For the Quarter
Ended March 31,
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Operating activities:
Net income $3,852 $4,670
Adjustments to reconcile net income to net cash
(used in) provided by operating activities-
Proceeds from loans sold to others 122,797 50,296
Loans originated for sale (122,228) (55,254)
Purchases of loans held for sale (58,277) (12,145)
Principal collection on mortgage loans held for sale 167 75
Net gain on sale of mortgage loans (2,092) (1,246)
Increase in net deferred loan fees 305 113
Provision for loan losses and foreclosed real estate 524 320
Net gain on sale of assets - (1,523)
Depreciation and amortization 843 763
Net amortization of other assets and liabilities 2,237 2,499
Interest reinvested on repurchase agreements (3,088) (1,988)
Changes in assets and liabilities-
(Increase) decrease in-
Accrued interest receivable, net (523) 180
Deferred income taxes (963) -
Other assets 1,946 (1,515)
Increase in-
Advances from borrowers for taxes and insurance 5,507 3,384
Accrued interest payable, accrued expenses and other
liabilities 34,586 11,642
----------- -----------
Net cash (used in) provided by operating activities ($14,407) $271
----------- -----------
</TABLE>
(continued)
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
Commonwealth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
For the Quarter
Ended March 31,
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Investing activities:
Purchases of investment securities $ - ($16,194)
Proceeds from call of mortgage-backed securities 30,000 -
Purchases of mortgage-backed securities (113,704) (112,158)
Principal collected on mortgage-backed securities 65,622 30,163
Principal collected on loans 114,240 52,962
Loans originated (120,652) (38,179)
Loans purchased (48,896) (18,259)
Sales of real estate acquired through foreclosure 368 528
Purchase of FHLB Stock (725) (3,016)
Purchases of premises and equipment (417) (718)
Proceeds from sales of assets 44 11,132
------------- ---------------
Net cash used in investing activities (74,120) (93,739)
------------- ---------------
Financing activities:
Net increase in deposits 26,460 6,157
Proceeds from notes payable and other borrowings 324,556 213,315
Repayment of notes payable and other borrowings (269,491) (98,534)
Net issuance (purchase) of common stock 107 (18,260)
Cash dividends paid (1,229) (1,013)
------------- ---------------
Net cash provided by financing activities 80,403 101,665
------------- ---------------
Net (decrease) increase in cash and cash equivalents (8,124) 8,197
Cash and cash equivalents at beginning of period 53,938 60,102
------------- ---------------
Cash and cash equivalents at end of period $45,814 $68,299
============= ===============
Supplemental disclosures of cash flow information:
Cash paid during the quarter for-
Interest $15,692 $13,608
============= ===============
Income taxes $ - $23
============= ===============
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
Commonwealth Bancorp, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of Commonwealth Bancorp,
Inc.'s ("Commonwealth" or the "Company") financial condition as of March 31,
1998 and the results of operations, changes in shareholders' equity, and cash
flows for the periods presented.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
accompanying unaudited consolidated financial statements were prepared in
accordance with the instructions for Form 10-Q. For further information, refer
to the Company's consolidated financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997. Certain items in the 1997 financial statements and
footnotes have been reclassified in order to conform with the 1998 financial
statement and footnote presentation.
The Company is a Pennsylvania corporation which is the holding company for
Commonwealth Bank ("Bank"). Headquartered in Norristown, PA, Commonwealth Bank
has offices located in Berks, Bucks, Chester, Delaware, Lebanon, Lehigh,
Montgomery, and Philadelphia Counties, Pennsylvania. ComNet Mortgage Services
("ComNet'), a division of the Bank, has offices in Pennsylvania, Connecticut,
New Jersey, Rhode Island, and Virginia. ComNet operates under the trade name
of Homestead Mortgage in Maryland.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Commonwealth; Commonwealth Bank; CFSL Investment Corporation; Commonwealth
Investment Corporation of Delaware, Inc.; ComLife, Inc.; CS Corporation;
Firstcor, Ltd.; and QME, Inc. All material intercompany accounts and
transactions have been eliminated in consolidation.
3. Shareholders' Equity
On March 17, 1998, the Board of Directors declared a $0.08 per share cash
dividend for the quarter ended March 31, 1998, which was made payable to
shareholders of record at the close of business on March 27, 1998. This
dividend was paid on April 10, 1998.
4. Future Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 131 "Disclosures
about Segments of an Enterprise and Related Information" was issued in June
1997. This statement is effective for fiscal years beginning after December
15, 1997 and need not be applied to interim statements in the initial year of
application. SFAS No. 131 introduces a new model for segment reporting, called
the "management approach." The management approach is based on the way the
chief operating decision maker organizes segments within a company for making
operating decisions and assessing performance. Reportable segments are based
on product and services, geography, legal structure, management structure - any
manner in which management disaggregates a company. The management approach
replaces the notion of industry and geographic segments in current FASB
standards. The Company intends to report information on two segments as a
result of the adoption of SFAS No. 131, the Banking Operations and the Mortgage
Operations.
8
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Commonwealth Bancorp, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Earnings Per Share
In February 1997, SFAS No. 128, "Earnings per share," was issued. This
statement specified the computation, presentation, and disclosure requirements
for earnings per share ("EPS"). The main objectives of the statement were to
simplify the EPS calculation and to make EPS comparable on an international
basis. Effective for both interim and annual periods ending after December 15,
1997, primary and fully diluted EPS have been replaced by basic and diluted
EPS. Prior period results have been restated. The most significant difference
is that basic EPS no longer assumes potentially dilutive securities in the
computation. Calculating EPS under the new method has no material impact on
previously reported 1997 EPS figures.
Basic EPS is calculated by dividing net income available to common
shareholders by the weighted average number of common shares outstanding during
the period, adjusted for Employee Stock Ownership Plan ("ESOP") shares that
have not been committed to be released, and the effects of shares held by the
Recognition Plans. Options, warrants, and other potentially dilutive
securities and treasury shares are excluded from the basic calculation, as
follows:
<TABLE>
<CAPTION>
For the Quarter Ended March 31,
1998 1997
<S> <C> <C>
Basic weighted average number of common shares outstanding 14,983,836 16,117,662
Effect of diluted securities:
Stock options 548,253 360,166
Recognition Plan stock 108,789 78,742
Diluted weighted average number of common shares outstanding 15,640,878 16,556,570
</TABLE>
Diluted EPS is computed by dividing net income available to common
shareholders by the weighted average number of shares of common stock
outstanding during the period, adjusted for ESOP shares that have not been
committed to be released, and the effects of shares held by the Recognition
Plans. The effect of diluted securities, such as stock options and Recognition
Plan stock, are considered common stock equivalents and are included in the
computation of the number of outstanding shares using the treasury stock
method. Common shares outstanding exclude treasury shares.
Basic EPS was $0.26 for the quarter ended March 31, 1998, compared to
$0.29 per share for the quarter ended March 31, 1997. Diluted EPS was $0.25
for the quarter ended March 31, 1998, compared to $0.28 per share for the
quarter ended March 31, 1997. The Company recognized a $1.0 million
(after-tax) nonrecurring net gain relating to the sale of the Company's
previous headquarters building and a branch property in the first quarter of
1997. Exclusive of the gain, diluted EPS would have been $0.22 in the first
quarter of 1997.
9
<PAGE> 10
Commonwealth Bancorp, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Comprehensive Income
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" was issued in July 1997. The Company adopted SFAS No.
130 on January 1, 1998, as required. SFAS No. 130 established standards for
the reporting and display of comprehensive income and its components. The main
objective of the statement is to report a measure of all changes in equity that
result from transactions and other economic events of the period other than
transactions with owners. Such components of total comprehensive income for
the Company are net income and unrealized gains on marketable securities, net
of tax, as follows:
<TABLE>
<CAPTION>
For the Quarter Ended March 31,
1998 1997
(in thousands)
<S> <C> <C>
Net income $3,852 $4,670
Unrealized loss on marketable securities, net of tax (709) (4,050)
Comprehensive income $3,143 $620
</TABLE>
7. Acquisitions
On March 31, 1998, Commonwealth Bank acquired selected assets of Edmunds
Financial Corporation d/b/a Service First Mortgage, a mortgage company
headquartered in Annandale, Virginia. Among the assets acquired from Service
First Mortgage was the production branch located in Annandale, Virginia. In
1997, this branch originated approximately $75 million in mortgages in
Virginia, Maryland and the District of Columbia. Under the terms of the
transaction, the group will operate under the ComNet Mortgage Services name.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
When used in this Form 10-Q, or, in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project", or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties
including changes in economic conditions in the Company's market area, changes
in policies by regulatory agencies, fluctuations in interest rates, demand for
loans in the Company's market area and competition that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. The Company wishes to advise readers that the factors listed
above could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The Company does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions which may be made to
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
GENERAL. The Company is a Pennsylvania corporation which is the holding
company for the Bank. Commonwealth Bank is a federally chartered stock savings
bank, primarily regulated by the Office of Thrift Supervision ("OTS"). The
Bank conducts business from its executive offices in Norristown, Pennsylvania
and, as of March 31, 1998, 56 full-service offices located in southeast
Pennsylvania. ComNet Mortgage Services, a division of the Bank, also located
in Norristown, conducts business through loan origination offices located in
Pennsylvania, Connecticut, New Jersey, Rhode Island, and Virginia, and operates
under the trade name of Homestead Mortgage in Maryland. ComNet also conducts
business through its wholesale network, which includes correspondents in 29
states.
On March 31, 1998, Commonwealth Bank acquired selected assets of Edmunds
Financial Corporation d/b/a Service First Mortgage, a mortgage company
headquartered in Annandale, Virginia. Among the assets acquired from Service
First Mortgage was the production branch located in Annandale, Virginia. In
1997, this branch originated approximately $75 million in mortgages in
Virginia, Maryland and the District of Columbia. Under the terms of the
transaction, the group will operate under the ComNet Mortgage Services name.
YEAR 2000. Commonwealth is primarily dependent on its suppliers of
computer services to become Year 2000 compliant. Commonwealth is monitoring
its computer services provider, as well as its third party system vendors, to
ensure that the Company's systems continue to meet its internal needs and those
of its customers. As a result of Commonwealth's arrangement with these
vendors, the Company does not expect material expenditures to be incurred over
the next few years to address the Year 2000 issue.
FINANCIAL CONDITION
GENERAL. Total assets increased by $121.8 million, or 5%, from $2.3
billion at December 31, 1997, to $2.4 billion at March 31, 1998. The increase
was primarily the result of increases in mortgage loans held for sale and loans
receivable. Total liabilities increased by $118.5 million, or 6%, from $2.1
billion at December 31, 1997, to $2.2 billion at March 31, 1998. This increase
was primarily the result of increases in notes payable and other borrowings,
accrued interest payable, accrued expenses and other liabilities, and deposits.
Shareholders' equity as of March 31, 1998, equaled $218.1 million, compared to
$214.9 million at December 31, 1997. This $3.3 million, or 2%, increase was
primarily the result of earnings retention during the first quarter of 1998.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS-CONTINUED
CASH, INTEREST-BEARING DEPOSITS, AND SHORT-TERM INVESTMENTS ("CASH AND
CASH EQUIVALENTS"). Cash and cash equivalents decreased by $8.1 million, or
15%, from $53.9 million at December 31, 1997, to $45.8 million at March 31,
1998. The decrease was primarily related to the investment of excess liquidity
in mortgage loans held for sale and loans receivable.
MORTGAGE LOANS HELD FOR SALE. Mortgage loans held for sale increased by
$59.1 million, or 157%, from $37.6 million at December 31, 1997, to $96.7
million at March 31, 1998. The increase was primarily attributable to an
increase in loans originated during March 1998.
INVESTMENT SECURITIES. Investment securities increased by $0.5 million,
or 1%, from $51.3 million at December 31, 1997 to $51.8 million at March 31,
1998. Investments in debt and equity securities at March 31, 1998 and December
31, 1997 were as follows:
<TABLE>
<CAPTION>
March 31, 1998
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(in thousands)
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury and U.S.
Government agency
securities $39,989 $ 47 $- $40,036
Mortgage Security Mutual Fund 2,410 13 - 2,423
Equity Servicing Partnership 5,290 - - 5,290
Other Equity Investments 3,256 829 - 4,085
--------------------------------------------
Total $50,945 $889 $- $51,834
============================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(in thousands)
--------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury and U.S.
Government agency
securities $39,980 $ 61 $- $40,041
Mortgage Security Mutual Fund 2,373 31 - 2,404
Equity Servicing Partnership 4,819 - - 4,819
Other Equity Investments 3,256 806 - 4,062
--------------------------------------------
Total $50,428 $898 $- $51,326
============================================
</TABLE>
Investment securities classified as held to maturity are carried at
amortized cost and are adjusted for amortization of premiums and accretion of
discounts over the life of the related security pursuant to the level-yield
method. Investment securities classified as available for sale are reported at
fair value, with unrealized gains and losses, net of tax, excluded from
earnings and reported as a separate component of shareholders' equity. There
were no investment securities classified as held to maturity at March 31, 1998
and December 31, 1997.
12
<PAGE> 13
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities increased by $17.0
million, or 2%, from $735.3 million at December 31, 1997 to $752.3 million at
March 31, 1998. The increase in mortgage-backed securities during the first
quarter of 1998 was related to a strategy to enhance the Company's net interest
income through the purchase of mortgage-backed securities funded through
Federal Home Loan Bank ("FHLB") advances. The increase was offset, in part, by
repayments and prepayments and the $30 million call of mortgage-backed
securities during the first quarter of 1998.
Mortgage-backed securities generally increase the quality of the Company's
assets by virtue of the insurance or guarantees related to the securities, are
more liquid than individual mortgage loans, and may be used to collateralize
borrowings or other obligations of the Company. At March 31, 1998 and December
31, 1997, $432.8 million, or 58%, and $479.4 million, or 65%, respectively, of
the Company's mortgage-backed securities were insured or guaranteed by the
Government National Mortgage Association ("GNMA"), the Federal Home Loan
Mortgage Corporation ("FHLMC"), or the Federal National Mortgage Association
("FNMA"). As part of its investment policy, the Company also has the ability
to invest in private mortgage-backed securities. These non-federally insured
mortgage-backed securities, which are generally rated AA or better, yield a
higher rate of return and involve a higher risk of loss than comparable
mortgage-backed securities issued by the GNMA, FHLMC, or the FNMA, and serve to
further diversity the Company's mortgage-backed securities portfolio. At March
31, 1998 and December 31, 1997, $319.5 million, or 42%, and $255.9 million, or
35%, respectively, of the Company's mortgage-backed securities were private
mortgage-backed securities. The following table sets forth the Company's
mortgage-backed securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
March 31, 1998
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(in thousands)
<S> <C> <C> <C> <C>
Held to maturity:
GNMA $ 70,893 $2,145 $ 110 $ 72,928
FHLMC 40,000 501 - 40,501
FNMA 67,805 490 73 68,222
Private 5,010 - - 5,010
--------------------------------------------
Total $183,708 $3,136 $ 183 $186,661
============================================
Available for sale:
GNMA $ 15,909 $ 552 $ - $ 16,461
FHLMC 91,560 2,635 17 94,178
CMO and REMIC 381,928 1,425 1,914 381,439
FNMA 75,764 1,058 317 76,505
--------------------------------------------
Total $565,161 $5,670 $2,248 $568,583
============================================
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
December 31, 1997
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(in thousands)
<S> <C> <C> <C> <C>
Held to maturity:
GNMA $ 74,677 $2,251 $ 174 $ 76,754
FHLMC 43,256 485 - 43,741
FNMA 72,970 506 233 73,243
Private 5,310 - - 5,310
--------------------------------------------
Total $196,213 $3,242 $ 407 $199,048
============================================
Available for sale:
GNMA $ 16,572 $ 560 $ 16 $ 17,116
FHLMC 98,092 2,682 26 100,748
CMO and REMIC 338,378 1,589 761 339,206
FNMA 81,531 865 388 82,008
--------------------------------------------
Total $534,573 $5,696 $1,191 $539,078
============================================
</TABLE>
Mortgage-backed securities classified as held to maturity are carried at
amortized cost and are adjusted for amortization of premiums and accretion of
discounts over the life of the related security pursuant to the level-yield
method. Mortgage-backed securities classified as available for sale are
reported at fair value, with unrealized gains and losses, net of tax, excluded
from earnings and reported as a separate component of shareholders' equity.
14
<PAGE> 15
LOANS RECEIVABLE. Loans receivable, net of reserves and unamortized
discounts and unaccreted premiums, increased by $54.8 million, or 4%, during
the first quarter of 1998 to $1.3 billion at March 31, 1998. The following
table depicts the composition of the Company's loan portfolio at the dates
indicated.
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
% of % of
Amount Total Amount Total
(dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans - Residential (1) $ 996,118 75.20% $ 958,542 75.51%
Consumer loans:
Equity lines of credit 39,132 2.95 41,592 3.28
Second mortgage 107,517 8.12 98,934 7.79
Recreational vehicles 25,279 1.91 22,182 1.75
Other 34,136 2.58 32,085 2.53
----------- ------ ---------- ------
Total consumer loans 206,064 15.56 194,793 15.35
Commercial loans:
Small Business Loans (2) 18,652 1.41 20,016 1.58
Commercial real estate 77,332 5.83 71,508 5.63
Business loans 26,457 2.00 24,456 1.93
----------- ------ ---------- ------
Total commercial loans 122,441 9.24 115,980 9.14
----------- ------ ---------- ------
Total loans receivable 1,324,623 100.00% 1,269,315 100.00%
----------- ====== ---------- ======
Less:
Net premium on loans purchased (1,877) (2,314)
Allowance for loan losses 9,026 9,024
Deferred loan fees 3,093 3,009
----------- ----------
Loans receivable, net $1,314,381 $1,259,596
=========== ==========
</TABLE>
(1) At March 31, 1998 and December 31, 1997, $582.1 million, or 58%, and
$613.6 million, or 64%, respectively, of the Company's residential
mortgage loans had adjustable interest rates.
(2) Consists entirely of loans (or securities backed by loans) which are
guaranteed by the U.S. Government, with the majority adjusting
monthly or quarterly. All such loans or securities were purchased by the
Company.
Total mortgage loans originated and purchased for the quarter ended March
31, 1998, increased by $196.0 million, or 200%, from $98.2 million for the
quarter ended March 31, 1997 to $294.2 million for the quarter ended March 31,
1998. The $196.0 million increase in mortgage originations was the result of
increases in retail and wholesale residential mortgage originations. Closed
loans relating to Commonwealth's retail network totaled $187.0 million during
the quarter ended March 31, 1998, an increase of 176% compared to $67.8 million
for the quarter ended March 31, 1997. Commonwealth's Wholesale Lending
Department originates loans through a network of correspondent brokers in 29
states. All loans are underwritten using the same criteria as those used for
retail originations. Closed loans relating to Commonwealth's wholesale network
totaled $107.2 million during the quarter ended March 31, 1998, an increase of
253% compared to $30.4 million for the quarter ended March 31, 1997.
15
<PAGE> 16
Consumer loans increased by $11.3 million, or 6%, from $194.8 million at
December 31, 1997, to $206.1 million at March 31, 1998. At March 31, 1998,
consumer loans represented 16% of the Company's loan portfolio and were
comprised of $39.1 million of equity lines of credit, $107.5 million of second
mortgage loans, $25.3 million of recreational vehicle loans, and $34.1 million
of other consumer loans. At December 31, 1997, consumer loans represented 15%
of total loans and were comprised of $41.6 million of equity lines of credit,
$98.9 million of second mortgage loans, $22.2 million of recreational vehicle
loans, and $32.1 million of other consumer loans.
As of March 31, 1998, commercial loans, exclusive of loans guaranteed by
the Small Business Administration ("SBA"), totaled $103.8 million, or 8%, of
the Company's total loan portfolio, as compared to $96.0 million, or 8%, at
December 31, 1997. At March 31, 1998, commercial loans (other than SBA loans)
were comprised of $77.3 million of commercial real estate loans and $26.5
million of business loans. At December 31, 1997, commercial loans (other than
SBA loans) were comprised of $71.5 million of commercial real estate loans and
$24.5 million of business loans. Commercial loans are generally considered to
have a greater risk than residential mortgage loans because the risk of
borrower default is greater, and the collateral is more likely to decline in
value and may be more difficult to liquidate than single-family residences.
NONPERFORMING ASSETS. The Company's nonperforming assets, which
principally consist of nonaccrual loans and real estate acquired through
foreclosure, increased by $0.4 million, or 4%, from $9.6 million at December
31, 1997, to $10.0 million at March 31, 1998. At March 31, 1998, the Company's
$10.0 million of nonperforming assets amounted to 0.42% of total assets. At
December 31, 1997, the Company's $9.6 million of nonperforming assets amounted
to 0.42% of total assets. The following table sets forth information relating
to the Company's nonperforming assets at the dates indicated.
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
(dollars in thousands)
<S> <C> <C>
Mortgage loans - Residential $5,540 $5,269
Consumer loans 1,632 1,324
Commercial loans (1) 1,696 2,345
------ -------
Total nonperforming loans 8,868 8,938
Real estate owned, net 1,090 626
------ -------
Total nonperforming assets (1) $9,958 $9,564
====== =======
Nonperforming loans to total loans held for
investment (1) 0.67% 0.70%
====== =======
Total nonperforming assets to total assets
(1) 0.42% 0.42%
====== =======
</TABLE>
(1) Does not include nonperforming commercial loans which are fully guaranteed
as to principal and interest by the U.S. Government, which amounted to $1.1
million at both March 31, 1998 and December 31, 1997.
16
<PAGE> 17
ALLOWANCE FOR LOAN LOSSES. The Company's allowance for loan losses
amounted to $9.0 million at both March 31, 1998 and December 31, 1997. It is
management's policy to maintain an allowance for estimated loan losses based
upon an assessment of prior loss experience, the volume and type of lending
conducted by the Company, industry standards, past due loans, general economic
conditions, and other factors related to the collectability of the loan
portfolio. At March 31, 1998, the Company's allowance for loan losses amounted
to 102% of total nonperforming loans and 0.68% of total loans held for
investment, as compared to 101% of total nonperforming loans and 0.71% of total
loans held for investment at December 31, 1997. The Company utilizes these
percentages as only one of the factors in assessing the adequacy of the
allowance for loan losses at various points in time. The following table sets
forth the activity in the Company's allowance for loan losses during the
periods indicated.
<TABLE>
<CAPTION>
For the Quarter Ended March 31,
1998 1997
(dollars in thousands)
<S> <C> <C>
Allowance at beginning of period $ 9,024 $ 9,971
Provision for loan losses 500 300
Charge-offs:
Mortgage loans - Residential (2) (81)
Consumer loans (380) (218)
Commercial loans (154) -
--------- --------
Total charge-offs (536) (299)
Recoveries:
Mortgage loans - Residential - 63
Consumer loans 16 4
Commercial loans 22 5
--------- --------
Total recoveries 38 72
--------- --------
Allowance at end of period (1) $ 9,026 $10,044
Allowance for loan losses to
total nonperforming loans at
end of period (1) 101.78% 121.63%
========= ========
Allowance for loan losses to
total loans held for investment
at end of period (1) 0.68% 0.89%
========= ========
</TABLE>
(1) The decrease in the allowance for loan losses between March 31, 1997
and March 31, 1998 was primarily attributable to net credit losses relating to
loans acquired in the Berks Acquisition. The Company acquired a $2.4 million
allowance for credit losses as part of the Berks Acquisition. Through March
31, 1998, essentially all of that reserve had been utilized through net credit
losses.
17
<PAGE> 18
INTANGIBLE ASSETS. Intangible assets, which are comprised of the
excess of cost over net assets acquired ("Goodwill") and core deposit
intangibles ("CDI"), were recorded in connection with the Berks
Acquisition in 1996 and the Fidelity Federal Acquisition in 1995. The
following table details the components of intangible assets at the dates
indicated.
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
(in thousands)
<S> <C> <C>
Goodwill (Berks Acquisition) $20,515 $20,973
CDI (Berks Acquisition) 9,832 10,442
Goodwill (Fidelity Federal) 11,060 11,327
CDI (Fidelity Federal) 2,419 2,502
-------------- -----------------
Total $43,826 $45,244
============== =================
</TABLE>
MORTGAGE SERVICING RIGHTS. At March 31, 1998, Commonwealth's
servicing portfolio was $2.3 billion, an increase of 4% compared to $2.2
billion at December 31, 1997. At both March 31, 1998 and December 31,
1997, Commonwealth was servicing $1.3 billion of third party loans, as
well as $1.0 billion and $0.9 billion, respectively, of loans held by
Commonwealth for investment and sale. The following table details the
components of mortgage servicing rights at the dates indicated.
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
(in thousands)
<S> <C> <C>
Purchased Mortgage Servicing Rights $1,454 $1,559
Capitalized Excess Servicing Fees 3,124 3,215
Originated Mortgage Servicing Rights 3,919 3,265
-------------- -----------------
Total $8,497 $8,039
============== =================
</TABLE>
DEPOSITS. Deposits increased by $26.5 million, or 2%, to $1.6
billion at March 31, 1998, primarily related to increases in principal
and interest escrows established pursuant to loan servicing agreements,
as well as increases in supermarket and business deposits.
BORROWINGS. The Company's borrowings consist principally of
advances from the FHLB and securities sold under agreements to
repurchase. FHLB advances increased by $80.0 million, or 38%, to $293.0
million at March 31, 1998, from $213.0 million at December 31, 1997.
Repurchase agreements decreased by $28.0 million, or 11%, to $218.1
million at March 31, 1998, from $246.1 million at December 31, 1997.
The Company's borrowings are used to fund lending and investment
activities, withdrawals from deposit accounts, and other disbursements
which occur in the normal course of business. Dependent upon the
funding requirements and interest rate risk considerations, these
borrowings are hedged with off-balance-sheet financial instruments.
ACCRUED INTEREST PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES
("OTHER LIABILITIES"). Other liabilities increased by $34.6 million, or
195%, to $52.3 million at March 31, 1998, from $17.7 million at December
31, 1997, primarily related to amounts due other depository
institutions, and an increase in accrued interest payable.
18
<PAGE> 19
REGULATORY CAPITAL REQUIREMENTS.
The following table sets forth the Bank's compliance with applicable regulatory
capital requirements at March 31, 1998:
<TABLE>
<CAPTION>
To Be Well
Minimum Capitalized
For Capital For Prompt
Adequacy Corrective Action
Actual Purposes Provisions
Ratio Amount Ratio Amount Ratio Amount
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity,
and ratio to OTS
total assets 8.3% $196,593
-------
Intangible assets (43,826)
Unrealized gains on
available-for-sale
securities, net of tax (2,241)
---------
Tangible capital,
and ratio to OTS
adjusted total assets 6.5% $150,526 1.5% $34,773
Core capital,
and ratio to OTS
adjusted total assets 6.5% $150,526 3.0% $69,547 5.0% $115,911
======= ======== ------ =======
Core capital,
and ratio to OTS
risk-weighted assets 12.6% $150,526 6.0% $71,780
------- -------- ------ =======
Allowance for loan losses 9,026
--------
Supplementary capital 9,026
--------
Total risk-based capital,
and ratio to OTS
risk-weighted assets (1)13.3% $159,552 8.0% $95,707 10.0% $119,634
------- ======== ----- ======== ------ =======
OTS total assets $2,364,290
==========
OTS adjusted total assets $2,318,223
==========
OTS risk-weighted assets $1,196,340
==========
</TABLE>
(1) Does not reflect the interest rate risk component to the risk-based capital
requirement, the effective date of which has been postponed.
19
<PAGE> 20
Commonwealth Bancorp, Inc. and Subsidiaries
Average Balance Report
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------------------------------------------------------
1998 1997
-------------------------------- ---------------------------------
Average Average
Average Yield / Average Yield/
Balance Interest Cost(e) Balance Interest Cost(e)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(a):
Mortgage loans - residential $945,855 $17,039 7.31% $ 838,096 $15,879 7.68%
Consumer loans 197,095 4,478 9.21% 168,323 3,687 8.88%
Commercial real estate loans 74,359 1,632 8.90% 38,062 841 8.96%
Business loans 42,150 819 7.88% 60,585 1,144 7.66%
---------- ------- ------ ----------- ------ ------
Total loans receivable 1,259,459 23,968 7.72% 1,105,066 21,551 7.91%
---------- ------- ------ ----------- ------ ------
Mortgage loans held for sale 68,264 1,415 8.41% 27,765 504 7.36%
Mortgage-backed securities 725,184 12,270 6.86% 794,722 13,821 7.05%
Investment securities 51,458 743 5.86% 63,191 1,014 6.51%
Other earning assets(b) 28,136 683 9.84% 31,097 565 7.37%
---------- ------- ------ ----------- ------ ------
Total interest-earning assets 2,132,501 39,079 7.43% 2,021,841 37,455 7.51%
------- ------ ------ ------
Non-interest-earning assets 158,096 138 ,658
---------- -----------
Total assets $2,290,597 $ 2,160,499
========== ===========
Interest-bearing liabilities
Deposits:
Demand deposits(c) $ 599,635 3,625 2.45% $ 520,592 3,155 2.46%
Savings deposits 229,450 1,261 2.23% 260,443 1,419 2.21%
Certificates of deposit 739,384 10,058 5.52% 714,037 9,341 5.31%
---------- ------- ------ ----------- ------ ------
Total deposits 1,568,469 14,944 3.86% 1,495,072 13,915 2.46%
---------- ------- ------ ----------- ------ ------
Notes payable and other borrowings
Repurchase agreements 236,054 3,505 6.02% 216,360 3,171 5.94%
FHLB Advances 223,356 3,115 5.66% 185,122 2,521 5.52%
Other borrowings 0 0 0.00% 0 0 0.00%
---------- ------ ------ ---------- ------ ------
Total borrowings 459,410 6,620 5.84% 401,482 5,692 5.75%
---------- ------ ------ ---------- ------ ------
Total interest-bearing liabilities (d) 2,027,879 21,564 4.31% 1,896,554 19,607 4.19%
---------- ------ ------ ---------- ------ ------
Non- interest-bearing liabilities 46,276 40,291
---------- ----------
Total liabilities 2,074,155 1,936,845
Shareholders' equity 216,442 223,654
---------- ----------
Total liabilities and equity $2,290,597 $2,160,499
========== ==========
Net interest-earning assets $ 104,622 $ 125,287
========== ==========
Net interest income/
interest rate spread $17,515 3.12% $17,848 3.32%
======== ====== ======= ======
Net interest margin 3.33% 3.58%
Ratio of average interest-
earning assets to average
interest-bearing liabilities 105.16% 106.61%
======= =======
</TABLE>
(a) The average balance of loans receivable includes nonperforming loans,
interest on which is recognized on a cash basis.
(b) Includes FHLB stock, money market accounts, FHLB deposits and
interest-earning bank deposits.
(c) Includes checking and money market accounts.
(d) Includes interest expense associated with interest rate swaps and interest
rate caps.
(e) Annualized
<PAGE> 21
<TABLE>
<CAPTION>
Quarter Ended March 31,
--------------------------------------------------------------------------
1997 1996
----------------------------------- ------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost(e) Balance Interest Cost(e)
<S> <C> <C> <C> <C> <C> <C>
$885,062 $65,945 7.45% $ 724,844 $ 54,849 7.57%
176,909 15,982 9.03% 140,806 12,698 9.02%
49,320 4,447 9.02% 26,566 2,035 7.66%
55,202 4,252 7.70% 39,984 3,093 7.74%
---------- ------- ------ ----------- ------ ------
1,166,493 90,626 7.77% 932,200 72,675 7.80%
---------- ------- ------ ----------- ------ ------
49,477 3,659 7.19% 39,639 2,927 7.38%
791,245 54,887 6.94% 654,586 45,471 6.95%
64,742 4,031 6.23% 63,018 3,386 5.37%
23,521 2,140 9.10% 31,192 2,847 9.13%
---------- ------- ------ ----------- ------- ------
2,095,478 155,243 7.41% 1,720,635 127,306 7.40%
------- ------ ------- ------
146,185 126,810
---------- ----------
$2,241,663 $1,847,445
========== ==========
$ 550,236 13,616 2.47% $ 472,755 12,182 2.58%
245,813 5,494 2.24% 240,579 5,072 2.11%
722,278 39,450 5.46% 609,510 32,104 5.27%
---------- ------- ------ ----------- ------ ------
1,518,327 58,560 5.90% 1,54,523 9,126 5.91%
---------- ------- ------ ----------- ------ ------
242,794 14,315 5.90% 154,523 9,126 5.91%
211,107 11,980 5.67% 138,917 7,811 5.62%
0 0 0.00% 658 57 8.66%
---------- ------ ------ ----------- ------ ------
453,901 26,295 5.79% 294,089 16,994 5.78%
---------- ------ ------ ----------- ------ ------
1,972,228 84,855 4.30% 1,616,942 65,352 4.10%
---------- ------ ------ ----------- ------ ------
52,792 42,665
---------- -----------
2,025,020 1,659,607
216,643 187,445
---------- -----------
$2,241,663 $1,847,445
========== ==========
$ 123,250 $ 103,693
========== ==========
$70,388 3.11% $60,954 3.30%
======== ====== ======== ======
3.36% 3.54%
106.25% 106.41%
======= =======
</TABLE>
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED
COMPARISON OF RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1998 AND
1997.
GENERAL. Net income was $3.9 million, or $0.25 per common share on a
diluted basis, in the first quarter of 1998, compared to $4.7 million, or $0.28
per common share, in the first quarter of 1997. The decrease in net income in
the first quarter of 1998, compared to the first quarter of 1997, was primarily
attributable to a $1.0 million (after-tax) nonrecurring net gain in the first
quarter of 1997 relating to the sale of the Company's previous headquarters
building and a branch property. Exclusive of the gain, diluted earnings per
common share would have been $0.22 in the first quarter of 1997.
NET INTEREST INCOME. Net interest income was $17.5 million in the first
quarter of 1998, a decrease of 2% compared to $17.8 million in the first
quarter of 1997. The decrease was primarily attributable to a lower net
interest margin, offset, in part, by an increase in average interest earning
assets.
Average interest-earning assets totaled $2.1 billion in the first quarter
of 1998, compared to $2.0 billion in the first quarter of 1997. The increase
in interest-earning assets was due primarily to increases in the Company's loan
portfolio. Compared to the first quarter of 1997, average mortgage loans
increased 13% to $945.9 million, average consumer loans increased 17% to $197.1
million, and average commercial loans increased 18% to $116.5 million in the
first quarter of 1998. The increase in average loans in the first quarter of
1998 was primarily attributable to growth in the Company's core businesses of
mortgage banking, retail banking, and commercial banking.
The net interest margin was 3.33% in the first quarter of 1998, compared
to 3.58% in the first quarter of 1997. The decrease was primarily attributable
to a 0.08% reduction in the yield on interest-earning assets and a 0.12%
increase in the cost of interest-bearing liabilities. The decrease in the
yield on interest-earning assets was, in large part, due to generally lower
market interest rates. The increase in the cost of interest-bearing
liabilities in the first quarter was primarily due to a 0.21% increase in the
average cost of the Company's certificates of deposit, reflecting the continued
competitive environment for this product in southeast Pennsylvania.
PROVISION FOR LOAN LOSSES. Provision for loan losses totaled $0.5 million
in the first quarter of 1998, compared to $0.3 million in the first quarter of
1997. At March 31, 1998, the allowance for credit losses totaled $9.0 million,
or 0.68% of loans, compared to $10.0 million, or 0.89%, at March 31, 1997, and
$9.0 million, or 0.71%, at December 31, 1997. The decrease in the allowance
for credit losses between March 31, 1997 and March 31, 1998 was primarily
attributable to net credit losses relating to loans acquired in the Berks
Acquisition. The Company acquired a $2.4 million allowance for credit losses
as part of the Berks Acquisition. Through March 31, 1998, essentially all of
that reserve had been utilized through net credit losses.
NONINTEREST INCOME. Noninterest income totaled $6.0 million in the first
quarter of 1998, compared to $5.4 million in the first quarter of 1997. The
increase reflected a $1.4 million increase in the net gain on sale of mortgage
loans. Also contributing to the increase in noninterest income in the first
quarter of 1998 was a $0.5 million increase in deposit fees and a $0.4 million
reversal of a deferred tax liability. The increase in deposit fees was
primarily attributable to growth in supermarket banking, expansion of
Commonwealth's commercial banking activities, and increased ATM fees. These
increases were partially offset by the effect of a $1.5 million net gain on the
sale of the Company's previous headquarters building and the sale of a branch
property.
NONINTEREST EXPENSE. Noninterest expense was $17.4 million in the first
quarter of 1998, compared to $15.7 million in the first quarter of 1997. The
increase was primarily attributable to higher expenses relating to growth in
mortgage banking, supermarket banking, and commercial banking activities, as
well as higher expenses relating to certain benefit plans. In addition, FDIC
premiums increased $0.2 million primarily a result of a refund of prior year
FDIC premiums received in the first quarter of 1997.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED
PROVISION FOR INCOME TAXES. Provision for income taxes was $1.8 million,
or 32% of income before income taxes in the first quarter of 1998, compared to
$2.5 million, or 35%, in the first quarter of 1997. The decrease in the income
tax rate in the first quarter of 1998 was primarily attributable to low income
housing tax credits and the reversal of a deferred tax valuation allowance.
22
<PAGE> 24
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings to which the Company or any of its
subsidiaries is a party, or to which any of their property is subject, other
than proceedings routine to the business of the Company and its subsidiaries.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
(a) An annual meeting of stockholders of the Company was held on April
21, 1998 ("Annual Meeting").
(b) Not applicable.
(c) There were 16,262,778 shares of common stock of the Company eligible
to be voted at the Annual Meeting and 12,090,858 shares were represented at
the meeting by the holders thereof, which constituted a quorum. The items
voted upon at the Annual Meeting and the vote for each proposal were as follows:
1. Election of directors for a three-year term.
<TABLE>
<CAPTION>
FOR WITHHELD
<S> <C> <C>
George C. Beyer, Jr. 11,988,699 102,159
William B. Haines, Jr. 11,927,864 162,994
Nicholas Sclufer 11,920,956 169,902
</TABLE>
2. Proposal to amend the Company's 1996 Stock Option Plan and the
Company's 1996 Recognition and Retention Plan to revise
the provisions relating to the vesting of options and awards as a result of
changes to regulatory requirements.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTE
<S> <C> <C> <C>
10,688,513 441,019 147,572 813,754
</TABLE>
3. Proposal to amend the Company's stock benefit plans to revise the
provisions relating to adjustments for capital changes.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTE
<S> <C> <C> <C>
11,388,562 303,076 249,767 149,453
</TABLE>
23
<PAGE> 25
PART II - OTHER INFORMATION-CONTINUED
4. Proposal to ratify the appointment of Arthur Andersen LLP as the
Company's independent auditors for the year ending December 31, 1998.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C>
11,962,954 58,258 69,646
</TABLE>
The proposals were adopted by the stockholders of the Company.
(d) Not applicable
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
a) The following exhibits are filed hereto:
Exhibit No. Exhibit
10.1 Commonwealth Bancorp, Inc. 1993 Amended Stock Incentive Plan
10.2 Commonwealth Bancorp, Inc. 1993 Amended Directors' Stock Option
Plan
10.3 Commonwealth Bancorp, Inc. Amended Management Recognition Plan for
Officers and Trust Agreement
10.4 Commonwealth Bancorp, Inc. Amended Management Recognition Plan for
Directors and Trust Agreement
10.5 Commonwealth Bancorp, Inc. 1996 Amended Stock Option Plan
10.6 Commonwealth Bancorp, Inc. 1996 Amended Recognition and Retention
Plan and Trust Agreement
b) On January 23, 1998, the Company filed a Current Report on Form 8-K to
report under Item 5, its earnings for the fourth quarter of 1997. On March
23, 1998, the Company filed a Current Report on Form 8-K to report under Item
5, the addition of Joanne Harmelin and Michael T. Kennedy to its Board of
Directors and an increase in the quarterly cash dividend to $0.08 per share of
the Company's common stock. On April 3, 1998, the Company filed a Current
Report on Form 8-K to report under Item 5, the repurchase of up to 0.8 million
shares, or approximately 5%, of the outstanding common stock of the Company.
On April 6, 1998, the Company filed a Current Report on Form 8-K to report
under Item 5, the acquisition of selected assets of Edmunds Financial
Corporation d/b/a Service First Mortgage, a mortgage company headquartered in
Annandale, Virginia. On April 22, 1998, the Company filed a Current Report on
Form 8-K to report under Item 5, its earnings for the first quarter of 1998.
24
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
COMMONWEALTH BANCORP, INC.
DATE: May 11, 1998 /s/ Charles H. Meacham
-----------------------
Charles H. Meacham
Chairman and Chief Executive Officer
(Principal Executive Officer)
DATE: May 11, 1998 /s/ Charles M. Johnston
-----------------------
Charles M. Johnston
Senior Vice President and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
25
<PAGE> 1
EXHIBIT 10-1
COMMONWEALTH BANCORP, INC.
1993 AMENDED STOCK INCENTIVE PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
Commonwealth Bancorp, Inc. (the "Corporation") hereby assumes this 1993
Amended Stock Incentive Plan (the "Plan") originally established by
Commonwealth Bank (the "Bank") upon the terms and conditions hereinafter
stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of this Plan is to improve the growth and profitability of the
Corporation and its Subsidiary Companies by attracting and retaining qualified
personnel, providing such Employees with a proprietary interest in the
Corporation as an incentive to contribute to the success of the Corporation and
its Subsidiary Companies, and rewarding those Employees for outstanding
performance and the attainment of targeted goals. All Incentive Stock Options
issued under this Plan are intended to comply with the requirements of Section
422 of the Code, and the regulations thereunder, and all provisions hereunder
shall be read, interpreted and applied with that purpose in mind.
ARTICLE III
DEFINITIONS
3.01 "Award" means an Option or Stock Appreciation Right granted pursuant
to the terms of this Plan.
3.02 "Board" means the Board of Directors of the Corporation.
3.03 "Code" means the Internal Revenue Code of 1986, as amended.
3.04 "Committee" means a committee of two or more directors appointed by
the Board pursuant to Article IV hereof, none of whom shall be an officer or
employee of the Corporation, and each of whom shall be a "disinterested person"
within the meaning of Rule 16b-3 under the Exchange Act, or any successor
thereto.
3.05 "Common Stock" means shares of the common stock, $.10 par value per
share, of the Corporation.
3.06 "Disability" means any physical or mental impairment which qualifies
an Employee for disability benefits under the applicable long-term disability
plan maintained by the Corporation or a Subsidiary Company, or, if no such plan
applies, which would qualify such Employee for disability benefits under any
long-term disability plan maintained by the Corporation, if such Employee were
covered by that plan.
<PAGE> 2
2
3.07 "Effective Date" means the hour and day upon which common stock is
initially sold by the Bank in the Offering.
3.08 "Employee" means any person who is employed by the Corporation or a
Subsidiary Company, including Officers, but not including directors who are not
also officers of or otherwise employed by the Corporation or a Subsidiary
Company.
3.09 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
3.10 "Fair Market Value" shall be equal to the fair market value per share
of the Corporation's Common Stock on the date an Award is granted. For
purposes hereof, the Fair Market Value of a share of Common Stock shall be the
closing sale price of a share of Common Stock on the date in question (or, if
such day is not a trading day in the U.S. markets, on the nearest preceding
trading day), as reported with respect to the principal market (or the
composite of the markets, if more than one) or national quotation system in
which such shares are then traded, or if no such closing prices are reported,
the mean between the high bid and low asked prices that day on the principal
market or national quotation system then in use, or if no such quotations are
available, the price furnished by a professional securities dealer making a
market in such shares selected by the Committee.
3.11 "Incentive Stock Option" means any Option granted under this Plan
which the Board intends (at the time it is granted) to be an incentive stock
option within the meaning of Section 422 of the Code or any successor thereto.
3.12 "Non-Qualified Option" means any Option granted under this Plan which
is not an Incentive Stock Option.
3.13 "Offering" means the offering of common stock to the public pursuant
to the Stock Issuance Plan adopted by the Bank in connection with the
reorganization of Commonwealth Federal Savings Bank into the mutual holding
company form of organization.
3.14 "Officer" means an Employee whose position in the Corporation or
Subsidiary Company is that of a corporate officer, as determined by the Board.
3.15 "Option" means a right granted under this Plan to purchase Common
Stock.
3.16 "Optionee" means an Employee or former Employee to whom an Option is
granted under the Plan.
3.17 "Retirement" means a termination of employment which constitutes a
"retirement" under any applicable qualified pension benefit plan maintained by
the Corporation or a Subsidiary Company, or, if no such plan is applicable,
which would
<PAGE> 3
3
constitute "retirement" under any qualified pension benefit plan maintained by
the Corporation or a Subsidiary Company, if such individual were a participant
in such plan.
3.18 "Stock Appreciation Right" means a right to surrender an Option in
consideration for a payment by the Corporation in cash and/or Common Stock, as
provided in the discretion of the Committee in accordance with Section 8.10.
3.19 "Subsidiary Companies" means those subsidiaries of the Corporation
which meet the definition of "subsidiary corporations" set forth in Section
425(f) of the Code, at the time of granting of the Option in question.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 DUTIES OF THE COMMITTEE. The Plan shall be administered and
interpreted by the Committee, as appointed from time to time by the Board
pursuant to Section 4.02. The Committee shall have the authority in its
absolute discretion to adopt, amend and rescind such rules, regulations and
procedures as, in its opinion, may be advisable in the administration of the
Plan, including, without limitation, rules, regulations and procedures which
(i) deal with satisfaction of an Employee's tax withholding obligation pursuant
to Section 12.02 hereof, (ii) include arrangements to facilitate the Employee's
ability to borrow funds for payment of the exercise or purchase price of an
Award, if applicable, from securities brokers and dealers, and (iii) include
arrangements which provide for the payment of some or all of such exercise or
purchase price by delivery of previously-owned shares of Common Stock or other
property and/or by withholding some of the shares of Common Stock which are
being acquired. The interpretation and construction by the Committee of any
provisions of the Plan, any rule, regulation or procedure adopted by it
pursuant thereto or of any Award shall be final and binding.
4.02 APPOINTMENT AND OPERATION OF THE COMMITTEE. The members of the
Committee shall be appointed by, and will serve at the pleasure of, the Board.
The Board from time to time may remove members from, or add members to, the
Committee, provided the Committee shall continue to consist of two or more
members of the Board, none of whom shall be an officer or employee of the
Corporation, and each of whom shall be a "disinterested person" within the
meaning of Rule 16b-3 under the Exchange Act. The Committee shall act by vote
or written consent of a majority of its members. Subject to the express
provisions and limitations of the Plan, the Committee may adopt such rules,
regulations and procedures as it deems appropriate for the conduct of its
affairs. It may appoint one of its members to be chairman and any person,
whether or not a member, to be its secretary or agent. The Committee shall
report its actions and decisions to the Board at appropriate times but in no
event less than one time per calendar year.
4.03 REVOCATION FOR MISCONDUCT. The Committee may by resolution
immediately revoke, rescind and terminate any Option, or portion thereof, to
the extent not yet vested,
<PAGE> 4
4
or any Stock Appreciation Right, to the extent not yet exercised, previously
granted or awarded under this Plan to an Employee who is discharged from the
employ of the Corporation or a Subsidiary Company for cause, which, for
purposes hereof, shall mean termination for: (1) conviction of a felony
involving the misappropriation of the Corporation's or any Subsidiary Company's
assets or a conviction of a felony which results in a substantial, demonstrable
threat to the Corporation's or any Subsidiary Company's reputation, or (ii)
gross and willful failure to perform a substantial portion of the Employee's
duties and responsibilities as an Employee, which failure continues for more
than thirty (30) days after written notice given to the Employee pursuant to a
two-thirds vote of all of the members of the Board of the Corporation or any
Subsidiary Company, as the case may be, then in office, such vote to set forth
in reasonable detail the nature of such failure.
4.04 LIMITATION ON LIABILITY. No member of the Committee shall be liable
for any action or determination made in good faith with respect to the Plan,
any rule, regulation or procedure adopted by it pursuant thereto or any Awards
granted under it. If a member of the Committee is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of anything done or not done by him in such capacity under or with respect to
the Plan, the Corporation shall, subject to the requirements of applicable laws
and regulations, indemnify such member against all liabilities and expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in the best interests of the Corporation and its Subsidiary Companies and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
4.05 COMPLIANCE WITH LAW AND REGULATIONS. All Awards granted hereunder
shall be subject to all applicable federal and state laws, rules and
regulations and to such approvals by any government or regulatory agency as may
be required. The Corporation shall not be required to issue or deliver any
certificates for shares of Common Stock prior to the completion of any
registration or qualification of or obtaining of consents or approvals with
respect to such shares under any Federal or state law or any rule or regulation
of any government body, which the Corporation shall, in its sole discretion,
determine to be necessary or advisable. Moreover, no Option or Stock
Appreciation Right may be exercised if such exercise would be contrary to
applicable laws and regulations.
4.06 RESTRICTIONS ON TRANSFER. The Corporation may place a legend upon
any certificate representing shares acquired pursuant to an Award granted
hereunder noting that the transfer of such shares may be restricted by
applicable laws and regulations.
<PAGE> 5
5
ARTICLE V
ELIGIBILITY
Awards may be granted to such Employees of the Corporation and its
Subsidiary Companies as may be designated from time to time by the Committee.
Awards may not be granted to individuals who are not Employees of either the
Corporation or its Subsidiary Companies.
ARTICLE VI
COMMON STOCK COVERED BY THE PLAN
6.01 OPTION SHARES. The aggregate number of shares of Common Stock which
may be issued pursuant to this Plan, subject to adjustment as provided in
Article IX, shall be an amount equal to 8.5% of the shares of common stock of
the Bank issued in the Offering, as adjusted by the final exchange ratio
utilized in the reorganization of the Bank from the mutual holding structure to
the stock holding company structure. None of such shares shall be the subject
of more than one Award at any time, but if an Option as to any shares is
surrendered before exercise (including surrender in connection with exercise of
a Stock Appreciation Right), or expires or terminates for any reason without
having been exercised in full, or for any other reason ceases to be
exercisable, the number of shares covered thereby shall again become available
for grant under the Plan as if no Awards had been previously granted with
respect to such shares.
6.02 SOURCE OF SHARES. The shares of Common Stock issued under the Plan
may be authorized but unissued shares, treasury shares or shares purchased by
the Corporation on the open market or from private sources for use under the
Plan.
ARTICLE VII
DETERMINATION OF
AWARDS, NUMBER OF SHARES, ETC.
The Committee shall, in its discretion, determine from time to time which
Employees will be granted Awards under the Plan, the number of shares of Common
Stock subject to each Award, whether each Option will be an Incentive Stock
Option or a Non-Qualified Stock Option and the exercise price of an Option. In
making all such determinations there shall be taken into account the duties,
responsibilities and performance of each respective Employee, his present and
potential contributions to the growth and success of the Corporation, his
salary and such other factors as the Committee shall deem relevant to
accomplishing the purposes of the Plan.
<PAGE> 6
6
ARTICLE VIII
OPTIONS AND STOCK APPRECIATION RIGHTS
Each Option granted hereunder shall be on the following terms and
conditions:
8.01 STOCK OPTION AGREEMENT. The proper Officers of the Corporation and
each Optionee shall execute a Stock Option Agreement which shall set forth the
total number of shares of Common Stock to which it pertains, the exercise
price, whether it is a Non-Qualified Option or an Incentive Stock Option, and
such other terms, conditions, restrictions and privileges as the Committee in
each instance shall deem appropriate, provided they are not inconsistent with
the terms, conditions and provisions of this Plan. Each Optionee shall receive
a copy of his executed Stock Option Agreement.
8.02 OPTION EXERCISE PRICE.
(A) INCENTIVE STOCK OPTIONS. The per share price at which the subject
Common Stock may be purchased upon exercise of an Incentive Stock Option shall
be no less than one hundred percent (100%) of the Fair Market Value of a share
of Common Stock at the time such Incentive Stock Option is granted, except as
provided in Section 8.09(b).
(B) NON-QUALIFIED OPTIONS. The per share price at which the subject
Common Stock may be purchased upon exercise of a Non-Qualified Option shall be
established by the Committee at the time of grant, but in no event shall be
less than the greater of (i) the par value or (ii) eighty-five percent (85%) of
the Fair Market Value of a share of Common Stock at the time such Non-Qualified
Option is granted.
8.03 VESTING AND EXERCISE OF OPTIONS.
(A) GENERAL RULES. Incentive Stock Options and Non-Qualified Options
shall become vested and exercisable at the rate, to the extent and subject to
such limitations as may be specified by the Committee, provided, however, that
no Option may be exercisable for the first six months following the date the
Option is granted. Notwithstanding the foregoing, no vesting shall occur on or
after an Optionee's employment with the Corporation and all Subsidiary
Companies is terminated for any reason other than his death, Disability or
Retirement. In determining the number of shares of Common Stock with respect
to which Options are vested and/or exercisable, fractional shares will be
rounded up to the nearest whole number if the fraction is 0.5 or higher, and
down if it is less.
(B) ACCELERATED VESTING UPON DEATH, DISABILITY OR RETIREMENT. Unless the
Committee shall specifically state otherwise at the time an Option is granted,
all Options granted under this Plan shall become vested and exercisable in full
on the date an Optionee terminates his employment with the Corporation or a
Subsidiary Company because of his death, Disability or Retirement.
<PAGE> 7
7
(C) ACCELERATED VESTING FOR CHANGES IN CONTROL. Notwithstanding the
general rule described in Section 8.03(a), all outstanding Options shall become
immediately vested and exercisable in the event there is a change in control of
the Corporation. A "change in control of the Corporation" for this purpose
shall mean a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Exchange Act, or any successor thereto, whether or not the
Corporation in fact is required to comply with Regulation 14A thereunder.
8.04 DURATION OF OPTIONS.
(A) GENERAL RULE. Except as provided in Sections 8.04(b) and 8.09, each
Option or portion thereof shall be exercisable at any time on or after it vests
and becomes exercisable until the earlier of (i) ten (10) years after its date
of grant or (ii) three (3) months after the date on which the Optionee ceases
to be employed by the Corporation and all Subsidiary Companies, unless the
Committee in its discretion decides at the time of grant or thereafter to
extend such period of exercise upon termination of employment from three (3)
months to a period not exceeding five (5) years.
(B) EXCEPTION FOR TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT. If
an Optionee dies while in the employ of the Corporation or a Subsidiary Company
or terminates employment with the Corporation or a Subsidiary Company as a
result of Disability or Retirement without having fully exercised his Options,
the Optionee or the executors, administrators, legatees or distributees of his
estate shall have the right, during the twelve-month period following the
earlier of his death, Disability or Retirement, to exercise such Options to the
extent vested on the date of such death, Disability or Retirement. In no
event, however, shall any Option be exercisable more than ten (10) years from
the date it was granted.
8.05 NONASSIGNABILITY. Options shall not be transferable by an Optionee
except by will or the laws of descent or distribution, and during an Optionee's
lifetime shall be exercisable only by such Optionee or the Optionee's guardian
or legal representative.
8.06 MANNER OF EXERCISE. Options may be exercised in part or in whole and
at one time or from time to time. The procedures for exercise shall be set
forth in the written Stock Option Agreement provided for in Section 8.01 above.
8.07 PAYMENT FOR SHARES. Payment in full of the purchase price for shares
of Common Stock purchased pursuant to the exercise of any Option shall be made
to the Corporation upon exercise of the Option. All shares sold under the Plan
shall be fully paid and nonassessable. Payment for shares may be made by the
Optionee in cash or, at the discretion of the Committee, by delivering shares
of Common Stock (including shares acquired pursuant to the exercise of an
Option) or other property equal in Fair Market Value to the purchase price of
the shares to be acquired pursuant to the Option, by
<PAGE> 8
8
withholding some of the shares of Common Stock which are being purchased upon
exercise of an Option, or any combination of the foregoing.
8.08 VOTING AND DIVIDEND RIGHTS. No Optionee shall have any voting or
dividend rights or other rights of a stockholder in respect of any shares of
Common Stock covered by an Option prior to the time that his name is recorded
on the Corporation's stockholder ledger as the holder of record of such shares
acquired pursuant to an exercise of an Option.
8.09 ADDITIONAL TERMS APPLICABLE TO INCENTIVE STOCK OPTIONS. All Options
issued under the Plan as Incentive Stock Options will be subject, in addition
to the terms detailed in Sections 8.01 to 8.08 above, to those contained in
this Section 8.09.
(A) Notwithstanding any contrary provisions contained elsewhere in this
Plan and as long as required by Section 422 of the Code, the aggregate Fair
Market Value, determined as of the time an Incentive Stock Option is granted,
of the Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year, under
this Plan and stock options that satisfy the requirements of Section 422 of the
Code under any other stock option plan or plans maintained by the Corporation
(or any parent or Subsidiary Company), shall not exceed $100,000.
(B) LIMITATION ON TEN PERCENT STOCKHOLDERS. The price at which shares of
Common Stock may be purchased upon exercise of an Incentive Stock Option
granted to an individual who, at the time such Incentive Stock Option is
granted, owns, directly or indirectly, more than ten percent (10%) of the total
combined voting power of all classes of stock issued to stockholders of the
Corporation or any Subsidiary Company, shall be no less than one hundred and
ten percent (110%) of the Fair Market Value of a share of the Common Stock of
the Corporation at the time of grant, and such Incentive Stock Option shall by
its terms not be exercisable after the earlier of the date determined under
Section 8.03 or the expiration of five (5) years from the date such Incentive
Stock Option is granted.
(C) NOTICE OF DISPOSITION; WITHHOLDING; ESCROW. An Optionee shall
immediately notify the Corporation in writing of any sale, transfer, assignment
or other disposition (or action constituting a disqualifying disposition within
the meaning of Section 421 of the Code) of any shares of Common Stock acquired
through exercise of an Incentive Stock Option, within two (2) years after the
grant of such Incentive Stock Option or within one (1) year after the
acquisition of such shares, setting forth the date and manner of disposition,
the number of shares disposed of and the price at which such shares were
disposed of. The Corporation shall be entitled to withhold from any
compensation or other payments then or thereafter due to the Optionee such
amounts as may be necessary to satisfy any withholding requirements of Federal
or state law or regulation and, further, to collect from the Optionee any
additional amounts which may be required for such purpose. The Committee may,
in its discretion, require shares of Common Stock acquired by an Optionee upon
exercise of an Incentive Stock Option to be held in an escrow arrangement for
the purpose of enabling compliance with the provisions of this Section 8.09(c).
<PAGE> 9
9
8.10 STOCK APPRECIATION RIGHTS.
(A) GENERAL TERMS AND CONDITIONS. The Committee may, but shall not be
obligated to, authorize the Corporation, on such terms and conditions as it
deems appropriate in each case, to grant rights to Optionees to surrender an
exercisable Option, or any portion thereof, in consideration for the payment by
the Corporation of an amount equal to the excess of the Fair Market Value of
the shares of Common Stock subject to the Option, or portion thereof,
surrendered over the exercise price of the Option with respect to such shares
(any such authorized surrender and payment being hereinafter referred to as a
"Stock Appreciation Right"). Such payment, at the discretion of the Committee,
may be made in shares of Common Stock valued at the then Fair Market Value
thereof, or in cash, or partly in cash and partly in shares of Common Stock.
The terms and conditions set with respect to a Stock Appreciation Right
may include (without limitation), subject to other provisions of this Section
8.10 and the Plan; the period during which, date by which or event upon which
the Stock Appreciation Right may be exercised; the method for valuing shares of
Common Stock for purposes of this Section 8.10; a ceiling on the amount of
consideration which the Corporation may pay in connection with exercise and
cancellation of the Stock Appreciation Right; and arrangements for income tax
withholding. The Committee shall have complete discretion to determine
whether, when and to whom Stock Appreciation Rights may be granted.
Notwithstanding the foregoing, the Corporation may not permit the exercise of a
Stock Appreciation Right issued pursuant to this Plan until the Corporation has
been subject to the reporting requirements of Section 13 of the Exchange Act
for a period of at least one year prior to the exercise of any such Stock
Appreciation Right and until a Stock Appreciation Right issued pursuant to this
Plan has been outstanding for at least six months from the date of grant.
(B) TIME LIMITATIONS. If a holder of a Stock Appreciation Right
terminates service with the Corporation as an Officer or Employee, the Stock
Appreciation Right may be exercised only within the period, if any, within
which the Option to which it relates may be exercised. Notwithstanding the
foregoing, any election by an Optionee to exercise the Stock Appreciation
Rights provided in this Plan shall be made during the period beginning on the
third business day following the release for publication of quarterly or annual
financial information required to be prepared and disseminated by the
Corporation pursuant to the requirements of the Exchange Act and ending on the
twelfth business day following such date. The required release of information
shall be deemed to have been satisfied when the specified financial data
appears on or in a wire service, financial news service or newspaper of general
circulation or is otherwise first made publicly available.
(C) EFFECTS OF EXERCISE OF STOCK APPRECIATION RIGHTS OR OPTIONS. Upon the
exercise of a Stock Appreciation Right, the number of shares of Common Stock
available under the Option to which it relates shall decrease by a number equal
to the number of shares for which the Stock Appreciation Right was exercised.
Upon the exercise of an
<PAGE> 10
10
Option, any related Stock Appreciation Right shall terminate as to any number
of shares of Common Stock subject to the Stock Appreciation Right that exceeds
the total number of shares for which the Option remains unexercised.
(D) TIME OF GRANT. A Stock Appreciation Right may be granted concurrently
with the Option which it relates or at any time thereafter prior to the
exercise or expiration of such Option.
(E) NON-TRANSFERABLE. The holder of a Stock Appreciation Right may not
transfer or assign the Stock Appreciation Right otherwise than by will or in
accordance with the laws of descent and distribution, and during a holder's
lifetime a Stock Appreciation Right may be exercisable only by the holder.
ARTICLE IX
ADJUSTMENTS FOR CAPITAL CHANGES
The aggregate number of shares of Common Stock available for issuance
under this Plan, the number of shares to which any Award relates and the
exercise price per share of Common Stock under any Option shall be
proportionately adjusted for any increase or decrease in the total number of
outstanding shares of Common Stock issued subsequent to the effective date of
this Plan resulting from a split, subdivision or consolidation of shares or any
other capital adjustment, the payment of a stock dividend, or other increase or
decrease in such shares effected without receipt or payment of consideration by
the Corporation. If, upon a merger, consolidation, reorganization,
liquidation, recapitalization or the like of the Corporation, the shares of the
Corporation's Common Stock shall be exchanged for other securities of the
Corporation or of another corporation, each recipient of an Award shall be
entitled, subject to the conditions herein stated, to purchase or acquire such
number of shares of Common Stock or amount of other securities of the
Corporation or such other corporation as were exchangeable for the number of
shares of Common Stock of the Corporation which such optionees would have been
entitled to purchase or acquire except for such action, and appropriate
adjustments shall be made to the per share exercise price of outstanding
Options. In addition, in the event the Corporation distributes warrants or
other securities or assets on a pro rata basis to all holders of Common Stock
of the Corporation without receipt or payment of consideration by the
Corporation (the "Distribution"), then the Corporation shall (a) make
appropriate arrangements so that the holders of Options outstanding immediately
prior to the date of the Distribution receive upon exercise of such Options the
benefits of the Distribution as if the holders had exercised such Options
immediately prior to the record date used for the Distribution, and (b)
depending upon the terms of the Distribution, adjust the number of shares and
the exercise price per share of any Awards outstanding immediately prior to the
date of the Distribution so that the economic value of the Award at the time of
the Distribution is neither increased nor decreased by the Distribution, in
which event the aggregate number of shares of Common Stock available for
issuance under this Plan shall also be proportionately adjusted.
<PAGE> 11
11
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
The Board may, by resolution, at any time terminate or amend the Plan with
respect to any shares of Common Stock as to which Awards have not been granted,
subject to any required stockholder approval or any stockholder approval which
the Board may deem to be advisable for any reason, such as for the purpose of
obtaining or retaining any statutory or regulatory benefits under tax,
securities or other laws or satisfying any applicable stock exchange listing
requirements. The Board may not, without the consent of the holder of an
Award, alter or impair any Award previously granted or awarded under this Plan
as specifically authorized herein.
ARTICLE XI
EMPLOYMENT RIGHTS
Neither the Plan nor the grant of any Awards hereunder nor any action
taken by the Committee or the Board in connection with the Plan shall create
any right on the part of any Employee of the Corporation or a Subsidiary
Company to continue in the employ of the Corporation or a Subsidiary Company.
ARTICLE XII
WITHHOLDING
12.01 TAX WITHHOLDING. The Corporation may withhold from any cash payment
made under this Plan sufficient amounts to cover any applicable withholding and
employment taxes, and if the amount of such cash payment is insufficient, the
Corporation may require the Optionee to pay to the Corporation the amount
required to be withheld as a condition to delivering the shares acquired
pursuant to an Award. The Corporation also may withhold or collect amounts
with respect to a disqualifying disposition of shares of Common Stock acquired
pursuant to exercise of an Incentive Stock Option, as provided in Section
8.09(c).
12.02 METHODS OF TAX WITHHOLDING. The Committee is authorized to adopt
rules, regulations or procedures which provide for the satisfaction of an
Employee's tax withholding obligation by the retention of shares of Common
Stock to which the Employee would otherwise be entitled pursuant to an Award
and/or by the Employee's delivery of previously-owned shares of Common Stock or
other property.
ARTICLE XIII
EFFECTIVE DATE OF THE PLAN; TERM
13.01 EFFECTIVE DATE OF THE PLAN. This Plan shall become effective on the
Effective Date, and Awards may be granted hereunder as of or after the
Effective Date and prior to the termination of the Plan, provided that no
Incentive Stock Option issued pursuant to this Plan shall qualify as such
unless this Plan is approved by the requisite vote of the holders
<PAGE> 12
12
of the outstanding voting shares of the Corporation at a meeting of
stockholders of the Corporation held within twelve (12) months following the
Effective Date.
13.02 TERM OF PLAN. Unless sooner terminated, this Plan shall remain in
effect for a period of ten (10) years ending on the tenth anniversary of the
Effective Date. Termination of the Plan shall not affect any Awards previously
granted and such Awards shall remain valid and in effect until they have been
fully exercised or earned, are surrendered or by their terms expire or are
forfeited.
ARTICLE XIV
MISCELLANEOUS
14.01 GOVERNING LAW. To the extent not governed by Federal law, this Plan
shall be construed under the laws of the Commonwealth of Pennsylvania.
14.02 PRONOUNS. Wherever appropriate, the masculine pronoun shall include
the feminine pronoun, and the singular shall include the plural.
<PAGE> 1
EXHIBIT 10-2
COMMONWEALTH BANCORP, INC.
1993 AMENDED DIRECTORS' STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
Commonwealth Bancorp, Inc. (the "Corporation") hereby assumes this 1993
Directors' Stock Option Plan (the "Plan") originally established by
Commonwealth Bank (the "Bank") upon the terms and conditions hereinafter
stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of this Plan is to improve the growth and profitability of the
Corporation by providing non-employee directors with a proprietary interest in
the Corporation through non-discretionary grants of non-qualified stock options
(an "Option" or "Options").
ARTICLE III
ADMINISTRATION OF THE PLAN
3.01 ADMINISTRATION. This Plan shall be administered by the entire Board
of Directors of the Corporation (the "Board"). The Board shall have the power,
subject to and within the limits of the express provisions of this Plan, to
exercise such powers and to perform such acts as are deemed necessary or
expedient to promote the best interests of the Corporation with respect to this
Plan.
3.02 COMPLIANCE WITH LAW AND REGULATIONS. All Options granted hereunder
shall be subject to all applicable Federal and state laws, rules and
regulations and to such approvals by any government or regulatory agency as may
be required. The Corporation shall not be required to issue or deliver any
certificates for shares of Common Stock prior to the completion of any
registration or qualification of or obtaining of consents or approvals with
respect to such shares under any Federal or state law or any rule or regulation
of any government body, which the Corporation shall, in its sole discretion,
determine to be necessary or advisable. Moreover, no Option may be exercised
if such exercise or issuance would be contrary to applicable laws and
regulations.
3.03 RESTRICTIONS ON TRANSFER. The Corporation may place a legend upon
any certificate representing shares acquired pursuant to an Option granted
hereunder noting that the transfer of such shares may be restricted by
applicable laws and regulations.
<PAGE> 2
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ARTICLE IV
ELIGIBILITY
Each of the non-employee directors of the Bank at the time of the Bank's
initial offering of capital stock to the public pursuant to the Stock Issuance
Plan adopted by the Bank following the reorganization of Commonwealth Federal
Savings Bank into the mutual holding company form of organization (the
"Offering") shall receive options hereunder ("non-employee director"). No
honorary directors, advisory directors or directors emeritus shall be entitled
to receive Options hereunder.
ARTICLE V
COMMON STOCK COVERED BY THE PLAN
5.01 OPTION SHARES. The aggregate number of shares of common stock of the
Corporation, par value $.10 per share ("Common Stock"), which may be issued
pursuant to this Plan, subject to adjustment as provided in Article VIII, shall
be an amount equal to 1.5% of the shares of Bank common stock issued in the
Offering, as adjusted by the final exchange ratio utilized in the
reorganization of the Bank from the mutual holding company structure to the
stock holding company structure.
5.02 SOURCE OF SHARES. The shares of Common Stock issued under this Plan
may be authorized but unissued shares, treasury shares or shares purchased by
the Corporation on the open market or from private sources for use under the
Plan.
ARTICLE VI
OPTION GRANTS
6.01 INITIAL GRANTS. An Option to purchase shares of Common Stock shall
be granted to each non-employee director of the Bank as of the hour and day on
which Common Stock is initially sold in the Offering. Specifically, each
non-employee director shall receive Options to purchase the number of shares of
Common Stock (rounded down to the nearest whole number) determined by
multiplying the total number of shares of Common Stock which may be issued
pursuant to this Plan by 90% divided by the number of non-employee directors of
the Bank at such time.
6.02 SUBSEQUENT GRANTS. An Option to purchase shares of Common Stock
shall be granted to each non-employee director of the Bank one year from the
date on which Common Stock is initially sold in the Offering. Specifically,
each non-employee director shall receive Options to purchase the number of
shares of Common Stock (rounded down to the nearest whole number) determined by
multiplying the total number of shares of Common Stock which may be issued
pursuant to this Plan by 10% divided by the number of non-employee directors of
the Bank at such time.
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ARTICLE VII
OPTION TERMS
Each Option granted hereunder shall be on the following terms and
conditions:
7.01 OPTION AGREEMENT. The Corporation and each optionee shall execute an
Option Agreement which shall set forth the total number of shares of Common
Stock to which it pertains, the exercise price and such other terms, conditions
and provisions as are appropriate, provided that they are not inconsistent with
the terms, conditions and provisions of this Plan. Each optionee shall receive
a copy of his executed Option Agreement.
7.02 OPTION EXERCISE PRICE.
(a) INITIAL GRANTS. The per share exercise price at which shares of
Common Stock may be purchased upon exercise of an Option granted pursuant to
Article IV hereof shall be the uniform per share price at which common stock is
sold by the Bank to participants in the Offering.
(b) SUBSEQUENT GRANTS. The per share exercise price at which the shares
of Common Stock may be purchased upon exercise of an Option granted pursuant to
Section 6.02 hereof shall be qual to the greater of (i) the par value of a
share of Common Stock and (ii) the Fair Market Value of a share of Common Stock
as of the date of grant. For purposes of this Plan, the Fair Market Value
shall be the closing sale price of a share of Common Stock on the date in
question (or, if such day is not a trading day in the U.S. markets, on the
nearest preceding trading day), as reported with respect to the principal
market (or the composite of the markets, if more than one) in which such shares
are then traded, or if no such closing prices are reported, the mean between
the high bid and low asked prices that day on the principal market or national
quotation system then in use, or if no such quotations are available, the price
furnished by a professional securities dealer making a market in such shares
selected by the Board.
7.03 VESTING AND EXERCISE OF OPTIONS. Subject to the approval of
stockholders of the Bank pursuant to the terms of Article XII hereof, Options
shall be immediately vested and exercisable on the date of grant.
7.04 DURATION OF OPTIONS.
(a) Each Option or portion thereof shall be exercisable at any time on or
after the date of grant until the earlier of (i) ten (10) years after the date
of grant or (ii) the third annual anniversary of the date on which the optionee
ceases to be a non-employee director.
(b) Exception for Termination Due to Death, Disability, Retirement or
Resignation. If an optionee dies while serving as a non-employee director or
within three (3) years following the termination of the optionee's service as
a non-employee director as
<PAGE> 4
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a result of disability, retirement or resignation without having fully
exercised his Options, the Optionee's executors, administrators, legatees or
distributees of his estate shall have the right, during the twelve-month period
following such death, to exercise such Options, provided that no Option shall
be exercisable within six (6) months after the date of grant or more than ten
(10) years from the date it was granted.
(c) Options granted to a non-employee director who is removed by
stockholders of the Corporation for cause shall terminate as of the effective
date of such removal.
7.05 NONASSIGNABILITY. Options shall not be transferable by an optionee
except by will or the laws of descent or distribution, and during an optionee's
lifetime shall be exercisable only by such optionee or the optionee's guardian
or legal representative.
7.06 MANNER OF EXERCISE. Options may be exercised in part or in whole and
at one time or from time to time. The procedures for exercise shall be set
forth in the written Option Agreement provided for in Section 7.01.
7.07 PAYMENT FOR SHARES. Payment in full of the purchase price for shares
of Common Stock purchased pursuant to the exercise of an Option shall be made
to the Corporation upon exercise of the Option. Payment for shares may be made
by the optionee in cash or by delivering shares of Common Stock (including
shares acquired pursuant to the exercise of an Option) equal in fair market
value to the purchase price of the shares to be acquired pursuant to the
Option, or any combination of the foregoing.
7.08 VOTING AND DIVIDEND RIGHTS. No optionee shall have any voting or
dividend rights or other rights of a stockholder in respect of any shares of
Common Stock covered by an Option prior to the time that his name is recorded
on the Corporation's stockholder ledger as the holder of record of such shares
acquired pursuant to an exercise of an Option.
ARTICLE VIII
ADJUSTMENTS FOR CAPITAL CHANGES
The aggregate number of shares of Common Stock available for issuance
under this Plan, the number of shares to which any Option relates and the
exercise price per share of Common Stock under any Option shall be
proportionately adjusted for any increase or decrease in the total number of
outstanding shares of Common Stock issued subsequent to the effective date of
this Plan resulting from a split, subdivision or consolidation of shares or any
other capital adjustment, the payment of a stock dividend, or other increase or
decrease in such shares effected without receipt or payment of consideration by
the Corporation. If, upon a merger, consolidation, reorganization,
liquidation, recapitalization or the like of the Corporation, the shares of the
Corporation's Common Stock shall be exchanged for other securities of the
Corporation or of another corporation, each recipient of an Option shall be
entitled, subject to the conditions herein stated, to purchase or acquire such
number of shares of Common Stock or amount of other securities of the
Corporation
<PAGE> 5
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or such other corporation as were exchangeable for the number of shares of
Common Stock of the Corporation which such optionees would have been entitled
to purchase or acquire except for such action, and appropriate adjustments
shall be made to the per share exercise price of outstanding Options. In
addition, in the event the Corporation distributes warrants or other securities
or assets on a pro rata basis to all holders of Common Stock of the Corporation
without receipt or payment of consideration by the Corporation (the
"Distribution"), then the Corporation shall (a) make appropriate arrangements
so that the holders of Options outstanding immediately prior to the date of the
Distribution receive upon exercise of such Options the benefits of the
Distribution as if the holders had exercised such Options immediately prior to
the record date used for the Distribution, and (b) depending upon the terms of
the Distribution, adjust the number of shares and the exercise price per share
of any Options outstanding immediately prior to the date of the Distribution so
that the economic value of the Option at the time of the Distribution is
neither increased nor decreased by the Distribution, in which event the
aggregate number of shares of Common Stock available for issuance under this
Plan shall also be proportionately adjusted.
ARTICLE IX
AMENDMENT AND TERMINATION OF THE PLAN
The Board may, by resolution, at any time terminate or amend this Plan
with respect to any shares of Common Stock as to which Options have not been
granted, subject to any required stockholder approval or any stockholder
approval which the Board may deem to be advisable for any reason, such as for
the purpose of obtaining or retaining any statutory or regulatory benefits
under tax, securities or other laws or satisfying any applicable stock exchange
listing requirements. The Board may not, without the consent of the holder of
an Option, alter or impair any Option previously granted under this Plan as
specifically authorized herein. Notwithstanding anything contained in this
Plan to the contrary, the provisions of Articles IV, VI and VII of this Plan
shall not be amended more than once every six months, other than to comport
with changes in the Internal Revenue Code of 1986, as amended, the Employee
Retirement Income Security Act of 1974, as amended, or the rules and
regulations promulgated under such statutes.
ARTICLE X
RIGHTS TO CONTINUE AS A DIRECTOR
Neither the Plan nor the grant of any Options hereunder nor any action
taken by the Board in connection with the Plan shall create any right on the
part of any non-employee director of the Bank to continue as such.
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ARTICLE XI
WITHHOLDING
The Corporation may withhold from any cash payment made under this Plan
sufficient amounts to cover any applicable withholding and employment taxes,
and if the amount of such cash payment is insufficient, the Corporation may
require the optionee to pay to the Corporation the amount required to be
withheld as a condition to delivering the shares acquired pursuant to an
Option.
ARTICLE XII
EFFECTIVE DATE OF THE PLAN; TERM
12.01 EFFECTIVE DATE OF THE PLAN. This Plan shall become effective at the
time that common stock is initially sold by the Bank in the Offering (the
"Effective Date"), and Options may be granted hereunder as of or after the
Effective Date and prior to the termination of this Plan.
12.02 TERM OF PLAN. Unless sooner terminated, this Plan shall remain in
effect for a period of ten (10) years ending on the tenth anniversary of the
Effective Date. Termination of the Plan shall not affect any Options
previously granted and such Options shall remain valid and in effect until they
have been fully exercised or earned, are surrendered or by their terms expire
or are forfeited.
ARTICLE XIII
MISCELLANEOUS
13.01 GOVERNING LAW. To the extent not governed by Federal law, this Plan
shall be construed under the laws of the Commonwealth of Pennsylvania.
13.02 PRONOUNS. Wherever appropriate, the masculine pronoun shall include
the feminine pronoun, and the singular shall include the plural.
<PAGE> 7
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<PAGE> 1
EXHIBIT 10-3
COMMONWEALTH BANCORP, INC.
AMENDED MANAGEMENT RECOGNITION
PLAN FOR OFFICERS AND TRUST AGREEMENT
ARTICLE I
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 Commonwealth Bancorp, Inc. (the "Corporation") hereby assumes this
Amended Management Recognition Plan for Officers (the "Plan") and Trust (the
"Trust") originally established by Commonwealth Bank (the "Bank") upon the
terms and conditions hereinafter stated in this Amended Management Recognition
Plan and Trust Agreement (the "Agreement").
1.02 The Trustee(s) hereby accept this Trust and agree to hold the Trust
assets existing on the date of this Agreement and all additions and accretions
thereto upon the terms and conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to retain personnel of experience and
ability in key positions by providing such key employees of the Corporation and
any Subsidiaries with a proprietary interest in the Corporation as compensation
for their contributions to the Corporation and any Subsidiaries and as an
incentive to make such contributions in the future.
ARTICLE III
DEFINLTLONS
The following words and phrases when used in this Agreement with an
initial capital letter, unless the context clearly indicates otherwise, shall
have the meanings set forth below. Wherever appropriate, the masculine pronouns
shall include the feminine pronouns and the singular shall include the plural.
3.01 "Beneficiary" means the person or persons designated by a Recipient
to receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, his estate.
3.02 "Board" means the Board of Directors of the Corporation.
3.03 "Code" means the Internal Revenue Code of 1986, as amended.
<PAGE> 2
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3.04 "Committee" means the committee appointed by the Board pursuant to
Article IV hereof.
3.05 "Common Stock" means shares of the common stock, $.10 par value per
share, of the Corporation following reorganization of the Bank into the stock
holding company structure and shares of common stock, $.01 par value per share,
of the Bank prior to such reorganization.
3.06 "Disability" means any physical or mental impairment which qualifies
an Employee for disability benefits under the applicable long-term disability
plan maintained by the Corporation or any Subsidiary or, if no such plan
applies, which would qualify such Employee for disability benefits under the
Federal Social Security System.
3.07 "Effective Date" means the hour and day upon which Common Stock is
initially sold by the Bank in the Offering.
3.08 "Employee" means any person who is employed by the Corporation or any
Subsidiary, including officers or other employees who may be directors of the
Corporation.
3.09 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
3.10 "Offering" means the offering of common stock to the public pursuant
to the Stock Issuance Plan adopted by the Bank following the reorganization of
Commonwealth Federal Savings Bank into the mutual holding company form of
organization.
3.11 "Plan Shares" or "Shares" means shares of Common Stock held in the
Trust which may be distributed to a Recipient pursuant to the Plan.
3.12 "Plan Share Award" or "Award" means a right granted under this Plan
to receive a distribution of Plan Shares upon completion of the service
requirements described in Article VII.
3.13 "Recipient" means an Employee who receives a Plan Share Award under
the Plan.
3.14 "Retirement" means a termination of employment upon or after
attainment of age sixty-five (65) or such earlier age as may be specified in
applicable plans or policies of the Corporation or any subsidiary or in a
Recipient's Plan Share Award.
3.15 "Subsidiary" means any subsidiaries of the Corporation which, with
the consent of the Board, agree to participate in this Plan.
3.16 "Trustee" or "Trustees" means those person or persons (which may be
members of the Committee), or firm or other entity, nominated by the Committee
and approved by the Board pursuant to Sections 4.01 and 4.02 to hold legal
title to the Plan assets for the purposes set forth herein.
<PAGE> 3
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ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Role of the Committee. The Plan shall be administered and
interpreted by the Committee, which shall consist of two or more members of the
Board, none of whom shall be an officer or employee of the Corporation and each
of whom shall be a "disinterested person" within the meaning of Rule 16b-3
under the Exchange Act. The Committee shall have all of the powers allocated to
it in this and other Sections of the Plan. The interpretation and construction
by the Committee of any provisions of the Plan or of any Plan Share Award
granted hereunder shall be final and binding. The Committee shall act by vote
or written consent of a majority of its members. Subject to the express
provisions and limitations of the Plan, the Committee may adopt such rules,
regulations and procedures as it deems appropriate for the conduct of its
affairs. The Committee shall report its actions and decisions with respect to
the Plan to the Board at appropriate times, but in no event less than one time
per calendar year. The Committee shall recommend to the Board one or more
persons (which may be from among its members), or a firm or other entity, to
act as Trustee(s) in accordance with the provisions of this Plan and Trust and
the terms of Article VIII hereof.
4.02 Role of the Board. The members of the Committee and the Trustee or
Trustees shall be appointed or approved by, and will serve at the pleasure of,
the Board. The Board may in its discretion from time to time remove members
from, or add members to, the Committee, and may remove, replace or add
Trustees, provided that any directors who are selected as members of the
Committee shall not be officers or employees of the Corporation and shall be
"disinterested persons" within the meaning of Rule 16b-3 promulgated under the
Exchange Act.
4.03 Limitation on Liability. No member of the Board or the Committee
shall be liable for any determination made in good faith with respect to the
Plan or any Plan Shares or Plan Share Awards granted under it. If a member of
the Board or the Committee is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal administrative or investigative, by reason of anything done or not
done by him in such capacity under or with respect to the Plan, the Corporation
shall, subject to the requirements of applicable laws and regulations,
indemnify such member against all liabilities and expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in the
best interests of the Corporation and any Subsidiaries and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
4.04 Compliance with Laws and Regulations. All awards granted hereunder
shall be subject to all applicable federal and state laws, rules and
regulations and to such approvals by any government or regulatory agency or
stockholders as may be required.
ARTICLE V
CONTRIBUTIONS
<PAGE> 4
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5.01 Amount and Timing of Contributions. The Board of Directors of the
Bank shall determine the amount (or the method of computing the amount) and
timing of any contributions by the Bank and any Subsidiaries to the Trust
established under this Plan. Such amounts may be paid in cash or in shares of
Common Stock and shall be paid to the Trust at the designated time of
contribution. No contributions by Employees shall be permitted.
5.02 Investment of Trust Assets; Number of Plan Shares. Subject to Section
8.02 hereof, the Trustees shall invest all of the Trust's assets primarily in
Common Stock. The aggregate number of Plan Shares initially available for
distribution pursuant to this Plan, subject to adjustment as provided in
Section 9.01 hereof, shall be equal to 3.56% of the shares of Common Stock
which are issued by the Bank in the Offering (rounded down to the nearest whole
number), as adjusted by the final exchange ratio utilized in the reorganization
of the Bank from the mutual holding company structure to the stock holding
company structure, which shares shall be purchased by the Trust in such
Offering with funds contributed by the Bank. Subsequent to consummation of the
Offering, the Trust may purchase (from the Corporation and/or stockholders
thereof) additional shares of Common Stock for distribution pursuant to this
Plan.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 Eligibility. Plan Share Awards may be made to such Employees as may
be selected by the Committee. In selecting those Employees to whom Plan Share
Awards may be granted and the number of Shares covered by such Awards, the
Committee shall consider the position and responsibilities of the eligible
Employees, the value of their services to the Corporation and any Subsidiaries,
and any other factors the Committee may deem relevant. The Committee may but
shall not be required to request the written recommendation of the Chief
Executive Officer of the Corporation other than with respect to Plan Share
Awards to be granted to him.
6.02 Form of Allocation. As promptly as practicable after a determination
is made pursuant to Section 6.01 that a Plan Share Award is to be issued, the
Committee shall notify the Recipient in writing of the grant of the Award, the
number of Plan Shares covered by the Award, and the terms upon which the Plan
Shares subject to the Award shall be distributed to the Employee. Such terms
shall be reflected in a written agreement with the Employee. The date on which
the Committee so notifies the Recipient shall be considered the date of grant
of the Plan Share Award. The Committee shall maintain records as to all grants
of Plan Share Awards under the Plan.
6.03 Allocations Not Required to any Specific Employee. Notwithstanding
anything to the contrary in Section 6.01 hereof, no Employee shall have any
right or entitlement to receive a Plan Share Award hereunder, such Awards being
at the total discretion of the Committee.
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
<PAGE> 5
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7.01 Earning Plan Shares: Forfeitures.
(a) General Rules. Unless the Committee shall specifically state to the
contrary at the time a Plan Share Award is granted, and subject to the terms
hereof, Plan Shares subject to an Award shall be earned by a Recipient at the
rate of twenty percent (20%) of the aggregate number of Shares covered by the
Award as of each annual anniversary of the date of grant of the Award. If the
employment of a Recipient is terminated prior to the fifth (5th) annual
anniversary of the date of grant of a Plan Share Award for any reason (except
as specifically provided in subsections (b), (c) and (d) below), the Recipient
shall forfeit the right to any Shares subject to the Award which have not
theretofore been earned. No fractional shares shall be distributed pursuant to
this Plan.
(b) Exception for Terminations Due to Death, Disability and Retirement.
Notwithstanding the general rule contained in Section 7.01(a), all Plan Shares
subject to a Plan Share Award held by a Recipient whose employment with the
Corporation or any Subsidiary terminates due to death, Disability or
Retirement, shall be deemed earned as of the Recipient's last day of employment
with the Corporation or any Subsidiary and shall be distributed as soon as
practicable thereafter; provided, however, that no Awards shall be distributed
prior to six months from the date of grant of the Plan Share Award.
(c) Exception for Terminations after a Change in Control. Notwithstanding
the general rule contained in Section 7.01(a), all Plan Shares subject to a
Plan Share Award held by a Recipient shall be deemed to be earned in the event
of a "change in control of the Corporation". A "change in control of the
Corporation" is defined as a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Exchange Act, or any successor thereto, whether or
not the Corporation in fact is required to comply with Regulation 14A
thereunder.
(d) Revocation for Misconduct. Notwithstanding anything hereinafter to
the contrary, the Board may by resolution immediately revoke, rescind and
terminate any Plan Share Award, or portion thereof, previously awarded under
this Plan, to the extent Plan Shares have not been distributed hereunder to the
Recipient, whether or not yet earned, in the case of an Employee who is
discharged from the employ of the Corporation or any Subsidiary for cause (as
hereinafter defined). Termination of employment shall be deemed to be for
cause if the Employee has been convicted of a felony by a court of competent
jurisdiction or has been adjudged by a court of competent jurisdiction to be
liable for gross negligence or misconduct in the performance of his duties to
the Corporation or any Subsidiary.
7.02 Distribution of Dividends. Any cash dividends or stock dividends
declared in respect of each Plan Share held by the Trust will be paid by the
Trust, as soon as practicable after the Trust's receipt thereof, to the
Recipient on whose behalf such Plan Share is then held by the Trust.
7.03 Distribution of Plan Shares.
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(a) Timing of Distributions; General Rule. Plan Shares shall be
distributed to a Recipient or his Beneficiary, as the case may be, as soon as
practicable after they have been earned, provided, however, that no Plan Shares
shall be distributed to a Recipient or Beneficiary pursuant to a Plan Share
Award within six months from the date on which that Plan Share Award was
granted to such person.
(b) Form of Distributions. All Plan Shares, together with any Shares
representing stock dividends, shall be distributed in the form of Common Stock.
One share of Common Stock shall be given for each Plan Share earned and
distributable. Payments representing cash dividends shall be made in cash.
(c) Withholding. The Trustees may withhold from any cash payment or
Common Stock distribution made under this Plan sufficient amounts to cover any
applicable withholding and employment taxes, and if the amount of a cash
payment is insufficient, the Trustees may require the Recipient or Beneficiary
to pay to the Trustees the amount required to be withheld as a condition of
delivering the Plan Shares. The Trustees shall pay over to the Corporation or
any Subsidiary which employs or employed such Recipient any such amount
withheld from or paid by the Recipient or Beneficiary.
(d) Restrictions on Selling of Plan Shares. Plan Share Awards may not be
sold, assigned, pledged or otherwise disposed of prior to the time that they
are earned and distributed pursuant to the terms of this Plan. Following
distribution, the Committee may require the Recipient or his Beneficiary, as
the case may be, to agree not to sell or otherwise dispose of his distributed
Plan Shares except in accordance with all then applicable Federal and state
securities laws, and the Committee may cause a legend to be placed on the stock
certificate(s) representing the distributed Plan Shares in order to restrict
the transfer of the distributed Plan Shares for such period of time or under
such circumstances as the Committee, upon the advice of counsel, may deem
appropriate.
7.04 Voting of Plan Shares. After a Plan Share Award has been made, the
Recipient shall be entitled to direct the Trustees as to the voting of the Plan
Shares which are covered by the Plan Share Award and which have not yet been
earned and distributed to him pursuant to Section 7.03, subject to rules and
procedures adopted by the Committee for this purpose. All shares of Common
Stock held by the Trust as to which Recipients have not directed the voting
shall be voted by the Trustees as the Committee in its discretion shall direct.
ARTICLE VIII
TRUST
8.01 Trust. The Trustees shall receive, hold, administer, invest and make
distributions and disbursements from the Trust in accordance with the
provisions of the Plan and Trust and the applicable directions, rules,
regulations, procedures and policies established by the Committee pursuant to
the Plan.
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8.02 Management of Trust. It is the intent of this Plan and Trust that
the Trustees shall have complete authority and discretion with respect to the
arrangement, control and investment of the Trust, and that the Trustees shall
invest all assets of the Trust in Common Stock to the fullest extent
practicable, except (i) to the extent that the Trustees determine that the
holding of monies in cash or cash equivalents is necessary to meet the
obligations of the Trust and (ii) contributions to the Trust by the Bank prior
to the Offering may be temporarily invested in such interest-bearing account or
accounts as the Trustees shall determine to be appropriate. In performing their
duties, the Trustees shall have the power to do all things and execute such
instruments as may be deemed necessary or proper, including the following
powers:
(a) To invest up to one hundred percent (100%) of all Trust assets in
Common Stock without regard to any law now or hereafter in force limiting
investments for trustees or other fiduciaries. The investment authorized herein
may constitute the only investment of the Trust, and in making such investment,
the Trustees are authorized to purchase Common Stock from the Corporation or
from any other source, and such Common Stock so purchased may be outstanding,
newly issued, or treasury shares.
(b) To invest any Trust assets not otherwise invested in accordance with
(a) above, in such deposit accounts, and certificates of deposit, obligations
of the United States Government or its agencies or such other investments as
shall be considered the equivalent of cash.
(c) To sell, exchange or otherwise dispose of any property at any time
held or acquired by the Trust.
(d) To cause stocks, bonds or other securities to be registered in the
name of a nominee, without the addition of words indicating that such security
is an asset of the Trust (but accurate records shall be maintained showing that
such security is an asset of the Trust).
(e) To hold cash without interest in such amounts as may in the opinion of
the Trustees be reasonable for the proper operation of the Plan and Trust.
(f) To employ brokers, agents, custodians, consultants and accountants.
(g) To hire counsel to render advice with respect to their rights, duties
and obligations hereunder, and such other legal services or representation as
they may deem desirable.
(h) To hold funds and securities representing the amounts to be
distributed to a Recipient or his Beneficiary as a consequence of a dispute as
to the disposition thereof, whether in a segregated account or held in common
with other assets of the Trust.
Notwithstanding anything herein contained to the contrary, the Trustees
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of court for the exercise of any power
herein contained, or give bond.
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8.03 Records and Accounts. The Trustees shall maintain accurate and
detailed records and accounts of all transactions of the Trust, which shall be
available at all reasonable times for inspection by any legally entitled person
or entity to the extent required by applicable law, or any other person
determined by the Committee.
8.04 Expenses. All costs and expenses incurred in the operation and
administration of this Plan shall be borne by the Corporation.
8.05 Indemnification. Subject to the requirements of applicable laws and
regulations, the Corporation shall indemnify, defend and hold the Trustees
harmless against all claims, expenses and liabilities arising out of or related
to the exercise of the Trustees' powers and the discharge of their duties
hereunder, unless the same shall be due to their gross negligence or willful
misconduct.
ARTICLE IX
MISCELLANEOUS
9.01 Adjustments for Capital Changes. The aggregate number of Plan Shares
available for distribution pursuit to the Plan Share Awards and the number of
Shares to which any Plan Share Award relates shall be proportionately adjusted
for any increase or decrease in the total number of outstanding shares of
Common Stock issued subsequent to the effective date of the Plan resulting from
any split, subdivision or consolidation of shares or other capital adjustment,
or other increase or decrease in such shares effected without receipt or
payment of consideration by the Corporation. In addition, in the event the
Corporation distributes warrants or other securities or assets on a pro rata
basis to all holders of Common Stock of the Corporation without receipt or
payment of consideration by the Corporation (the "Distribution"), then the
Corporation shall (a) make appropriate arrangements so that the holders of
Awards outstanding immediately prior to the date of the Distribution receive
upon receipt of the underlying Plan Shares the benefits of the Distribution as
if the holders had received the Plan Shares immediately prior to the record
date used for the Distribution, and (b) depending upon the terms of the
Distribution, adjust the number of Plan Shares underlying any Awards
outstanding immediately prior to the date of the Distribution so that the
economic value of the Award at the time of the Distribution is neither
increased nor decreased by the Distribution, in which event the aggregate
number of Plan Shares for distribution pursuant to Plan Share Awards shall also
be proportionately adjusted.
9.02 Amendment and Termination of Plan. The Board may, by resolution, at
any time amend or terminate the Plan, subject to any required stockholder
approval or any stockholder approval which the Board may deem to be advisable
for any reason, such as for the purpose of obtaining or retaining any statutory
or regulatory benefits under tax, securities or other laws or satisfying any
applicable stock exchange listing requirements. The Board may not, without the
consent of the holder of a Plan Share Award, alter or impair any Plan Share
Award previously granted under this Plan as specifically authorized herein.
Upon termination of the Plan, all Plan Share Awards shall be distributed to the
Recipients regardless of whether or not such Plan Share Awards had otherwise
been earned under the service requirements set forth in Article VII;
<PAGE> 9
9
provided, however, that no Awards shall be distributed prior to six months from
the date of grant of the Plan Share Award.
9.03 Nontransferable. Plan Share Awards and rights to Plan Shares shall
not be transferable by a Recipient, and during the lifetime of the Recipient,
Plan Shares may only be earned by and paid to a Recipient who was notified in
writing of an Award by the Committee pursuant to Section 6.02. No Recipient or
Beneficiary shall have any right in or claim to any assets of the Plan or
Trust, nor shall the Corporation or any Subsidiary be subject to any claim for
benefits hereunder.
9.04 Employment Rights. Neither the Plan nor any grant of a Plan Share
Award or Plan Shares hereunder nor any action taken by the Trustees, the
Committee or the Board in connection with the Plan shall create any right on
the part of any Employee to continue in the employ of the Corporation or any
Subsidiary.
9.05 Voting and Dividend Rights. No Recipient shall have any voting or
dividend rights or other rights of a stockholder in respect of any Plan Shares
covered by a Plan Share Award, except as expressly provided in Sections 7.02
and 7.04 above, prior to the time said Plan Shares are actually earned and
distributed to him.
9.06 Governing Law. The Plan and Trust shall be governed by the laws of
the Commonwealth of Pennsylvania.
9.07 Effective Date. This Plan shall be effective as of the Effective
Date, and Awards may be granted hereunder as of or after the Effective Date and
as long as the Plan remains in effect.
9.08 Term of Plan. This Plan shall remain in effect until the earlier of
(1) ten (10) years from the Effective Date, (2) termination by the Board, or
(3) the distribution to Recipients and Beneficiaries of all assets of the
Trust.
9.09 Tax Status of Trust. It is intended that the trust established
hereby be treated as a Grantor Trust of the Corporation under the provisions of
Section 671 et seq. of the Code, as the same may be amended from time to time.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officers and the corporate seal to be affixed
and duly attested, and the initial Trustees of the Trust established pursuant
hereto have duly and validly executed this Agreement, all on this ____ day of
January 1998.
COMMONWEALTH FEDERAL BANCORP, INC.
<PAGE> 10
10
By:
------------------------------------
Charles H. Meacham, President and
Chief Executive Officer
ATTEST:
- ------------------
Patrick J. Ward
Secretary
TRUSTEES:
-----------------------------
Joseph E. Colen, Jr.
-----------------------------
George C. Beyer, Jr.
-----------------------------
Harry Mirabile
<PAGE> 1
EXHIBIT 10-4
COMMONWEALTH BANCORP, INC.
AMENDED MANAGEMENT RECOGNITION
PLAN FOR DIRECTORS AND TRUST AGREEMENT
ARTICLE I
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 Commonwealth Bancorp, Inc. (the "Corporation") hereby assumes this
Amended Management Recognition Plan for Directors (the "Plan") and Trust (the
"Trust") originally established by Commonwealth Bank (the "Bank") upon the
terms and conditions hereinafter stated in this Amended Management Recognition
Plan for Directors and Trust Agreement (the "Agreement").
1.02 The Trustee(s) hereby accept this Trust and agree to hold the Trust
assets existing on the date of this Agreement and all additions and accretions
thereto upon the terms and conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to improve the growth and profitability of
the Corporation by providing non-employee directors with a proprietary interest
in the Corporation as compensation for their contributions to the Corporation
and as an incentive to make such contributions in the future.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Agreement with an
initial capital letter, unless the context clearly indicates otherwise, shall
have the meanings set forth below. Wherever appropriate, the masculine
pronouns shall include the feminine pronouns and the singular shall include the
plural.
3.01 "Beneficiary" means the person or persons designated by a Recipient
to receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, his estate.
3.02 "Board" means the Board of Directors of the Corporation.
3.03 "Code" means the Internal Revenue Code of 1986, as amended.
<PAGE> 2
2
3.04 "Committee" means the entire Board of Directors of the Corporation
which administers the Plan pursuant to Article IV hereof.
3.05 "Common Stock" means shares of the common stock, $.10 par value per
share, of the Corporation following reorganization of the Bank into the stock
holding company structure and shares of common stock, $.10 par value per share,
of the Bank prior to such reorganization.
3.06 "Disability" means any physical or mental impairment which qualifies
an Employee for disability benefits under the applicable long-term disability
plan maintained by the Corporation or any Subsidiary or, if no such plan
applies, which would qualify such Employee for disability benefits under the
Federal Social Security System.
3.07 "Effective Date" means the hour and day upon which common stock is
initially sold by the Bank in the Offering.
3.08 "Employee" means any person who is employed by the Corporation or any
Subsidiary, including officers or other employees who may be directors of the
Corporation.
3.09 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
3.10 "Non-employee Director" means a member of the Board of the Bank who
is not an Employee.
3.11 "Offering" means the offering of common stock to the public pursuant
to the Stock Issuance Plan adopted by the Bank following the reorganization of
Commonwealth Federal Savings Bank into the mutual holding company form of
organization.
3.12 "Plan Shares" or "Shares" means shares of Common Stock held in the
Trust which may be distributed to a Recipient pursuant to the Plan.
3.13 "Plan Share Award" or "Award" means a right granted under this Plan
to receive a distribution of Plan Shares upon completion of the service
requirements described in Article VII.
3.14 "Recipient" means a Non-employee Director who receives a Plan Share
Award under the Plan.
3.15 "Retirement" means a termination of service upon or after attainment
of age sixty-five (65) or such earlier age as may be specified in applicable
plans or policies of the Corporation or any Subsidiary or in a Recipient's Plan
Share Award.
3.16 "Subsidiary" means any subsidiaries of the Corporation.
<PAGE> 3
3
3.17 "Trustee" or "Trustees" means those person or persons (which may be
members of the Committee), or firm or other entity, nominated by the Committee
and approved by the Board pursuant to Sections 4.01 and 4.02 to hold legal
title to the Plan assets for the purposes set forth herein.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 ROLE OF THE COMMITTEE. The Plan shall be administered and
interpreted by the Committee, which shall consist of the members of the entire
Board. The Committee shall have all of the powers allocated to it in this and
other Sections of the Plan. The interpretation and construction by the
Committee of any provisions of the Plan or of any Plan Share Award granted
hereunder shall be final and binding. The Committee shall act by vote or
written consent of a majority of its members. Subject to the express
provisions and limitations of the Plan, the Committee may adopt such rules,
regulations and procedures as it deems appropriate for the conduct of its
affairs. The Committee shall report its actions and decisions with respect to
the Plan to the Board at appropriate times, but in no event less than one time
per calendar year. The Committee shall appoint one or more persons (which may
be from among its members), or a firm or other entity, to act as Trustee(s) in
accordance with the provisions of this Plan and Trust and the terms of Article
VIII hereof.
4.02 ROLE OF THE BOARD. The Trustee or Trustees shall be appointed or
approved by, and will serve at the pleasure of, the Committee. The Committee
may in its discretion from time to time remove, replace or add Trustees.
4.03 LIMITATION ON LIABILITY. No member of the Committee shall be liable
for any determination made in good faith with respect to the Plan or any Plan
Shares or Plan Share Awards granted under it. If a member of the Committee is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of anything done or not done by him in such
capacity under or with respect to the Plan, the Corporation shall, subject to
the requirements of applicable laws and regulations, indemnify such member
against all liabilities and expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in the best interests of the
Corporation and any Subsidiaries and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
4.04 COMPLIANCE WITH LAWS AND REGULATIONS. All awards granted hereunder
shall be subject to all applicable federal and state laws, rules and
regulations and to such approvals by any government or regulatory agency or
stockholders as may be required.
<PAGE> 4
4
ARTICLE V
CONTRIBUTIONS
5.01 AMOUNT AND TIMING OF CONTRIBUTIONS. The Board shall determine the
amount (or the method of computing the amount) and timing of any contributions
by the Corporation to the Trust established under this Plan. Such amounts may
be paid in cash or in shares of Common Stock and shall be paid to the Trust at
the designated time of contribution. No contributions by Non-employee
Directors shall be permitted.
5.02 INVESTMENT OF TRUST ASSETS; NUMBER OF PLAN SHARES. Subject to
Section 8.02 hereof, the Trustees shall invest all of the Trust's assets
primarily in Common Stock. The aggregate number of Plan Shares initially
available for distribution pursuant to this Plan, subject to adjustment as
provided in Section 9.01 hereof, shall be equal to 0.44% of the shares of
common stock which are issued by the Bank in the Offering (rounded down to the
nearest whole number), as adjusted by the final exchange ratio utilized in the
reorganization of the Bank from the mutual holding company structure to the
stock holding company, structure, which shares shall be purchased by the Trust
in such Offering with funds contributed by the Bank. Subsequent to
consummation of the Offering, the Trust may purchase (from the Corporation
and/or stockholders thereof) additional shares of Common Stock for distribution
pursuant to this Plan.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 ELIGIBILITY. Plan Share Awards shall be made to each Non-employee
Director.
(a) INITIAL ALLOCATION. A Plan Share Award shall be allocated to each
Non-employee Director as of the hour and day on which common stock of the Bank
is initially sold in the Offering. Specifically, each Non-employee Director
shall receive a Plan Share Award for the number of whole shares of common stock
of the Bank determined by multiplying the original number of shares of common
stock of the Bank which may be issued pursuant to this Plan by 90%, with
Matthew T. Welde to receive 30% of such product and each other Non-employee
Director to receive 10%.
(b) SUBSEQUENT ALLOCATION. A Plan Share Award shall be allocated to each
Non-employee Director one year from the date on which common stock of the Bank
is initially sold in the Offering. Specifically, each Non-employee Director
shall receive a Plan Share Award for the number of whole shares of common stock
of the Bank determined by multiplying the original number of shares of common
stock of the Bank which may be issued pursuant to this Plan by 10%, with
Matthew T. Welde to receive 30% of such product and each other Non-employee
Director to receive 10%.
6.02 FORM OF ALLOCATION. As promptly as practicable after a Plan Share
Award is to be issued, the Committee shall notify the Recipient in writing of
the grant of the Award,
<PAGE> 5
5
the number of Plan Shares covered by the Award, and the terms upon which the
Plan Shares subject to the Award shall be distributed to the Recipient. Such
terms shall be reflected in a written agreement with the Recipient. The date on
which the Committee so notifies the Recipient shall be considered the date of
grant of the Plan Share Award. The Committee shall maintain records as to all
grants of Plan Share Awards under the Plan.
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 EARNING PLAN SHARES; FORFEITURES.
(a) GENERAL RULES. Subject to the terms hereof, Plan Shares subject to an
Award shall be earned by a Recipient at the rate of twenty percent (20%) of the
aggregate number of Shares covered by the Award as of each annual anniversary
of the date of grant of the Award. If service as a director by a Recipient is
terminated prior to the fifth (5th) annual anniversary of the date of grant of
a Plan Share Award for any reason (except as specifically provided in
subsections (b), (c) and (d) below), the Recipient shall forfeit the right to
any Shares subject to the Award which have not theretofore been earned. No
fractional shares shall be distributed pursuant to this Plan.
(b) EXCEPTION FOR TERMINATIONS DUE TO DEATH, DISABILITY AND RETIREMENT.
Notwithstanding the general rule contained in Section 7.01(a), all Plan Shares
subject to a Plan Share Award held by a Recipient whose service as a director
of the Corporation terminates due to death, Disability, Retirement or failure
of stockholders of the Corporation to re-elect the Recipient as a Non-employee
Director, shall be deemed earned as of the Recipient's last day of service with
the Corporation and shall be distributed as soon as practicable thereafter;
provided, however, that no Awards shall be distributed prior to six months from
the date of grant of the Plan Share Award.
(c) EXCEPTION FOR TERMINATIONS AFTER A CHANGE IN CONTROL. Notwithstanding
the general rule contained in Section 7.01(a), all Plan Shares subject to a
Plan Share Award held by a Recipient shall be deemed to be earned in the event
of a "change in control of the Corporation". A "change in control of the
Corporation" is defined as a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Exchange Act, or any successor thereto, whether or
not the Corporation in fact is required to comply with Regulation 14A
thereunder.
(d) REVOCATION FOR MISCONDUCT. Notwithstanding anything hereinafter to
the contrary, the Board may by resolution immediately revoke, rescind and
terminate any Plan Share Award, or portion thereof, previously awarded under
this Plan, to the extent Plan Shares have not been distributed hereunder to the
Recipient, whether or not yet earned, in the case of any Non-employee Director
who is removed from service as a director of the Corporation for cause (as
hereinafter defined). Removal shall be deemed to be for cause
<PAGE> 6
6
if the Non-employee Director has been convicted of a felony by a court of
competent jurisdiction or has been adjudged by a court of competent
jurisdiction to be liable for gross negligence or misconduct in the performance
of his duties to the Corporation or any Subsidiary.
7.02 DISTRIBUTION OF DIVIDENDS. Any cash dividends or stock dividends
declared in respect of each Plan Share held by the Trust will be paid by the
Trust, as soon as practicable after the Trust's receipt thereof, to the
Recipient on whose behalf such Plan Share is then held by the Trust.
7.03 DISTRIBUTION OF PLAN SHARES.
(a) TIMING OF DISTRIBUTIONS: GENERAL RULE. Plan Shares shall be
distributed to a Recipient or his Beneficiary, as the case may be, as soon as
practicable after they have been earned, provided, however, that no Plan Shares
shall be distributed to a Recipient or Beneficiary pursuant to a Plan Share
Award within six months from the date on which that Plan Share Award was
granted to such person.
(b) FORM OF DISTRIBUTIONS. All Plan Shares, together with any Shares
representing stock dividends, shall be distributed in the form of Common Stock.
One share of Common Stock shall be given for each Plan Share earned and
distributable. Payments representing cash dividends shall be made in cash.
(c) WITHHOLDING. The Trustees may withhold from any cash payment or
Common Stock distribution made under this Plan sufficient amounts to cover any
applicable withholding and employment taxes, and if the amount of a cash
payment is insufficient, the Trustees may require the Recipient or Beneficiary
to pay to the Trustees the amount required to be withheld as a condition of
delivering the Plan Shares. The Trustees shall pay over to the Corporation or
any Subsidiary which employs or employed such Recipient any such amount
withheld from or paid by the Recipient or Beneficiary.
(d) RESTRICTIONS ON SELLING OF PLAN SHARES. Plan Share Awards may not be
sold, assigned, pledged or otherwise disposed of prior to the time that they
are earned and distributed pursuant to the terms of this Plan. Following
distribution, the Committee may require the Recipient or his Beneficiary, as
the case may be, to agree not to sell or otherwise dispose of his distributed
Plan Shares except in accordance with all then applicable Federal and state
securities laws, and the Committee may cause a legend to be placed on the stock
certificate(s) representing the distributed Plan Shares in order to restrict
the transfer of the distributed Plan Shares for such period of time or under
such circumstances as the Committee, upon the advice of counsel, may deem
appropriate.
7.04 VOTING OF PLAN SHARES. After a Plan Share Award has been made, the
Recipient shall be entitled to direct the Trustees as to the voting of the Plan
Shares which are covered by the Plan Share Award and which have not yet been
earned and distributed
<PAGE> 7
7
to him pursuant to Section 7.03, subject to rules and procedures adopted by the
Committee for this purpose. All shares of Common Stock held by the Trust as to
which Recipients have not directed the voting shall be voted by the Trustees as
the Committee in its discretion shall direct.
ARTICLE VIII
TRUST
8.01 TRUST. The Trustees shall receive, hold, administer, invest and make
distributions and disbursements from the Trust in accordance with the
provisions of the Plan and Trust and the applicable directions, rules,
regulations, procedures and policies established by the Committee pursuant to
the Plan.
8.02 MANAGEMENT OF TRUST. It is the intent of this Plan and Trust that
the Trustees shall have complete authority and discretion with respect to the
arrangement, control and investment of the Trust, and that the Trustees shall
invest all assets of the Trust in Common Stock to the fullest extent
practicable, except (i) to the extent that the Trustees determine that the
holding of monies in cash or cash equivalents is necessary to meet the
obligations of the Trust and (ii) contributions to the Trust by the Bank prior
to the Offering may be temporarily invested in such interest-bearing account or
accounts as the Trustees shall determine to be appropriate. In performing
their duties, the Trustees shall have the power to do all things and execute
such instruments as may be deemed necessary or proper, including the following
powers:
(a) To invest up to one hundred percent (100%) of all Trust assets in
Common Stock without regard to any law now or hereafter in force limiting
investments for trustees or other fiduciaries. The investment authorized
herein may constitute the only investment of the Trust, and in making such
investment, the Trustees are authorized to purchase Common Stock from the
Corporation or from any other source, and such Common Stock so purchased may be
outstanding, newly issued, or treasury shares.
(b) To invest any Trust assets not otherwise invested in accordance with
(a) above, in such deposit accounts, and certificates of deposit, obligations
of the United States Government or its agencies or such other investments as
shall be considered the equivalent of cash.
(c) To sell, exchange or otherwise dispose of any property at any time
held or acquired by the Trust.
(d) To cause stocks, bonds or other securities to be registered in the
name of a nominee, without the addition of words indicating that such security
is an asset of the Trust (but accurate records shall be maintained showing that
such security is an asset of the Trust).
<PAGE> 8
8
(e) To hold cash without interest in such amounts as may in the opinion of
the Trustees be reasonable for the proper operation of the Plan and Trust.
(f) To employ brokers, agents, custodians, consultants and accountants.
(g) To hire counsel to render advice with respect to their rights, duties
and obligations hereunder, and such other legal services or representation as
they may deem desirable.
(h) To hold funds and securities representing the amounts to be
distributed to a Recipient or his Beneficiary as a consequence of a dispute as
to the disposition thereof, whether in a segregated account or held in common
with other assets of the Trust.
Notwithstanding anything herein contained to the contrary, the Trustees
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of court for the exercise of any power
herein contained, or give bond.
8.03 RECORDS AND ACCOUNTS. The Trustees shall maintain accurate and
detailed records and accounts of all transactions of the Trust, which shall be
available at all reasonable times for inspection by any legally entitled person
or entity to the extent required by applicable law, or any other person
determined by the Committee.
8.04 EXPENSES. All costs and expenses incurred in the operation and
administration of this Plan shall be borne by the Corporation.
8.05 INDEMNIFICATION. Subject to the requirements of applicable laws and
regulations, the Corporation shall indemnify, defend and hold the Trustees
harmless against all claims, expenses and liabilities arising out of or related
to the exercise of the Trustees' powers and the discharge of their duties
hereunder, unless the same shall be due to their gross negligence or willful
misconduct.
ARTICLE IX
MISCELLANEOUS
9.01 ADJUSTMENTS FOR CAPITAL CHANGES. The aggregate number of Plan Shares
available for distribution pursuant to the Plan Share Awards and the number of
Shares to which any Plan Share Award relates shall be proportionately adjusted
for any increase or decrease in the total number of outstanding shares of
Common Stock issued subsequent to the effective date of the Plan resulting from
any split, subdivision or consolidation of shares or other capital adjustment,
or other increase or decrease in such shares effected without receipt or
payment of consideration by the Corporation. In addition, in the event the
Corporation distributes warrants or other securities or assets on a pro rata
basis to all holders of Common Stock of the Corporation without receipt or
payment of consideration by the Corporation (the "Distribution"), then the
Corporation shall (a) make appropriate
<PAGE> 9
9
arrangements so that the holders of Awards outstanding immediately prior to the
date of the Distribution receive upon receipt of the underlying Plan Shares the
benefits of the Distribution as if the holders had received the Plan Shares
immediately prior to the record date used for the Distribution, and (b)
depending upon the terms of the Distribution, adjust the number of Plan Shares
underlying any Awards outstanding immediately prior to the date of the
Distribution so that the economic value of the Award at the time of the
Distribution is neither increased nor decreased by the Distribution, in which
event the aggregate number of Plan Shares available for distribution pursuant
to Plan Share Awards shall also be proportionately adjusted.
9.02 AMENDMENT AND TERMINATION OF PLAN. The Board may, by resolution, at
any time amend or terminate the Plan, subject to any required stockholder
approval or any stockholder approval which the Board may deem to be advisable
for any reason, such as for the purpose of obtaining or retaining any statutory
or regulatory benefits under tax, securities or other laws or satisfying any
applicable stock exchange listing requirements. The Board may not, without the
consent of the holder of a Plan Share Award, alter or impair any Plan Share
Award previously granted under this Plan as specifically authorized herein.
Upon termination of the Plan, all Plan Share Awards shall be distributed to the
Recipients regardless of whether or not such Plan Share Awards had otherwise
been earned under the service requirements set forth in Article VII; provided,
however, that no Awards shall be distributed prior to six months from the date
of grant of the Plan Share Award. Notwithstanding anything contained in this
Plan to the contrary, the provisions of Articles VI and VII of this Plan shall
not be amended more than once every six months, other than to comport with
changes in the Internal Revenue Code of 1986, as amended, the Employee
Retirement Income Security Act of 1974, as amended, or the rules and
regulations promulgated under such statutes.
9.03 NONTRANSFERABLE. Plan Share Awards and rights to Plan Shares shall
not be transferable by a Recipient, and during the lifetime of the Recipient,
Plan Shares may only be earned by and paid to a Recipient who was notified in
writing of an Award by the Committee pursuant to Section 6.02. No Recipient or
Beneficiary shall have any right in or claim to any assets of the Plan or
Trust, nor shall the Corporation or any Subsidiary be subject to any claim for
benefits hereunder.
9.04 SERVICE RIGHTS. Neither the Plan nor any grant of a Plan Share Award
or Plan Shares hereunder nor any action taken by the Trustees, the Committee or
the Board in connection with the Plan shall create any right on the part of any
Non-employee Director to continue as such.
9.05 VOTING AND DIVIDEND RIGHTS. No Recipient shall have any voting or
dividend rights or other rights of a stockholder in respect of any Plan Shares
covered by a Plan Share Award, except as expressly provided in Sections 7.02
and 7.04 above, prior to the time said Plan Shares are actually earned and
distributed to him.
<PAGE> 10
10
9.06 GOVERNING LAW. The Plan and Trust shall be governed by the laws of
the Commonwealth of Pennsylvania.
9.07 EFFECTIVE DATE. This Plan shall be effective as of the Effective
Date, and Awards may be granted hereunder as of or after the Effective Date and
as long as the Plan remains in effect.
9.08 TERM OF PLAN. This Plan shall remain in effect until the earlier of
(1) ten (10) years from the Effective Date, (2) termination by the Board, or
(3) the distribution to Recipients and Beneficiaries of all assets of the
Trust.
9.09 TAX STATUS OF TRUST. It is intended that the trust established
hereby be treated as a Grantor Trust of the Corporation under the provisions of
Section 671 et seq. of the Code, as the same may be amended from time to time.
<PAGE> 11
11
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officers and the corporate seal to be affixed
and duly attested, and the initial Trustees of the Trust established pursuant
hereto have duly and validly executed this Agreement, all on this __ day of
January 1998.
COMMONWEALTH BANCORP, INC.
By:
--------------------------------------
Charles H. Meacham, Chairman of the Board
and Chief Executive Officer
ATTEST: TRUSTEES:
--------------- --------------------
Patrick J. Ward George C. Beyer, Jr.
Secretary
--------------------------------
Joseph E. Colen, Jr.
--------------------------------
William B. Haines, Jr.
--------------------------------
Charles H. Meacham
--------------------------------
Harry P. Mirabile
--------------------------------
Nicholas Sclufer
--------------------------------
Mathew T. Welde
<PAGE> 1
EXHIBIT 10-5
COMMONWEALTH BANCORP, INC.
1996 AMENDED STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
Commonwealth Bancorp, Inc. (the "Corporation") hereby establishes this
1996 Amended Stock Option Plan (the "Plan") upon the terms and conditions
hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of this Plan is to improve the growth and profitability of the
Corporation and its Subsidiary Companies by providing Employees and
Non-Employee Directors with a proprietary interest in the Corporation as an
incentive to contribute to the success of the Corporation and its Subsidiary
Companies, and rewarding Employees for outstanding performance and the
attainment of targeted goals. All Incentive Stock Options issued under this
Plan are intended to comply with the requirements of Section 422 of the Code,
and the regulations thereunder, and all provisions hereunder shall be read,
interpreted and applied with that purpose in mind.
ARTICLE III
DEFINITIONS
3.01 "Award" means an Option or Stock Appreciation Right granted pursuant
to the terms of this Plan.
3.02 "Bank" means Commonwealth Bank, the wholly owned subsidiary of the
Corporation.
3.03 "Board" means the Board of Directors of the Corporation.
3.04 "Change in Control of the Corporation" shall mean a change in control
of a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or
not the Corporation in fact is required to comply with Regulation 14A
thereunder; provided that, without limitation, such a change in control shall
be deemed to have occurred if (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than the Corporation, is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Corporation representing 25%
or more of the combined voting power of the Corporation's then outstanding
securities, or (ii) during any period of twenty-four consecutive months during
the term of an Option, individuals who at the beginning of such period
constitute the Board of the Corporation cease for any reason to
<PAGE> 2
constitute at least a majority thereof, unless the election, or the nomination
for election by the Corporation's stockholders, of each director who was not a
director at the date of grant has been approved in advance by directors
representing at least two-thirds of the directors then in office who were
directors at the beginning of the period.
3.05 "Code" means the Internal Revenue Code of 1986, as amended.
3.06 "Committee" means a committee of two or more directors appointed by
the Board pursuant to Article IV hereof each of whom shall be a Non-Employee
Director as defined in Rule 16b-3(b)(3)(i) of the Exchange Act or any successor
thereto.
3.07 "Common Stock" means shares of the common stock, $.10 par value per
share, of the Corporation.
3.08 "Disability" means any physical or mental impairment which qualifies
an individual for disability benefits under the applicable long-term disability
plan maintained by the Corporation or a Subsidiary Company, or, if no such plan
applies, which would qualify such individual for disability benefits under the
long-term disability plan maintained by the Corporation, if such individual
were covered by that plan.
3.09 "Effective Date" means the day upon which the Board approves this
Plan.
3.10 "Employee" means any person who is employed by the Corporation or a
Subsidiary Company, or is an Officer of the Corporation or a Subsidiary
Company, but not including directors who are not also Officers of or otherwise
employed by the Corporation or a Subsidiary Company.
3.11 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
3.12 "Fair Market Value" shall be equal to the fair market value per share
of the Corporation's Common Stock on the date an Award is granted. For
purposes hereof, the Fair Market Value of a share of Common Stock shall be the
closing sale price of a share of Common Stock on the date in question (or, if
such day is not a trading day in the U.S. markets, on the nearest preceding
trading day), as reported with respect to the principal market (or the
composite of the markets, if more than one) or national quotation system in
which such shares are then traded, or if no such closing prices are reported,
the mean between the high bid and low asked prices that day on the principal
market or national quotation system then in use, or if no such quotations are
available, the price furnished by a professional securities dealer making a
market in such shares selected by the Committee.
3.13 "Incentive Stock Option" means any Option granted under this Plan
which the Board intends (at the time it is granted) to be an incentive stock
option within the meaning of Section 422 of the Code or any successor thereto.
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3.14 "Non-Employee Director" means a member of the Board of the
Corporation or Board of Directors of the Bank, including a Director Emeritus of
the Board of the Corporation or Board of Directors of the Bank, who is not an
Officer or Employee of the Corporation or any Subsidiary Company.
3.15 "Non-Qualified Option" means any Option granted under this Plan which
is not an Incentive Stock Option.
3.16 "Offering" means the offering of Common Stock to the public pursuant
to the conversion of Commonwealth Mutual Holding Company to the stock form and
the reorganization of the Bank as a subsidiary of the Corporation.
3.17 "Officer" means an Employee whose position in the Corporation or
Subsidiary Company is that of a corporate officer, as determined by the Board.
3.18 "Option" means a right granted under this Plan to purchase Common
Stock.
3.19 "Optionee" means an Employee or Non-Employee Director or former
Employee or Non-Employee Director to whom an Option is granted under the Plan.
3.20 "Retirement" means a termination of employment which constitutes a
"retirement" under any applicable qualified pension benefit plan maintained by
the Corporation or a Subsidiary Corporation, or, if no such plan is applicable,
which would constitute "retirement" under the Corporation's pension benefit
plan, if such individual were a participant in that plan.
3.21 "Stock Appreciation Right" means a right to surrender an Option in
consideration for a payment by the Corporation in cash and/or Common Stock, as
provided in the discretion of the Committee in accordance with Section 8.11.
3.22 "Subsidiary Companies" means those subsidiaries of the Corporation,
including the Bank, which meet the definition of "subsidiary corporations" set
forth in Section 425(f) of the Code, at the time of granting of the Option in
question.
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ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 DUTIES OF THE COMMITTEE. The Plan shall be administered and
interpreted by the Committee, as appointed from time to time by the Board
pursuant to Section 4.02. The Committee shall have the authority to adopt,
amend and rescind such rules, regulations and procedures as, in its opinion,
may be advisable in the administration of the Plan, including, without
limitation, rules, regulations and procedures which (i) deal with satisfaction
of an Optionee's tax withholding obligation pursuant to Section 12.02 hereof,
(ii) include arrangements to facilitate the Optionee's ability to borrow funds
for payment of the exercise or purchase price of an Award, if applicable, from
securities brokers and dealers, and (iii) include arrangements which provide
for the payment of some or all of such exercise or purchase price by delivery
of previously-owned shares of Common Stock or other property and/or by
withholding some of the shares of Common Stock which are being acquired. The
interpretation and construction by the Committee of any provisions of the Plan,
any rule, regulation or procedure adopted by it pursuant thereto or of any
Award shall be final and binding in the absence of action by the Board.
4.02 APPOINTMENT AND OPERATION OF THE COMMITTEE. The members of the
Committee shall be appointed by, and will serve at the pleasure of, the Board.
The Board from time to time may remove members from, or add members to, the
Committee, provided the Committee shall continue to consist of two or more
members of the Board, each of whom shall be a Non-Employee Director, as defined
in Rule 16b-3(b)(3)(i) of the Exchange Act or any successor thereto. In
addition, each member of the Committee shall be an "outside director" within
the meaning of Section 162(m) of the Code and regulations thereunder at such
times as is required under such regulations. The Committee shall act by vote
or written consent of a majority of its members. Subject to the express
provisions and limitations of the Plan, the Committee may adopt such rules,
regulations and procedures as it deems appropriate for the conduct of its
affairs. It may appoint one of its members to be chairman and any person,
whether or not a member, to be its secretary or agent. The Committee shall
report its actions and decisions to the Board at appropriate times but in no
event less than one time per calendar year.
4.03 REVOCATION FOR MISCONDUCT. The Board or the Committee may by
resolution immediately revoke, rescind and terminate any Option, or portion
thereof, to the extent not yet vested, or any Stock Appreciation Right, to the
extent not yet exercised, previously granted or awarded under this Plan to an
Employee who is discharged from the employ of the Corporation or a Subsidiary
Company for cause, which, for purposes hereof, shall mean termination because
of the Employee's personal dishonesty, incompetence, willful misconduct, breach
of fiduciary duty involving personal profit, intentional failure to perform
stated duties, willful violation of any law, rule, or regulation (other than
traffic violations or similar offenses) or final cease-and-desist order.
Options granted to a Non-Employee Director who is removed for cause pursuant to
the Corporation's Articles of Incorporation
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and Bylaws or the Bank's Charter and Bylaws shall terminate as of the effective
date of such removal.
4.04 LIMITATION ON LIABILITY. Neither the members of the Board nor any
member of the Committee shall be liable for any action or determination made in
good faith with respect to the Plan, any rule, regulation or procedure adopted
by it pursuant thereto or any Awards granted under it. If a member of the
Board or the Committee is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of anything done or not
done by him in such capacity under or with respect to the Plan, the Corporation
shall, subject to the requirements of applicable laws and regulations,
indemnify such member against all liabilities and expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in the
best interests of the Corporation and its Subsidiary Companies and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
4.05 COMPLIANCE WITH LAW AND REGULATIONS. All Awards granted hereunder
shall be subject to all applicable federal and state laws, rules and
regulations and to such approvals by any government or regulatory agency as may
be required. The Corporation shall not be required to issue or deliver any
certificates for shares of Common Stock prior to the completion of any
registration or qualification of or obtaining of consents or approvals with
respect to such shares under any federal or state law or any rule or regulation
of any government body, which the Corporation shall, in its sole discretion,
determine to be necessary or advisable. Moreover, no Option or Stock
Appreciation Right may be exercised if such exercise would be contrary to
applicable laws and regulations.
4.06 RESTRICTIONS ON TRANSFER. The Corporation may place a legend upon
any certificate representing shares acquired pursuant to an Award granted
hereunder noting that the transfer of such shares may be restricted by
applicable laws and regulations.
ARTICLE V
ELIGIBILITY
Awards may be granted to such Employees of the Corporation and its
Subsidiary Companies as may be designated from time to time by the Board or the
Committee. Awards may not be granted to individuals who are not Employees or
Non-Employee Directors of either the Corporation or its Subsidiary Companies.
Non-Employee Directors shall be eligible to receive only Non-Qualified Options.
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ARTICLE VI
COMMON STOCK COVERED BY THE PLAN
6.01 OPTION SHARES. The aggregate number of shares of Common Stock which
may be issued pursuant to this Plan, subject to adjustment as provided in
Article IX, shall be 987,215, which is equal to 10.0% of the shares of Common
Stock issued in the Offering. None of such shares shall be the subject of more
than one Award at any time, but if an Option as to any shares is surrendered
before exercise, or expires or terminates for any reason without having been
exercised in full, or for any other reason ceases to be exercisable, the number
of shares covered thereby shall again become available for grant under the Plan
as if no Awards had been previously granted with respect to such shares.
Notwithstanding the foregoing, if an Option is surrendered in connection with
the exercise of a Stock Appreciation Right, the number of shares covered
thereby shall not be available for grant under the Plan. During the time this
Plan remains in effect, grants to each Employee and each Non-Employee Director
shall not exceed 25% and 5% of the shares of Common Stock available under the
Plan, respectively.
6.02 SOURCE OF SHARES. The shares of Common Stock issued under the Plan
may be authorized but unissued shares, treasury shares or shares purchased by
the Corporation on the open market or from private sources for use under the
Plan.
ARTICLE VII
DETERMINATION OF
AWARDS, NUMBER OF SHARES, ETC.
7.01 DETERMINATION OF AWARDS. The Board or the Committee shall, in its
discretion, determine from time to time which Employees will be granted Awards
under the Plan, the number of shares of Common Stock subject to each Award,
whether each Option will be an Incentive Stock Option or a Non-Qualified Stock
Option and the exercise price of an Option. In making all such determinations
there shall be taken into account the duties, responsibilities and performance
of each respective Employee, his present and potential contributions to the
growth and success of the Corporation, his salary and such other factors deemed
relevant to accomplishing the purposes of the Plan.
7.02 MAXIMUM AWARDS TO EMPLOYEES. Notwithstanding anything contained in
this Plan to the contrary, the maximum number of shares of Common Stock to
which Awards may be granted to any Employee in any calendar year shall be
246,804.
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<PAGE> 7
ARTICLE VIII
OPTIONS AND STOCK APPRECIATION RIGHTS
Each Option granted hereunder shall be on the following terms and
conditions:
8.01 STOCK OPTION AGREEMENT. The proper Officers on behalf of the
Corporation and each Optionee shall execute a Stock Option Agreement which
shall set forth the total number of shares of Common Stock to which it
pertains, the exercise price, whether it is a Non-Qualified Option or an
Incentive Stock Option, and such other terms, conditions, restrictions and
privileges as the Board or the Committee in each instance shall deem
appropriate, provided they are not inconsistent with the terms, conditions and
provisions of this Plan. Each Optionee shall receive a copy of his executed
Stock Option Agreement.
8.02 GRANTS TO NON-EMPLOYEE DIRECTORS. Options to purchase 29,616 shares
of Common Stock shall be granted to each Non-Employee Director as of the day
that the Plan is approved by stockholders of the Corporation, effective at such
time and with a per share exercise price equal to the Fair Market Value of a
share of Common Stock on such date.
Awards made to Non-Employee Directors in the aggregate may not exceed 296,164
shares (or 30% of the number of shares available under this Plan) and no
individual Non-Employee Director may receive Awards in excess of 49,361 shares
(or 5% of the number of shares available under this Plan).
8.03 OPTION EXERCISE PRICE.
(A) INCENTIVE STOCK OPTIONS. The per share price at which the subject
Common Stock may be purchased upon exercise of an Incentive Stock Option shall
be no less than one hundred percent (100%) of the Fair Market Value of a share
of Common Stock at the time such Incentive Stock Option is granted, except as
provided in Section 8.10(b).
(B) NON-QUALIFIED OPTIONS. The per share price at which the subject
Common Stock may be purchased upon exercise of a Non-Qualified Option shall be
established by the Committee at the time of grant, but in no event shall be
less than the greater of (i) the par value or (ii) one hundred percent (100%)
of the Fair Market Value of a share of Common Stock at the time such
Non-Qualified Option is granted.
8.04 VESTING AND EXERCISE OF OPTIONS.
(A) GENERAL RULES. Incentive Stock Options and Non-Qualified Options
granted to Employees shall become vested and exercisable at the rate, to the
extent and subject to such limitations as may be specified by the Board or the
Committee. Notwithstanding the foregoing, no vesting shall occur on or after
an Employee's employment or service as a Non-Employee Director with the
Corporation and all Subsidiary Companies is terminated for any reason other
than his death, Disability, Retirement or a Change in
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<PAGE> 8
Control of the Corporation. In determining the number of shares of Common
Stock with respect to which Options are vested and/or exercisable, fractional
shares will be rounded up to the nearest whole number if the fraction is 0.5 or
higher, and down if it is less.
(B) ACCELERATED VESTING. Unless the Committee shall specifically state
otherwise at the time an Option is granted, all Options granted under this Plan
shall become vested and exercisable in full on the date an Optionee terminates
his employment with the Corporation or a Subsidiary Company or service as a
Non-Employee Director because of his death, Disability or Retirement. In
addition, all outstanding Options shall become immediately vested and
exercisable in full on the date an Optionee terminates his employment with the
Corporation or a Subsidiary Company or service as a Non-Employee Director as
the result of or following a Change in Control of the Corporation.
8.05 DURATION OF OPTIONS.
(A) GENERAL RULE. Except as provided in Sections 8.05(b), 8.05(c) and
8.10, each Option or portion thereof granted to an Optionee shall be
exercisable at any time on or after it vests and remain exercisable until the
earlier of (i) ten (10) years after its date of grant or (ii) three (3) months
after the date on which the Optionee ceases to be employed by the Corporation
and all Subsidiary Companies, or any successor thereto, or serve as a
Non-Employee Director.
(B) EXTENSION OF THREE-MONTH PERIOD. The Board or the Committee may in
its discretion decide at the time of grant of an Option to extend the
three-month period of exercise referred to in Section 8.05(a)(ii) upon
termination of employment or service from three (3) months to a period not
exceeding five (5) years. In addition, the Board or the Committee may decide
to extend such exercise period following the date of grant of an Option, but
only if such decision would not be deemed to be the granting of a new Option.
In no event, however, shall any Option be exercisable more than ten (10) years
from the date it was granted.
(C) EXCEPTIONS. If an Employee dies while in the employ of the
Corporation or a Subsidiary Company or terminates employment with the
Corporation or a Subsidiary Company as a result of Disability or Retirement
without having fully exercised his Options, the Optionee or the executors,
administrators, legatees or distributees of his estate shall have the right to
exercise such Options for a period of time equal to the greater of (i) twelve
(12) months following the earlier of his death or termination due to Disability
or Retirement, or (ii) the period provided for by the Board or the Committee
pursuant to Section 8.05(b). If a Non-Employee Director dies while serving as
a Non-Employee Director or terminates his service to the Corporation or a
Subsidiary Company as a result of Disability or Retirement without having fully
exercised his Options, the Non-Employee Director or the executors,
administrators, legatees or distributees of his estate shall have the right to
exercise such Options for a period of time equal to the greater of (i) twelve
(12) months following the earlier of his death or termination due to Disability
or Retirement, or
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(ii) the period provided for by the Board or the Committee pursuant to Section
8.05(b). In no event, however, shall any Option be exercisable more than ten
(10) years from the date it was granted.
8.06 NONASSIGNABILITY. Options shall not be transferable by an Optionee
except by will or the laws of descent or distribution, and during an Optionee's
lifetime shall be exercisable only by such Optionee or the Optionee's guardian
or legal representative. Notwithstanding the foregoing, or any other provision
of this Plan, an Optionee who holds Non-Qualified Options may transfer such
Options to his or her spouse, lineal ascendants, lineal descendants, or to a
duly established trust for the benefit of one or more of these individuals.
Options so transferred may thereafter be transferred only to the Optionee who
originally received the grant or to an individual or trust to whom the Optionee
could have initially transferred the Option pursuant to this Section 8.06.
Options which are transferred pursuant to this Section 8.06 shall be
exercisable by the transferee according to the same terms and conditions as
applied to the Optionee.
8.07 MANNER OF EXERCISE. Options may be exercised in part or in whole and
at one time or from time to time. The procedures for exercise shall be set
forth in the written Stock Option Agreement provided for in Section 8.01 above.
8.08 PAYMENT FOR SHARES. Payment in full of the purchase price for shares
of Common Stock purchased pursuant to the exercise of any Option shall be made
to the Corporation upon exercise of the Option. All shares sold under the Plan
shall be fully paid and nonassessable. Payment for shares may be made by the
Optionee in cash or, at the discretion of the Board or the Committee, by
delivering shares of Common Stock (including shares acquired pursuant to the
exercise of an Option) or other property equal in Fair Market Value to the
purchase price of the shares to be acquired pursuant to the Option, by
withholding some of the shares of Common Stock which are being purchased upon
exercise of an Option, or any combination of the foregoing.
8.09 VOTING AND DIVIDEND RIGHTS. No Optionee shall have any voting or
dividend rights or other rights of a stockholder in respect of any shares of
Common Stock covered by an Option prior to the time that his name is recorded
on the Corporation's stockholder ledger as the holder of record of such shares
acquired pursuant to an exercise of an Option.
8.10 ADDITIONAL TERMS APPLICABLE TO INCENTIVE STOCK OPTIONS. All Options
issued under the Plan as Incentive Stock Options will be subject, in addition
to the terms detailed in Sections 8.01 to 8.09 above, to those contained in
this Section 8.10.
(A) Notwithstanding any contrary provisions contained elsewhere in this
Plan and as long as required by Section 422 of the Code, the aggregate Fair
Market Value, determined as of the time an Incentive Stock Option is granted,
of the Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year under
this Plan, and stock options that satisfy the requirements of
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<PAGE> 10
Section 422 of the Code under any other stock option plan or plans maintained
by the Corporation (or any parent or Subsidiary Company), shall not exceed
$100,000.
(B) LIMITATION ON TEN PERCENT STOCKHOLDERS. The price at which shares of
Common Stock may be purchased upon exercise of an Incentive Stock Option
granted to an individual who, at the time such Incentive Stock Option is
granted, owns, directly or indirectly, more than ten percent (10%) of the total
combined voting power of all classes of stock issued to stockholders of the
Corporation or any Subsidiary Company, shall be no less than one hundred and
ten percent (110%) of the Fair Market Value of a share of the Common Stock of
the Corporation at the time of grant, and such Incentive Stock Option shall by
its terms not be exercisable after the earlier of the date determined under
Section 8.04 or the expiration of five (5) years from the date such Incentive
Stock Option is granted.
(C) NOTICE OF DISPOSITION; WITHHOLDING; ESCROW. An Optionee shall
immediately notify the Corporation in writing of any sale, transfer, assignment
or other disposition (or action constituting a disqualifying disposition within
the meaning of Section 421 of the Code) of any shares of Common Stock acquired
through exercise of an Incentive Stock Option, within two (2) years after the
grant of such Incentive Stock Option or within one (1) year after the
acquisition of such shares, setting forth the date and manner of disposition,
the number of shares disposed of and the price at which such shares were
disposed of. The Corporation shall be entitled to withhold from any
compensation or other payments then or thereafter due to the Optionee such
amounts as may be necessary to satisfy any withholding requirements of federal
or state law or regulation and, further, to collect from the Optionee any
additional amounts which may be required for such purpose. The Committee may,
in its discretion, require shares of Common Stock acquired by an Optionee upon
exercise of an Incentive Stock Option to be held in an escrow arrangement for
the purpose of enabling compliance with the provisions of this Section 8.10(c).
8.11 STOCK APPRECIATION RIGHTS.
(A) GENERAL TERMS AND CONDITIONS. The Board or the Committee may, but
shall not be obligated to, authorize the Corporation, on such terms and
conditions as it deems appropriate in each case, to grant rights to Optionees
to surrender an exercisable Option, or any portion thereof, in consideration
for the payment by the Corporation of an amount equal to the excess of the Fair
Market Value of the shares of Common Stock subject to the Option, or portion
thereof, surrendered over the exercise price of the Option with respect to such
shares (any such authorized surrender and payment being hereinafter referred to
as a "Stock Appreciation Right"). Such payment, at the discretion of the Board
or the Committee, may be made in shares of Common Stock valued at the then Fair
Market Value thereof, or in cash, or partly in cash and partly in shares of
Common Stock.
The terms and conditions set with respect to a Stock Appreciation Right
may include (without limitation), subject to other provisions of this Section
8.11 and the Plan: the period during which, date by which or event upon which
the Stock Appreciation Right may be
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exercised; the method for valuing shares of Common Stock for purposes of this
Section 8.11; a ceiling on the amount of consideration which the Corporation
may pay in connection with exercise and cancellation of the Stock Appreciation
Right; and arrangements for income tax withholding. The Board or the Committee
shall have complete discretion to determine whether, when and to whom Stock
Appreciation Rights may be granted. Notwithstanding the foregoing, the
Corporation may not permit the exercise of a Stock Appreciation Right issued
pursuant to this Plan until the Corporation has been subject to the reporting
requirements of Section 13 of the Exchange Act for a period of at least one
year prior to the exercise of any such Stock Appreciation Right and until a
Stock Appreciation Right issued pursuant to this Plan has been outstanding for
at least six months from the date of grant.
(B) TIME LIMITATIONS. If a holder of a Stock Appreciation Right
terminates service with the Corporation as an Officer or Employee, the Stock
Appreciation Right may be exercised only within the period, if any, within
which the Option to which it relates may be exercised.
(C) EFFECTS OF EXERCISE OF STOCK APPRECIATION RIGHTS OR OPTIONS. Upon the
exercise of a Stock Appreciation Right, the number of shares of Common Stock
available under the Option to which it relates shall decrease by a number equal
to the number of shares for which the Stock Appreciation Right was exercised.
Upon the exercise of an Option, any related Stock Appreciation Right shall
terminate as to any number of shares of Common Stock subject to the Stock
Appreciation Right that exceeds the total number of shares for which the Option
remains unexercised.
(D) TIME OF GRANT. A Stock Appreciation Right granted in connection with
an Incentive Stock Option must be granted concurrently with the Option to which
it relates, while a Stock Appreciation Right granted in connection with a
Non-Qualified Option may be granted concurrently with the Option to which it
relates or at any time thereafter prior to the exercise or expiration of such
Option.
(E) NON-TRANSFERABLE. The holder of a Stock Appreciation Right may not
transfer or assign the Stock Appreciation Right otherwise than by will or in
accordance with the laws of descent and distribution, and during a holder's
lifetime a Stock Appreciation Right may be exercisable only by the holder.
ARTICLE IX
ADJUSTMENTS FOR CAPITAL CHANGES
The aggregate number of shares of Common Stock available for issuance
under this Plan, the number of shares to which any outstanding Award relates,
the maximum number of shares that can be covered by Awards to each Employee,
each Non-Employee Director and all Non-Employee Directors as a group, and the
exercise price per share of Common Stock under any outstanding Option shall be
proportionately adjusted for any increase or
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decrease in the total number of outstanding shares of Common Stock issued
subsequent to the effective date of this Plan resulting from a split,
subdivision or consolidation of shares or any other capital adjustment, the
payment of a stock dividend, or other increase or decrease in such shares
effected without receipt or payment of consideration by the Corporation. If,
upon a merger, consolidation, reorganization, liquidation, recapitalization or
the like of the Corporation, the shares of the Corporation's Common Stock shall
be exchanged for other securities of the Corporation or of another corporation,
each recipient of an Award shall be entitled, subject to the conditions herein
stated, to purchase or acquire such number of shares of Common Stock or amount
of other securities of the Corporation or such other corporation as were
exchangeable for the number of shares of Common Stock of the Corporation which
such optionees would have been entitled to purchase or acquire except for such
action, and appropriate adjustments shall be made to the per share exercise
price of outstanding Options. In addition, in the event the Corporation
distributes warrants or other securities or assets on a pro rata basis to all
holders of Common Stock of the Corporation without receipt or payment of
consideration by the Corporation (the "Distribution"), then the Corporation
shall (a) make appropriate arrangements so that the holders of Options
outstanding immediately prior to the date of the Distribution receive upon
exercise of such Options the benefits of the Distribution as if the holders had
exercised such Options immediately prior to the record date used for the
Distribution, and (b) depending upon the terms of the Distribution, adjust the
number of shares and the exercise price per share of any Options outstanding
immediately prior to the date of the Distribution so that the economic value of
the Award at the time of the Distribution is neither increased nor decreased by
the Distribution, in which event the aggregate number of shares of Common Stock
available for issuance under this Plan and the maximum number of shares that
can be covered by Awards to each Employee, each Non-Employee Director and all
Non-Employee Directors as a group shall also be proportionately adjusted.
Notwithstanding any provision to the contrary, the exercise price of shares
subject to outstanding Awards may be proportionately adjusted upon the payment
of a special large and nonrecurring dividend that has the effect of a return of
capital to the stockholders.
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
The Board may, by resolution, at any time terminate or amend the Plan with
respect to any shares of Common Stock as to which Awards have not been granted,
subject to any required stockholder approval or any stockholder approval which
the Board may deem to be advisable for any reason, such as for the purpose of
obtaining or retaining any statutory or regulatory benefits under tax,
securities or other laws or satisfying any applicable stock exchange listing
requirements. The Board may not, without the consent of the holder of an
Award, alter or impair any Award previously granted or awarded under this Plan
except as specifically authorized herein.
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ARTICLE XI
EMPLOYMENT AND SERVICE RIGHTS
Neither the Plan nor the grant of any Awards hereunder nor any action
taken by the Committee or the Board in connection with the Plan shall create
any right on the part of any Employee or Non-Employee Director to continue in
such capacity.
ARTICLE XII
WITHHOLDING
12.01 TAX WITHHOLDING. The Corporation may withhold from any cash payment
made under this Plan sufficient amounts to cover any applicable withholding and
employment taxes, and if the amount of such cash payment is insufficient, the
Corporation may require the Optionee to pay to the Corporation the amount
required to be withheld as a condition to delivering the shares acquired
pursuant to an Award. The Corporation also may withhold or collect amounts
with respect to a disqualifying disposition of shares of Common Stock acquired
pursuant to exercise of an Incentive Stock Option, as provided in Section
8.10(c).
12.02 METHODS OF TAX WITHHOLDING. The Board or the Committee is
authorized to adopt rules, regulations or procedures which provide for the
satisfaction of an Optionee's tax withholding obligation by the retention of
shares of Common Stock to which the Employee would otherwise be entitled
pursuant to an Award and/or by the Optionee's delivery of previously-owned
shares of Common Stock or other property.
ARTICLE XIII
EFFECTIVE DATE OF THE PLAN; TERM
13.01 EFFECTIVE DATE OF THE PLAN. This Plan shall become effective on the
Effective Date, and Awards may be granted hereunder no earlier than the date
that this Plan is approved by stockholders of the Corporation and prior to the
termination of the Plan, provided that this Plan is approved by stockholders of
the Corporation pursuant to Article XIV hereof.
13.02 TERM OF THE PLAN. Unless sooner terminated, this Plan shall remain
in effect for a period of ten (10) years ending on the tenth anniversary of the
Effective Date. Termination of the Plan shall not affect any Awards previously
granted and such Awards shall remain valid and in effect until they have been
fully exercised or earned, are surrendered or by their terms expire or are
forfeited.
ARTICLE XIV
STOCKHOLDER APPROVAL
The Corporation shall submit this Plan to stockholders for approval at a
meeting of stockholders of the Corporation held within twelve (12) months
following the Effective Date
13
<PAGE> 14
in order to meet the requirements of (i) Section 422 of the Code and
regulations thereunder, (ii) Section 162(m) of the Code and regulations
thereunder, (iii) the National Association of Securities Dealers, Inc. for
quotation of the Common Stock on the Nasdaq Stock Market's National Market, and
(iv) regulations of the Office of Thrift Supervision.
ARTICLE XV
MISCELLANEOUS
15.01 GOVERNING LAW. To the extent not governed by federal law, this Plan
shall be construed under the laws of the Commonwealth of Pennsylvania.
15.02 PRONOUNS. Wherever appropriate, the masculine pronoun shall include
the feminine pronoun, and the singular shall include the plural.
14
<PAGE> 1
EXHIBIT 10-6
COMMONWEALTH BANCORP, INC.
1996 AMENDED RECOGNITION AND RETENTION PLAN AND TRUST AGREEMENT
ARTICLE I
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 Commonwealth Bancorp, Inc. (the "Corporation") hereby establishes the
1996 Amended Recognition and Retention Plan (the "Plan") and Trust (the
"Trust") upon the terms and conditions hereinafter stated in this 1996 Amended
Recognition and Retention Plan and Trust Agreement (the "Agreement").
1.02 The Trustee hereby accepts this Trust and agrees to hold the Trust
assets existing on the date of this Agreement and all additions and accretions
thereto upon the terms and conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to retain personnel of experience and
ability in key positions by providing Employees and Non-Employee Directors of
the Corporation and Commonwealth Bank ("Bank") with a proprietary interest in
the Corporation as compensation for their contributions to the Corporation, the
Bank, and any other Subsidiaries and as an incentive to make such contributions
in the future.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Agreement with an
initial capital letter, unless the context clearly indicates otherwise, shall
have the meanings set forth below. Wherever appropriate, the masculine
pronouns shall include the feminine pronouns and the singular shall include the
plural.
3.01 "Bank" means Commonwealth Bank, the wholly-owned subsidiary of the
Corporation.
3.02 "Beneficiary" means the person or persons designated by a Recipient
to receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, his estate.
3.03 "Board" means the Board of Directors of the Corporation.
<PAGE> 2
3.04 "Change in Control of the Corporation" shall mean a change in
control of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act,
whether or not the Corporation in fact is required to comply with Regulation
14A thereunder; provided that, without limitation, such a change in control
shall be deemed to have occurred if (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than the Corporation, is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Corporation representing 25%
or more of the combined voting power of the Corporation's then outstanding
securities, or (ii) during any period of twenty-four consecutive months during
the term of a Plan Share Award, individuals who at the beginning of such period
constitute the Board of the Corporation cease for any reason to constitute at
least a majority thereof, unless the election, or the nomination for election
by the Corporation's stockholders, of each director who was not a director at
the date of grant has been approved in advance by directors representing at
least two-thirds of the directors then in office who were directors at the
beginning of the period.
3.05 "Code" means the Internal Revenue Code of 1986, as amended.
3.06 "Committee" means the committee appointed by the Board pursuant to
Article IV hereof.
3.07 "Common Stock" means shares of the common stock, $.10 par value per
share, of the Corporation.
3.08 "Disability" means any physical or mental impairment which qualifies
an individual for disability benefits under the applicable long-term disability
plan maintained by the Corporation or any Subsidiary or, if no such plan
applies, which would qualify such individual for disability benefits under the
long-term disability plan maintained by the Corporation, if such individual
were covered by that plan.
3.09 "Effective Date" means the day upon which the Board approves this
Plan.
3.10 "Employee" means any person who is employed by the Corporation, the
Bank, or any Subsidiary, or is an officer of the Corporation, the Bank, or any
Subsidiary, including officers or other employees who may be directors of the
Corporation.
3.11 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
3.12 "Non-Employee Director" means a member of the Board of the
Corporation or the Board of Directors of the Bank, including a Director
Emeritus of the Board of the Corporation or the Board of Directors of the Bank,
who is not an Employee.
3.13 "Plan Shares" or "Shares" means shares of Common Stock held in the
Trust which may be distributed to a Recipient pursuant to the Plan.
2
<PAGE> 3
3.14 "Plan Share Award" or "Award" means a right granted under this Plan
to receive a distribution of Plan Shares upon completion of the service
requirements described in Article VII.
3.15 "Recipient" means an Employee or Non-Employee Director who receives a
Plan Share Award under the Plan.
3.16 "Retirement" means a termination of employment which constitutes a
"retirement" under any applicable qualified pension benefit plan maintained by
the Corporation or a Subsidiary Corporation, or, if no such plan is applicable,
which would constitute "retirement" under the Corporation's pension benefit
plan, if such individual were a participant in that plan.
3.17 "Subsidiary" means the Bank and any other subsidiaries of the
Corporation or the Bank which, with the consent of the Board, agree to
participate in this Plan.
3.18 "Trustee" means such firm, entity or persons approved by the Board to
hold legal title to the Plan for the purposes set forth herein.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 ROLE OF THE COMMITTEE. The Plan shall be administered and
interpreted by the Committee, which shall consist of two or more members of the
Board, each of whom shall be a Non-Employee Director, as defined in Rule
16b-3(b)(3)(i) of the Exchange Act. The Committee shall have all of the powers
allocated to it in this and other Sections of the Plan. The interpretation and
construction by the Committee of any provisions of the Plan or of any Plan
Share Award granted hereunder shall be final and binding in the absence of
action by the Board. The Committee shall act by vote or written consent of a
majority of its members. Subject to the express provisions and limitations of
the Plan, the Committee may adopt such rules, regulations and procedures as it
deems appropriate for the conduct of its affairs. The Committee shall report
its actions and decisions with respect to the Plan to the Board at appropriate
times, but in no event less than one time per calendar year.
4.02 ROLE OF THE BOARD. The members of the Committee and the Trustee
shall be appointed or approved by, and will serve at the pleasure of, the
Board. The Board may in its discretion from time to time remove members from,
or add members to, the Committee, and may remove or replace the Trustee,
provided that any directors who are selected as members of the Committee shall
be Non-Employee Directors.
4.03 LIMITATION ON LIABILITY. No member of the Board or the Committee
shall be liable for any determination made in good faith with respect to the
Plan or any Plan Shares or Plan Share Awards granted under it. If a member of
the Board or the Committee is a
3
<PAGE> 4
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of anything done or not done by him in such
capacity under or with respect to the Plan, the Corporation shall, subject to
the requirements of applicable laws and regulations, indemnify such member
against all liabilities and expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in the best interests of the
Corporation and any Subsidiaries and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
4.04 COMPLIANCE WITH LAWS AND REGULATIONS. All Awards granted hereunder
shall be subject to all applicable federal and state laws, rules and
regulations and to such approvals by any government or regulatory agency or
stockholders as may be required.
ARTICLE V
CONTRIBUTIONS
5.01 AMOUNT AND TIMING OF CONTRIBUTIONS. The Board shall determine the
amount (or the method of computing the amount) and timing of any contributions
by the Corporation and any Subsidiaries to the Trust established under this
Plan. Such amounts may be paid in cash or in shares of Common Stock and shall
be paid to the Trust at the designated time of contribution. No contributions
by Employees or Non-Employee Directors shall be permitted.
5.02 INVESTMENT OF TRUST ASSETS; NUMBER OF PLAN SHARES. Subject to
Section 8.02 hereof, the Trustee shall invest all of the Trust's assets
primarily in Common Stock. The aggregate number of Plan Shares available for
distribution pursuant to this Plan shall be 394,886 shares of Common Stock,
subject to adjustment as provided in Section 9.01 hereof, which shares shall be
purchased (from the Corporation and/or, if permitted by applicable regulations,
from stockholders thereof) by the Trust with funds contributed by the
Corporation. During the time this Plan remains in effect, Awards to each
Employee and each Non-Employee Director shall not exceed 25% and 5% of the
shares of Common Stock available under the Plan, respectively.
4
<PAGE> 5
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 AWARDS TO NON-EMPLOYEE DIRECTORS. A Plan Share Award shall be
allocated to each Non-Employee Director as of the day on which the Plan is
approved by stockholders of the Corporation. Specifically, on such date, each
Non-Employee Director shall receive a Plan Share Award of 14,103 shares of
Common Stock. Plan Share Awards to Non-Employee Directors in the aggregate
shall not exceed 30% of the number of shares available under this Plan and no
individual Non-Employee Director may receive Plan Share Awards in excess of 5%
of the number of shares available under this Plan.
6.02 AWARDS TO EMPLOYEES. Plan Share Awards may be made to such Employees
as may be selected by the Board or the Committee. In selecting those Employees
to whom Plan Share Awards may be granted and the number of Shares covered by
such Awards, the Board or the Committee shall consider the duties,
responsibilities and performance of each respective Employee, his present and
potential contributions to the growth and success of the Corporation, his
salary and such other factors as deemed relevant to accomplishing the purposes
of the Plan. The Board or the Committee may but shall not be required to
request the written recommendation of the Chief Executive Officer of the
Corporation other than with respect to Plan Share Awards to be granted to him.
6.03 FORM OF ALLOCATION. As promptly as practicable after an allocation
pursuant to Sections 6.01 or 6.02 that a Plan Share Award is to be issued, the
Board or the Committee shall notify the Recipient in writing of the grant of
the Award, the number of Plan Shares covered by the Award, the terms upon which
the Plan Shares subject to the Award shall be distributed to the Recipient, and
the rate at which the Plan Share Award shall become vested. The date on which
the Board or the Committee so notifies the Recipient shall be considered the
date of grant of the Plan Share Award. The Board or the Committee shall
maintain records as to all grants of Plan Share Awards under the Plan.
6.04 ALLOCATIONS NOT REQUIRED TO ANY SPECIFIC EMPLOYEE OR NON-EMPLOYEE
DIRECTOR. Notwithstanding anything to the contrary in Sections 6.01 or 6.02
hereof, no Employee or Non-Employee Director shall have any right or
entitlement to receive a Plan Share Award hereunder, such Awards being at the
total discretion of the Board or the Committee.
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 EARNING PLAN SHARES; FORFEITURES.
(a) GENERAL RULES. Subject to the terms hereof, Plan Share Awards shall
be earned by a Recipient at the rate determined by the Board or the Committee
pursuant to Article VI hereof. If the employment of an Employee or service as
a Non-Employee Director is terminated prior to the date such Awards are vested
for any reason (except as
5
<PAGE> 6
specifically provided in subsections (b), (c) and (d) below), the Recipient
shall forfeit the right to any Shares subject to the Award which have not
theretofore been earned. In the event of a forfeiture of the right to any
Shares subject to an Award, such forfeited Shares shall become available for
allocation pursuant to Sections 6.01 and 6.02 hereof as if no Award had been
previously granted with respect to such Shares. No fractional shares shall be
distributed pursuant to this Plan.
(b) EXCEPTION FOR TERMINATIONS DUE TO DEATH, DISABILITY OR RETIREMENT.
Notwithstanding the general rule contained in Section 7.01(a), all Plan Shares
subject to a Plan Share Award held by a Recipient whose employment with the
Corporation or any Subsidiary or service as a Non-Employee Director terminates
due to death, Disability or Retirement shall be deemed earned as of the
Recipient's last day of employment with or service to the Corporation or any
Subsidiary and shall be distributed as soon as practicable thereafter.
(c) EXCEPTION FOR TERMINATIONS AFTER A CHANGE IN CONTROL OF THE
CORPORATION. Notwithstanding the general rule contained in Section 7.01(a),
all Plan Shares subject to a Plan Share Award held by a Recipient shall be
deemed to be earned in the event of a Change in Control of the Corporation.
(d) REVOCATION FOR MISCONDUCT. Notwithstanding anything hereinafter to
the contrary, the Board may by resolution immediately revoke, rescind and
terminate any Plan Share Award, or portion thereof, previously awarded under
this Plan, to the extent Plan Shares have not been distributed hereunder to the
Recipient, whether or not yet earned, in the case of an Employee who is
discharged from the employ of the Corporation or any Subsidiary for cause (as
hereinafter defined). Termination for cause shall mean termination because of
the Employee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order. Plan Share
Awards granted to a Non-Employee Director who is removed for cause pursuant to
the Corporation's Articles of Incorporation and Bylaws or the Bank's Charter
and Bylaws shall terminate as of the effective date of such removal.
7.02 DISTRIBUTION OF DIVIDENDS. Any cash dividends (including special
large and nonrecurring dividends including one that has the effect of a return
of capital to the Corporation's stockholders) or stock dividends declared in
respect of each unvested Plan Share Award will be held by the Trust for the
benefit of the Recipient on whose behalf such Plan Share Award is then held by
the Trust and such dividends, including any interest thereon, will be paid out
proportionately by the Trust to the Recipient thereof as soon as practicable
after the Plan Share Awards become earned. Any cash dividends or stock
dividends declared in respect of each vested Plan Share held by the Trust will
be paid by the Trust, as soon as practicable after the Trust's receipt thereof,
to the Recipient on whose behalf such Plan Share is then held by the Trust.
6
<PAGE> 7
7.03 DISTRIBUTION OF PLAN SHARES.
(a) TIMING OF DISTRIBUTIONS: GENERAL RULE. Plan Shares shall be
distributed to the Recipient or his Beneficiary, as the case may be, as soon as
practicable after they have been earned.
(b) FORM OF DISTRIBUTIONS. All Plan Shares, together with any Shares
representing stock dividends, shall be distributed in the form of Common Stock.
One share of Common Stock shall be given for each Plan Share earned and
distributable. Payments representing cash dividends shall be made in cash.
(c) WITHHOLDING. The Trustee may withhold from any cash payment or Common
Stock distribution made under this Plan sufficient amounts to cover any
applicable withholding and employment taxes, and if the amount of a cash
payment is insufficient, the Trustee may require the Recipient or Beneficiary
to pay to the Trustee the amount required to be withheld as a condition of
delivering the Plan Shares. The Trustee shall pay over to the Corporation or
any Subsidiary which employs or employed such Recipient any such amount
withheld from or paid by the Recipient or Beneficiary.
(d) RESTRICTIONS ON SELLING OF PLAN SHARES. Plan Share Awards may not be
sold, assigned, pledged or otherwise disposed of prior to the time that they
are earned and distributed pursuant to the terms of this Plan. Following
distribution, the Board or the Committee may require the Recipient or his
Beneficiary, as the case may be, to agree not to sell or otherwise dispose of
his distributed Plan Shares except in accordance with all then applicable
Federal and state securities laws, and the Board or the Committee may cause a
legend to be placed on the stock certificate(s) representing the distributed
Plan Shares in order to restrict the transfer of the distributed Plan Shares
for such period of time or under such circumstances as the Board or the
Committee, upon the advice of counsel, may deem appropriate.
7.04 VOTING OF PLAN SHARES. After a Plan Share Award has been made, the
Recipient shall be entitled to direct the Trustee as to the voting of the Plan
Shares which are covered by the Plan Share Award and which have not yet been
earned and distributed to him pursuant to Section 7.03, subject to rules and
procedures adopted by the Committee for this purpose. All shares of Common
Stock held by the Trust which have not been awarded under a Plan Share Award
and shares which have been awarded as to which Recipients have not directed the
voting shall be voted by the Trustee in the same proportion as voted by the
Trustee for shares allocated and which the Trustee receives directions for such
vote by Recipients.
7
<PAGE> 8
ARTICLE VIII
TRUST
8.01 TRUST. The Trustee shall receive, hold, administer, invest and make
distributions and disbursements from the Trust in accordance with the
provisions of the Plan and Trust and the applicable directions, rules,
regulations, procedures and policies established by the Committee pursuant to
the Plan.
8.02 MANAGEMENT OF TRUST. It is the intent of this Plan and Trust that
the Trustee shall have complete authority and discretion with respect to the
arrangement, control and investment of the Trust, and that the Trustee shall
invest all assets of the Trust in Common Stock to the fullest extent
practicable, except to the extent that the Trustee determines that the holding
of monies in cash or cash equivalents is necessary to meet the obligations of
the Trust. In performing their duties, the Trustee shall have the power to do
all things and execute such instruments as may be deemed necessary or proper,
including the following powers:
(a) To invest up to one hundred percent (100%) of all Trust assets in
Common Stock without regard to any law now or hereafter in force limiting
investments for trustees or other fiduciaries. The investment authorized
herein may constitute the only investment of the Trust, and in making such
investment, the Trustee are authorized to purchase Common Stock from the
Corporation or from any other source, and such Common Stock so purchased may be
outstanding, newly issued, or treasury shares.
(b) To invest any Trust assets not otherwise invested in accordance with
(a) above, in such deposit accounts, and certificates of deposit, obligations
of the United States Government or its agencies or such other investments as
shall be considered the equivalent of cash.
(c) To sell, exchange or otherwise dispose of any property at any time
held or acquired by the Trust.
(d) To cause stocks, bonds or other securities to be registered in the
name of a nominee, without the addition of words indicating that such security
is an asset of the Trust (but accurate records shall be maintained showing that
such security is an asset of the Trust).
(e) To hold cash without interest in such amounts as may in the opinion of
the Trustee be reasonable for the proper operation of the Plan and Trust.
(f) To employ brokers, agents, custodians, consultants and accountants.
8
<PAGE> 9
(g) To hire counsel to render advice with respect to their rights, duties
and obligations hereunder, and such other legal services or representation as
they may deem desirable.
(h) To hold funds and securities representing the amounts to be
distributed to a Recipient or his Beneficiary as a consequence of a dispute as
to the disposition thereof, whether in a segregated account or held in common
with other assets of the Trust.
Notwithstanding anything herein contained to the contrary, the Trustee
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of court for the exercise of any power
herein contained, or give bond.
8.03 RECORDS AND ACCOUNTS. The Trustee shall maintain accurate and
detailed records and accounts of all transactions of the Trust, which shall be
available at all reasonable times for inspection by any legally entitled person
or entity to the extent required by applicable law, or any other person
determined by the Board or the Committee.
8.04 EXPENSES. All costs and expenses incurred in the operation and
administration of this Plan shall be borne by the Corporation or, in the
discretion of the Corporation, the Trust.
8.05 INDEMNIFICATION. Subject to the requirements of applicable laws and
regulations, the Corporation shall indemnify, defend and hold the Trustee
harmless against all claims, expenses and liabilities arising out of or related
to the exercise of the Trustee's powers and the discharge of their duties
hereunder, unless the same shall be due to their gross negligence or willful
misconduct.
ARTICLE IX
MISCELLANEOUS
9.01 ADJUSTMENTS FOR CAPITAL CHANGES. The aggregate number of Plan Shares
available for distribution pursuant to the Plan Share Awards, the number of
Shares to which any Plan Share Award relates and the maximum number of Plan
Shares which may be granted to any Employee, to any Non-Employee Director and
to all Non-Employee Directors as a group shall be proportionately adjusted for
any increase or decrease in the total number of outstanding shares of Common
Stock issued subsequent to the effective date of the Plan resulting from any
split, subdivision or consolidation of shares or other capital adjustment, or
other increase or decrease in such shares effected without receipt or payment
of consideration by the Corporation. In addition, in the event the Corporation
distributes warrants or other securities or assets on a pro rata basis to all
holders of Common Stock of the Corporation without receipt or payment of
consideration by the Corporation (the "Distribution"), then the Corporation
shall (a) make appropriate arrangements so that the holders of Awards
outstanding immediately prior to the date of the Distribution receive
9
<PAGE> 10
upon receipt of the underlying Plan Shares the benefits of the Distribution as
if the holders had received the Plan Shares immediately prior to the record
date used for the Distribution, and (b) depending upon the terms of the
Distribution, adjust the number of Plan Shares underlying any Awards
outstanding immediately prior to the date of the Distribution so that the
economic value of the Award at the time of the Distribution is neither
increased nor decreased by the Distribution, in which event the aggregate
number of Plan Shares available for distribution pursuant to Plan Share Awards
and the maximum number of Plan Shares which may be granted to any Employee, to
any Non-Employee Director and to all Non-Employee Directors as a group shall
also be proportionately adjusted.
9.02 AMENDMENT AND TERMINATION OF PLAN. The Board may, by resolution, at
any time amend or terminate the Plan, subject to any required stockholder
approval or any stockholder approval which the Board may deem to be advisable
for any reason, such as for the purpose of obtaining or retaining any statutory
or regulatory benefits under tax, securities or other laws or satisfying any
applicable stock exchange listing requirements. The Board may not, without the
consent of the Recipient, alter or impair his Plan Share Award except as
specifically authorized herein. Upon termination of the Plan, the Recipient's
Plan Share Awards shall be distributed to the Recipient regardless of whether
or not such Plan Share Award had otherwise been earned under the service
requirements set forth in Article VII.
9.03 NONTRANSFERABLE. Plan Share Awards and rights to Plan Shares shall
not be transferable by a Recipient, and during the lifetime of the Recipient,
Plan Shares may only be earned by and paid to a Recipient who was notified in
writing of an Award by the Committee pursuant to Section 6.03 No Recipient or
Beneficiary shall have any right in or claim to any assets of the Plan or
Trust, nor shall the Corporation or any Subsidiary be subject to any claim for
benefits hereunder.
9.04 EMPLOYMENT OR SERVICE RIGHTS. Neither the Plan nor any grant of a
Plan Share Award or Plan Shares hereunder nor any action taken by the Trustee,
the Committee or the Board in connection with the Plan shall create any right
on the part of any Employee or Non-Employee Director to continue in such
capacity.
9.05 VOTING AND DIVIDEND RIGHTS. No Recipient shall have any voting or
dividend rights or other rights of a stockholder in respect of any Plan Shares
covered by a Plan Share Award, except as expressly provided in Sections 7.02
and 7.04 above, prior to the time said Plan Shares are actually earned and
distributed to him.
9.06 GOVERNING LAW. To the extent not governed by federal law, the Plan
and Trust shall be governed by the laws of the Commonwealth of Pennsylvania.
9.07 EFFECTIVE DATE. This Plan shall be effective as of the Effective
Date, and Awards may be granted hereunder as of or after the Effective Date and
as long as the Plan remains in effect. Notwithstanding the foregoing or
anything to the contrary in this Plan, the
10
<PAGE> 11
implementation of this Plan and any Awards granted pursuant hereto are subject
to the approval of the Corporation's stockholders.
9.08 TERM OF PLAN. This Plan shall remain in effect until the earlier of
(1) ten (10) years from the Effective Date, (2) termination by the Board, or
(3) the distribution to Recipients and Beneficiaries of all assets of the
Trust.
9.09 TAX STATUS OF TRUST. It is intended that the trust established
hereby be treated as a Grantor Trust of the Corporation under the provisions of
Section 671 et seq. of the Code, as the same may be amended from time to time.
11
<PAGE> 12
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officers and the corporate seal to be affixed
and duly attested, and the initial Trustee of the Trust established pursuant
hereto have duly and validly executed this Agreement, all on this ____ day of
January 1998.
COMMONWEALTH BANCORP, INC.
By:
--------------------------------
Charles H. Meacham
Chairman, President and
Chief Executive Officer
ATTEST: TRUSTEES:
------------------------- -------------------------------
Patricia J. Ward Joseph E. Colen, Jr.
President and Secretary
------------------------------
George C. Beyer, Jr.
------------------------------
Harry Mirabile
12
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