NATIONAL COOPERATIVE BANK
EXECUTIVE LONG-TERM INCENTIVE PLAN
I. Purpose
The purpose of this National Cooperative Bank (the "Bank") Executive Long-
Term Incentive Plan (the "Plan") is to provide incentive compensation to
certain key executives of the Bank. Such deferred compensation shall be
based on the award of Performance Units, the value of which is related
to the profitability of the Bank and the achievement of long-term Bank
performance objectives. The objective of the Plan is to foster the
achievement of the full range of long-term strategic initiatives approved
by the Board of Directors, enhance financial performance by the Bank and
share enhanced financial results with accountable executive management.
The Plan is also intended to foster the retention and as necessary, the
recruiting of effective executive talent.
II. Administration
The Board of Directors will approve the Plan and any amendments, designate
the employees who shall participate in the Plan ("Participants") and
determine the Incentive Pool funding formula and the Performance Goals.
Subject to the provisions of the Plan, the Executive Committee of the
Board (the "Committee") will administer the Plan. The Committee shall
have the exclusive power to (i) advise the Board of Directors with respect
to the CEO's recommendations on designation of Participants; (ii) review
grants of Performance Units and advise the Board of Directors as
appropriate; (iii) approve the amount of the Incentive Pool accumulated
each year (in accordance with the funding formula); (iv) determine if
Performance goals are achieved; (v) set the total number of Performance
Units which may be granted and designate the number of authorized
Performance Units to be granted to the Chief Executive Officer of the Bank
("CEO"); and (vi) audit the amount and distribution of Awards.
The CEO shall assist and provide recommendations to the Committee except
in the case of grants and Awards made to the CEO.
The Committee shall have authority to interpret the Plan, to adopt and
revise rules and regulations relating to the Plan, to determine any other
conditions subject to which any Awards may be made or payable, and to make
any other determinations which it believes necessary or advisable for the
administration of the Plan. Determinations by the Committee shall be made
by majority vote and shall be final and binding on all parties with
respect to all matters relating to the Plan. All actions and
determinations by the Committee will be reported to the Board.
The Committee may, at its discretion, designate a Plan Administrator.
If so designated, the Plan Administrator shall be responsible for the
maintenance of records, preparation of calculations, reports and
notifications and such other duties as the Committee may establish.
III. Grants
Performance Units shall be granted to such key employees of the Bank as
the Board shall determine, who shall hereafter be referred to as
"Participants". Senior executive officers, which means those executives
responsible for the general management of the Bank and accountable for its
long-term success, shall be eligible to be designated a Participant to the
Committee for endorsement and the Board for approval. The CEO may also
recommend other senior officers as eligible to be designated as
Participant Designation as a Participant shall be for a specific
Performance Period (newly appointed to the eligible group). Any
Participant designated for a portion of the Performance Period may receive
a pro-rated grant of Performance Units.
Participants must be employed by the Bank at the end of the Performance
Period to receive any Award, except as hereafter specifically provided.
The Committee shall set the total number for performance Units which may
be granted and designate the number of authorized Performance Units to be
granted to the CEO. Subject to the endorsement of the Committee, the CEO
shall allocate the balance of the authorized Performance Units among the
other Participants and shall determine, in consultation with the
Committee, the criteria and timing for the allocation of authorized
Performance Units. If any Performance Units awarded under the Plan shall
be forfeited or canceled, such Performance Units may again be awarded
under the Plan by the CEO. The Committee, after consultation with the
CEO, may terminate the designation of a person as a Participant if the
position of such person within the Bank changes to an ineligible position.
IV. Performance Units
Performance Units granted to a Participant shall be credited to a
Performance Unit Account (the "Account") established and maintained for
such Participant. The Account of a Participant shall be the record of
Performance Units granted to the Participant under the Plan, is solely for
accounting purposes and shall not require a segregation of any Bank
assets. Each grant of Performance Units under the Plan to Participant
shall be communicated in writing to the Participant within thirty (30)
days after the date of grant. Performance Units granted to a Participant
are bookkeeping entries only and shall have no value until value is
determined by the Committee after the end of the Performance Period.
In the event of the death, disability, retirement or termination of
employment without cause, the number of Performance Units in the
Participant's Account may be pro-rated for the portion of the Performance
Period during which the Participant participated in the Plan and the
balance of the Performance Units shall be canceled.
V. Incentive Pool Funding
A pool of funds (the "Incentive Pool") from which Awards earned are to be
paid shall be formed during the course of the Performance Period.
Annually, the Board shall adopt a financial plan for the Bank which
contains a "Return on Equity Goal" calculated after the payment of all
incentive Awards and before taxes and contribution to NCB Development
Corporation. To the extent this Return on Equity Goal is exceeded, a
percent of the excess profit will be used to fund the Incentive Pool. The
percent of excess profit available to fund the Incentive Pool will be set
at the beginning of the Performance Period by the Committee with the
approval of the Board. The percent shall not exceed, thirty- five percent
(35/o) of the aggregate excess profit during the performance period and
the contribution to the Incentive Pool shall not exceed, in the aggregate
over the Performance Period. an amount greater than thirty-five percent
(35%) of the cumulative base salaries of the eligible Plan Participants
while participants in the Plan.
The Board at its sole discretion, may also authorize an additional amount
to be credited to the Incentive Pool. In the event that the Incentive
Pool is invested with the approval of the Committee, any after-tax
earnings from such investment will be credited to the Incentive Pool. No
participant shall have any right to the Incentive Pool until Awards under
the Plan are authorized.
VI. Performance Period
The Plan shall operate in sequential cycles over a period of three to five
years, as recommended by the CEO and approved by the Board (the
"Performance Period"). The first Performance Period will begin January 1,
1997, and expires December 31, 2000.
VII. Performance Measures
The measures of performance designated as the basis for earning
Performance Units shall reflect key Bank objectives consistent with the
Bank's Strategic Plan. The performance goals shall be recommended by the
CEO to the Committee and approved by the Board.
Each performance goal shall be objectively and numerically measurable.
Each goal shall have a target level of performance which shall equal 100%.
A threshold level of performance and a maximum level of performance,
expressed as a percent of target, may also be established. Each goal may
be weighted, with the weight of all goals totaling 100. Designation of a
performance goal by the Board shall not create any contractual right for
any Participant.
At least annually, the CEO shall report to the Board on the Bank's
progress in achievement of the long-term performance goals and their
continued strategic value and viability. Based upon such report and the
recommendations of the Committee, the Board, at its sole discretion, may
modify the performance goals to reflect such changes in Bank strategy or
circumstances as the Board deems appropriate.
VIII. Goal Achievement
At the conclusion of a Performance Period, the level of achievement of the
goals shall be calculated. If a goal was achieved at or above the
threshold percentage, the percent of achievement, up to the maximum level,
is multiplied times the goal weight to calculate the points earned. The
sum of the points earned for each goal will be calculated; however, the
total points earned from all goals may not exceed 100 points.
IX. Valuation of Performance Units
For all purposes of the Plan, the value of a Pe rformance Unit (the
"Unit Value") as of the end of the Performance Period shall be
determined by the Committee.
The Incentive Pool, if any, is divided by the number of Performance Units
granted to calculate a Gross Unit Value. The Gross Unit Value is then
multiplied by the percentage of goal achievement, up to 100, to calculate
the Unit Value of a Performance Unit.
X. Payment of Performance Units
(a) The Participant shall be entitled to receive from the Bank the
Unit Value, with respect to each Performance Unit in the Participant's
Account as determined by the Committee pursuant to Section IX.
(b) Payment to a Participant of the amount set forth in paragraph (a)
next above for Performance Units shall be made in cash in a lump sum
within 120 days following the end of the Performance Period, unless
deferred under the terms of the Bank's Deferred Compensation Plan.
Any amount remaining in the Incentive Pool after required amounts
are paid to Participants, or are deferred under the Bank's Deferred
Compensation Plan, shall be eliminated from the Incentive Pool.
(c) Notwithstanding any other provision of the Plan, all rights to any
payments hereunder to a Participant will be discontinued and
forfeited, and the Bank will have no further obligation hereunder to
such Participant, if any of the following circumstances occur:
(i) The Participant voluntarily terminates employment prior to
the end of the Performance Period;
(ii) The Participant discharged from employment with the Bank
for cause.
The Committee shall have sole discretion with respect to the application
of the provisions of this paragraph and such exercise of discretion shall
be conclusive and binding upon the Participant, and all other persons.
XI. Nontransferability
During the lifetime of the Participant, Performance Units granted under
the Plan, and any rights and privileges pertaining thereto, may not be
transferred, assigned, pledged or hypothecated in any manner, by operation
of law or otherwise, and shall not be subject to execution, attachment or
similar process. Provided, however, that if the Participant becomes
incompetent payment of any amount due under the Plan may be made to a
guardian or other person duly authorized by law to administer the
Participant's assets. In the event of a Participant's death, payment of
any amount due under the Plan shall be made to the duly appointed and
qualified executor, trustee, or other personal representative of the
Participant to be distributed in accordance with the Participant's will,
trust agreement, or applicable intestacy law; or in the event that there
shall be no such representative duly appointed and qualified within six
(6) months after the date of death of such deceased Participant, then to
such persons as, at the date of his death, would be entitled to share in
the distribution of such deceased Participant's personal estate under the
provisions of the applicable statute then in force governing the descent
of intestate property, in the proportions specified in such statute.
XII. Withholding
The Bank shall have the right to deduct from all amounts paid pursuant to
the Plan any taxes required by law to be withheld with respect to such
Awards.
XIII. Amendment to the Plan
The Board may alter or amend the Plan from time to time. Except as
required by law, no amendment to the Plan may alter, impair or reduce the
Incentive Pool or the number of Performance Units granted under the Plan
prior to the effective date of such amendment without the written consent
of any affected Participant.
XIV. Effectiveness and Terms of the Plan
The effective date of the Plan shall be January 1, 1997. The Board may
terminate the Plan effective as of the end of any Performance Period.
XV. Government and Other Regulations
The obligation of the Bank to make payment of Awards shall be subject to
all applicable laws, rules, and regulations and to such approvals by any
government agencies as may be deemed necessary or appropriate by the
Committee.
XVI. Indemnification
Each person who is or who at any time serves as a member of the Committee
shall be indemnified and held harmless by the Bank against and from (i)
any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by such person in connection with or resulting from
any claim, action, suit or proceeding to which such person may be a party
or in which such person may be involved by reason of any action or failure
to act under this Plan; and (ii) any and all amounts paid by such person
in satisfaction of judgement in any such action, suit or proceeding
relating to the Plan. Each person covered by this indemnification shall
give the Bank an opportunity, at its own expense, to handle and defend the
same before such person undertakes to handle and defend the same on such
person's own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may
be entitled under the charter or bylaws of the Bank as a matter of law, or
otherwise, or any power that the Bank may have to indemnify such person or
hold such person harmless.
XVII. Reliance on Reports
Each member of the Board and each member of the Committee shall be fully
justified in relying or acting in good faith upon any report made by the
independent public accountants of the Bank and upon any other information
furnished in connection with this Plan. In no event shall any person who
is or shall have been a member of the Board or the Committee be liable for
any determination made or other action taken or any omission to act in
reliance upon any such report or information, or for any action taken,
including the furnishing of information, or failure to act, if in good
faith.
XVIII. Governing Law
All matters relating to this Plan or to Awards granted hereunder shall be
governed by the laws of the District of Columbia, without regard to the
principles of conflict of laws thereof, except to the extent preempted by
the laws of the United States.
XIX. Relationship to Other Benefits
No payment under this Plan shall be taken into account in determining any
benefits under any pension, retirement. profit sharing, or group
insurance plan of the Bank.
XX. Expenses
The expenses of implementing and administering this Plan shall be borne
by the Bank.
XXI. Miscellaneous Provisions
(a) No employee or other person shall have any claim or right to be
granted an Award under the Plan. Neither the Plan nor any action
taken hereunder shall be construed as giving any employee any right
to be retained in the employ of the Bank.
(b) The Plan shall at all times be entirely unfunded and no provision
shall at any time be made with respect to segregating assets of the
Bank for payment of any benefits hereunder. No Participant or other
person shall have any interest in any particular assets of the Bank
by reason of the right to receive a benefit under the Plan and any
such Participant or other person shall have only the rights of a
general unsecured creditor of the Bank with respect to any rights
under the Plan. Investment of any funds of the Bank for the benefit
of the Investment Pool is for bookkeeping purposes only and neither
such investment nor the earnings therein shall constitute a
segregation of assets from general assets of the Bank.
(C) Except when otherwise required by the context any masculine
terminology in this document include the feminine, and any singular
terminology shall include the plural.