PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c)
or Rule 14a-12
PATRIOT BANK CORP.
(Name of Registrant as Specified in its Charter)
________________________________________________________________
(Name of Person(s) Filing Proxy Statement
if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required
[ ] Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction
applies:
________________________________________________________________
2) Aggregate number of securities to which transaction
applies:
________________________________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
________________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________________
5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided
by Exchange Act Rule 0-11(a)(2) and identify the filing
for which the offsetting fee was paid previously.
Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its
filing.
1) Amount Previously Paid:
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4) Date Filed:
________________________________________________________________
PATRIOT BANK CORP.
High & Hanover Streets
Pottstown, Pennsylvania 19464
(610) 323-1500
March 20, 2002
Fellow Shareholders:
You are cordially invited to attend the annual meeting of
Shareholders (the "Annual Meeting") of Patriot Bank Corp. (the
"Company") that will be held on April 23, 2002, at 3:30 p.m.,
Eastern Standard Time, at Brookside, Prospect and Adams Streets,
Pottstown, Pennsylvania.
The matters to be acted upon at the meeting are:
(a) the election of directors;
(b) the approval of the Company's 2002 Stock
Option Plan;
(c) the ratification of the appointment of KPMG LLP as
independent auditors of the Company for the fiscal year
ending December 31, 2002; and
(d) to transact any other business properly coming before
the meeting and any adjournments, including
whether or not to adjourn the meeting.
Directors and officers of the Company, as well as a
representative of KPMG LLP, the Company's independent auditors
for 2001, will be present at the Annual Meeting to respond to
any questions that you may have regarding the business to be
transacted.
For the reasons set forth in the proxy statement, the Board
unanimously recommends that you vote "FOR" each of the nominees
as directors specified under Matter No. 1, "FOR" the approval of
the Company's 2002 Stock Option Plan and "FOR" ratification of
the appointment of KPMG LLP.
Please sign and return the enclosed proxy card promptly. Your
cooperation is appreciated because a majority of the common
stock must be represented, either in person or by proxy, to
constitute a quorum for the conduct of business.
On behalf of the Board of Directors and all of the employees of
the Company, we thank you for your continued interest and
support. We look forward to seeing you at the Annual Meeting.
Sincerely yours,
James B. Elliott
Chairman of the Board
Richard A. Elko
President and
Chief Executive Officer
PATRIOT BANK CORP.
High & Hanover Streets
Pottstown, Pennsylvania 19464
(610) 323-1500
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on April 23, 2002
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders
(the "Annual Meeting") of Patriot Bank Corp. (the "Company")
will be held on April 23, 2002, at 3:30 p.m., Eastern Standard
Time, at Brookside, Prospect and Adams Streets, Pottstown,
Pennsylvania.
The purpose of the Annual Meeting is to consider and vote upon
the following matters:
1. The election of two directors for terms of three years each
or until their successors are elected and qualified (Matter
No. 1);
2. The approval of the Company's 2002 Stock Option Plan
(Matter No. 2);
3. The ratification of the appointment of KPMG LLP as
independent auditors of the Company for the fiscal year ending
December 31, 2002 (Matter No. 3); and
4. Any other business properly coming before the meeting and
any adjournments, including whether or not to adjourn the
meeting.
The Board of Directors has established March 4, 2002, as the
record date for the determination of shareholders entitled to
receive notice of and to vote at the Annual Meeting and at any
adjournments thereof. Only recordholders of the common stock of
the Company as of the close of business on that record date will
be entitled to vote at the Annual Meeting or any adjournments
thereof. In the event there are not sufficient votes for a
quorum or to approve or ratify any of the foregoing proposals at
the time of the Annual Meeting, the Annual Meeting may be
adjourned in order to permit further solicitation of proxies by
the Company. A list of shareholders entitled to vote at the
Annual Meeting will be available at Patriot Bank (the "Bank"),
High & Hanover Streets, Pottstown, Pennsylvania 19464, for a
period of ten days prior to the Annual Meeting and will also be
available at the Annual Meeting itself.
By Order of the Board of Directors
Diane M. Davidheiser
Secretary
Pottstown, Pennsylvania
March 20, 2002
PATRIOT BANK CORP.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
APRIL 23, 2002
Solicitation and Voting of Proxies
This proxy statement is being furnished to shareholders of
Patriot Bank Corp. (the "Company" or "Patriot") in connection
with the solicitation by the Board of Directors ("Board of
Directors" or "Board") of proxies to be used at the annual
meeting of shareholders (the "Annual Meeting"), to be held on
April 23, 2002, at 3:30 p.m. at Brookside, Prospect and Adams
Streets, Pottstown, Pennsylvania and at any adjournments
thereof. The 2001 Annual Report to Shareholders, including
consolidated financial statements for the fiscal year ended
December 31, 2001, accompanies this proxy statement, which is
first being mailed to recordholders on or about March 20, 2002.
A majority of the outstanding shares of the Company must be
present in person or by proxy at the Annual Meeting in order to
have a quorum for the transaction of business. Shareholders are
requested to vote by completing the enclosed proxy card and
returning it signed and dated in the enclosed postage-paid
envelope. Proxies solicited by the Board of Directors of the
Company will be voted in accordance with the directions given
therein. Where no instructions are indicated, signed proxy
cards will be voted "FOR" the election of the nominees for
director named in this proxy statement, "FOR" the approval of
the Stock Option Plan and "FOR" the ratification of KPMG LLP as
independent auditors of the Company for the fiscal year ending
December 31, 2002.
Other than the matters set forth on the attached Notice of
Annual Meeting of Shareholders, the Board of Directors knows of
no additional matters that will be presented for consideration
at the Annual Meeting. Execution of a proxy, however, confers
on the designated proxy holders discretionary authority to vote
the shares in accordance with their best judgment on such other
business, if any, that may properly come before the Annual
Meeting and at any adjournments thereof, including whether or
not to adjourn the Annual Meeting.
A proxy may be revoked at any time prior to its exercise by
filing a written notice of revocation with the Secretary of the
Company, by delivering to the Company a duly executed proxy
bearing a later date, or by attending the Annual Meeting and
voting in person. However, if you are a shareholder whose
shares are not registered in your own name, you will need
appropriate documentation from your recordholder to vote
personally at the Annual Meeting.
The Company will pay the cost of solicitation of proxies on
behalf of management. Proxies also may be solicited personally
or by telephone by directors, officers and other employees of
the Company without additional compensation therefor. The
Company will also request persons, firms and corporations
holding shares in their names, or in the name of their nominees,
which are beneficially owned by others, to send proxy material
to and obtain proxies from such beneficial owners, and will
reimburse such holders for their reasonable expenses in doing
so.
Voting Securities
The securities that may be voted at the Annual Meeting consist
of shares of common stock of the Company ("Common Stock"), with
each share entitling its owner to one vote on all matters to be
voted on at the Annual Meeting. There is no cumulative voting
for the election of directors.
The close of business on March 4, 2002, has been fixed by the
Board of Directors as the record date (the "Record Date") for
the determination of shareholders of record entitled to notice
of and to vote at the Annual Meeting and at any adjournments
thereof. The total number of shares of Common Stock outstanding
on the Record Date was 6,329,323 shares.
As provided in the Company's Articles of Incorporation,
recordholders of Common Stock who beneficially own in excess of
10% of the outstanding shares of Common Stock (the "Limit") are
not entitled to any vote in respect of the shares held in excess
of the Limit. A person or entity is deemed to beneficially own
shares owned by an affiliate of, as well as, by persons acting
in concert with, such person or entity. The Company's Articles
of Incorporation authorize the Board of Directors to make all
determinations necessary to implement and apply the Limit,
including determining whether persons or entities are acting in
concert.
The presence, in person or by proxy, of the holders of at least
a majority of the total number of shares of Common Stock
entitled to vote (after subtracting any shares in excess of the
Limit pursuant to the Company's Articles of Incorporation) is
necessary to constitute a quorum at the Annual Meeting. In the
event there are not sufficient votes for a quorum or to approve
or ratify any proposal at the time of the Annual Meeting, the
Annual Meeting may be adjourned in order to permit the further
solicitation of proxies.
As to the election of directors, the proxy card being provided
by the Board of Directors enables a shareholder to vote "FOR"
the election of the nominees proposed by the Board of Directors,
or to "WITHHOLD" authority to vote for one or more of the
nominees being proposed. Under Pennsylvania law and the
Company's Bylaws, directors are elected by a plurality of votes
cast, without regard to either (i) broker non-votes, or
(ii) proxies as to which authority to vote for one or more of
the nominees being proposed is withheld.
As to the approval of the Company's 2002 Stock Option Plan, by
checking the appropriate box, you may: (i) vote "FOR" the item;
(ii) vote "AGAINST" the item; or (iii) "ABSTAIN" from voting on
such item. Under the Company's Bylaws, unless otherwise
required by law, all such matters shall be determined by a
majority of the votes cast, without regard to either (a) broker
non-votes or (b) proxies marked "ABSTAIN" as to that matter.
As to the approval of KPMG LLP as independent auditors of the
Company and all other matters that may properly come before the
Annual Meeting, by checking the appropriate box, you may:
(i) vote "FOR" the item; (ii) vote "AGAINST" the item; or
(iii) "ABSTAIN" from voting on such item. Under the Company's
Bylaws, unless otherwise required by law, all such matters shall
be determined by a majority of the votes cast, without regard to
either (a) broker non-votes or (b) proxies marked "ABSTAIN" as
to that matter.
Proxies solicited hereby will be returned to the Company's
transfer agent, Registrar and Transfer Company, and will be
tabulated by inspectors of election designated by the Board of
Directors, who will not be employed by, or a director of, the
Company or any of its affiliates. After the final adjournment
of the Annual Meeting, the proxies will be returned to the
Company for safekeeping.
Security Ownership of Certain Beneficial Owners
The following table sets forth information as to those persons
believed by management to be beneficial owners of more than 5%
of the Common Stock on the Record Date or as disclosed in
reports regarding ownership filed by persons with the Company
and with the Securities and Exchange Commission ("SEC"), in
accordance with Sections 13(d) and 13(g) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"). Other than
those persons listed below, the Company is not aware of any
person, as such term is defined in the Exchange Act, that owns
more than 5% of the Common Stock as of the Record Date.
<table>
<caption>
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
<s> <c> <c> <c>
Common Stock Patriot Bank 534,735(1) 8.4%
Employee Stock Ownership
Plan ("ESOP")
High & Hanover Streets
Pottstown, PA 19464
Common Stock James L. Leuthe 450,079(2) 7.1%
3730 Golf Course Road
Allentown, PA 18104
Common Stock Jeffrey L. Gendell 337,000 5.3%
237 Park Avenue, 9th Floor
New York, NY 10017
</table>
(1) Shares of Common Stock were acquired by the ESOP in the
1995 conversion of Patriot Savings Bank (a predecessor of
the Bank) from mutual to stock form. The Personnel
Compensation/Benefits Committee of the Board of Directors
administers the ESOP. Investors Trust Company is the
corporate trustee for the ESOP ("ESOP Trustee"). The ESOP
Trustee, subject to its fiduciary duty, must vote all
allocated shares held in the ESOP in accordance with the
instructions of the participants. At December 3, 2001,
187,047 shares had been allocated under the ESOP and
347,688 shares remain unallocated. With respect to
unallocated shares, such unallocated shares will be voted
by the ESOP Trustee in a manner calculated to most
accurately reflect the instructions received from
participants regarding the allocated stock so long as such
vote is in accordance with the provisions of the Employee
Retirement Income Security Act of 1974, as amended
("ERISA").
(2) James L. Leuthe has executed an irrevocable proxy granting
the Board of Directors the right to vote all shares of
Common Stock beneficially owned by him. The Company has
agreed with the Federal Deposit Insurance Corporation that
it will vote such shares "FOR" and "AGAINST" each matter in
the same percentage as all other outstanding shares of
Common Stock are voted.
PROPOSALS TO BE VOTED ON AT THE MEETING
MATTER NO. 1
ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of six
directors and is divided into three classes. Each of the six
members of the Board of Directors of the Company also presently
serves as a director of the Bank.
Directors are elected for staggered terms of three years each,
with the term of office of only one of the three classes of
directors expiring each year. Directors serve until their
successors are elected and qualified.
The two nominees proposed for election at this Annual Meeting
are Richard A. Elko and James A. Bentley, Jr. No person being
nominated as a director is being proposed for election pursuant
to any agreement or understanding between that person and the
Company.
In the event that any nominee is unable to serve or declines to
serve for any reason, the proxies will be voted for the election
of such other person as may be designated by the present Board
of Directors. The Board of Directors has no reason to believe
that any of the persons named will be unable or unwilling to
serve. Unless authority to vote for the nominee is withheld, it
is intended that the shares represented by the enclosed proxy
card, if executed and returned, will be voted "FOR" the election
of the nominees proposed by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE
ELECTION OF THE NOMINEES NAMED IN THIS PROXY STATEMENT.
Information with Respect to the Nominees, Continuing Directors
and Executive Officers
The following table sets forth, as of the Record Date, the names
of the Nominees, Continuing Directors and Named Executive
Officers (as defined below) as well as their ages, a brief
description of their recent business experience, including
present occupations and employment, certain directorships held
by each, the year in which each director became a director of
the Company and the year in which their terms (or in the case of
the nominees, their proposed terms) as director of the Company
expire. The table also sets forth the amount of Common Stock
and the percent thereof beneficially owned by each Director and
Named Executive Officer and all directors and executive officers
as a group as of the Record Date.
<table>
<caption>
Shares of
Expiration Common Stock
Name and Principal Occupation Director of Term as Beneficially Percent
at Present and for Past Five Years Age Since(1) Director Owned(2)(3)(4) of Class
<s> <c> <c> <c> <c> <c>
NOMINEES
James A. Bentley, Jr. 43 1998 2005 38,677 *
Director of the Company and the Bank. President, CEO,
and owner of Bentley Graphic Communications since 1989.
Richard A. Elko 40 1999 2005 170,322 2.7%
Director of the Company and the Bank. President and
Chief Executive Officer of the Company and the Bank
since November 3, 2000. Prior thereto he was Executive
Vice President since December 1999 and Chief Financial
Officer of the Company and the Bank
from January 1996 to December 1999.
CONTINUING DIRECTORS
Larry V. Thren 59 1992 2004 92,485 1.5%
Director of the Company and the Bank. Vice President
of Human Resources and Support Services, Pottstown
Memorial Medical Center since 1988.
James B. Elliott 61 1990 2004 69,285 1.1%
Chairman of the Board of the Company and the Bank
since July 1998. President of Strategic Business
Concepts, Inc. Prior thereto he was the Director of
Communications and Marketing for St. Joseph Medical
Center from 1994 to 1997.
INFORMATION WITH RESPECT TO THE NOMINEES, CONTINUING
DIRECTORS AND EXECUTIVE OFFICERS
Russell J. Kunkel 59 2000 2003 7,000 *
Director of the Company and the Bank. Vice Chairman
of National Penn Bank from April 1996 to September
1997. Vice Chairman of Meridian Bancorp, Inc. and
Meridian Bank from 1985 to 1995.
Thomas D. Paulus 36 2000 2003 6,000 *
Director of the Company and the Bank. President and
Chief Investment Officer of Bonds & Paulus Associates,
Inc., an investment management company, since 1993.
<caption>
Shares of
Expiration Common Stock
Name and Principal Occupation Director of Term as Beneficially Percent
at Present and for Past Five Years Age Since(1) Director Owned(2)(3)(4) of Class
<s> <c> <c> <c> <c> <c>
NAMED EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Kevin R. Pyle 35 -- -- 51,261 *
Executive Vice President and Chief Credit Officer of
the Company and the Bank since February 2001. Prior
thereto, Chief Credit Officer of the Bank since March
1996.
Joni S. Naugle 43 -- -- 19,928 *
Executive Vice President and Chief Operating Officer
of the Company and the Bank since February 2001.
Prior thereto, the Chief Operating Officer of the
Company and the Bank since December 1998, a Senior
Vice President for Marketing and Retail Sales at
Sovereign Bank from 1979 to April 1998 and a
consultant from April 1998 to December 1998.
James G. Blume 36 -- -- 11,952 *
Senior Vice President and Chief Financial Officer of
the Company and the Bank since February 2001. Prior
thereto Chief Financial Officer of the Company and
the Bank since December 1999, Corporate Controller of
the Company and the Bank from March 1997 to December
1999.
Stock ownership of all
Directors and Executive Officers
as a Group (10 persons) -- -- -- 474,392 7.5%
_________________
</table>
* Represents less than one percent of the outstanding Common
Stock.
(1) Includes years of service as a director of the Company's
predecessor, the Bank.
(2) Each person effectively exercises sole (or shares with his
spouse or other immediate family member) voting or
dispositive power as to shares reported herein (except as
noted).
(3) Includes 7,538, 1,760 and 5,000 shares awarded to
Messrs. Bentley and Pyle and Ms. Naugle, respectively,
under the Patriot Bank Corp. 1996 Stock-Based Incentive
Plan (the "Incentive Plan"). Stock awards granted under
the Incentive Plan vest in five equal annual installments.
However, recipients have the right to direct the voting of
all awarded shares.
(4) Includes 28,921, 33,921, 9,769 and 2,000 shares subject to
options granted to directors Elliott, Thren, Bentley and
Paulus respectively, that are exercisable within 60 days.
Includes 101,765, 7,700, 7,000 and 3,000 shares subject to
options granted to officers Elko, Pyle, Naugle and Blume,
respectively, that are exercisable within 60 days.
Section 16(a) Beneficial Ownership Reporting Compliance
Form 4 reports of changes in beneficial ownership of Common
Stock for the month of March 2001 for James G. Blume, Diane M.
Davidheiser, Richard A. Elko, Joni S. Naugle and Kevin R. Pyle
were filed one day late.
Meetings of the Board Of Directors and Committees of the Board
of Directors
The Company conducts its business through meetings of the Board
of Directors and through activities of its committees. The
Board of Directors of the Company meets monthly and may have
additional meetings as needed. During fiscal 2001, the Board of
Directors of the Company held thirteen (13) meetings. All of
the directors of the Company attended at least 75% of the total
number of the Company's Board meetings held and committee
meetings on which such directors served during calendar year
2001. The Board of Directors of the Company maintains
committees, the nature and composition of which are described
below:
Audit Committee. The Audit Committee of the Company consists of
Messrs. Bentley, Elliott, Kunkel, Paulus and Thren. The Audit
Committee is responsible for reporting to the Board on the
general financial condition of the Company and the results of
the annual audit, and is responsible for ensuring that the
Company's activities are being conducted in accordance with
applicable laws and regulations. The Audit Committee met four
times in 2001.
Nominating Committee. The Nominating Committee for the
Company's 2002 Annual Meeting of Shareholders consists of
Messrs. Elliott, Kunkel, Paulus and Thren. The Nominating
Committee considers and recommends the nominees for director to
stand for election at the Company's annual meeting of
shareholders. The Company's Articles of Incorporation and
Bylaws provide for shareholder nominations of directors. These
provisions require such nominations to be made pursuant to
timely notice in writing to the Secretary of the Company. The
shareholder's notice of nomination must contain all information
relating to the nominee that is required to be disclosed by the
Company's Bylaws and by the Exchange Act. The Nominating
Committee met on December 20, 2001.
Compensation Committee. The Personnel Compensation/Benefits
Committee of the Company consists of Messrs. Bentley, Elliott,
and Thren. The Compensation Committee meets to establish
compensation and benefits for the executive officers and to
review the incentive compensation programs when necessary. The
Compensation Committee is also responsible for establishing
certain guidelines and limits for compensation for other
salaried officers and employees of the Company and the Bank.
The Compensation Committee met four (4) times in 2001.
Executive Committee. The Executive Committee of the Company
consists of Messrs. Bentley, Elliott, Elko and Thren. The
Executive Committee is responsible for conducting the business
of the Company in the absence of the entire Board of Directors.
The Executive Committee did not meet in 2001.
Directors' Compensation
Outside director compensation is based on accepted practices of
the banking industry, the Company's current size and scope of
operation, level of personal risk, liability associated with
directorship responsibilities and the need to pay a comparable
remuneration to retain and attract qualified individuals.
Outside directors are paid an annual retainer of $18,000, in
addition to $500 to attend Board meetings and $100 to attend
committee meetings. The chairperson service retainer is $3,000
for each committee. Mr. Elliott receives an additional $25,000
annually as Chairman of the Board.
On November 1, 2000, James B. Elliott, the Company and the Bank
entered into a Consultant Agreement. Mr. Elliott will perform
consulting services to assist the Company and the Bank with its
business and operations. The Consultant Agreement was for a
term of one year; such term is extended for consecutive periods
of six additional months unless either party gives notice of
nonrenewal within sixty (60) days of the end of the term. Mr.
Elliott will provide up to twenty ( 20) hours of consulting
services per week and will be paid at the rate of eighty-five
dollars ($85.00) per hour.
Incentive Plan. On June 7, 1996, shareholders approved the
Incentive Plan, under which all directors who are not also
employees of the Company are eligible to receive stock awards
and options to purchase Common Stock. Under the Incentive Plan,
Messrs. Elliott and Thren were granted non-statutory options to
purchase 33,921 shares of Common Stock at an exercise price of
$7.184, which was the fair market value of shares on the date of
the grant, as adjusted for subsequent stock splits and stock
dividends. On January 1, 1999, Mr. Bentley was awarded a non-
statutory option to purchase 10,000 shares of Common Stock at an
exercise price of $11.75 per share and on November 27, 2000, he
was awarded a non-statutory option to purchase 18,845 shares of
Common Stock at an exercise price of $6.1875 per share. On
December 28, 2000, Messrs. Kunkel and Paulus were granted non-
statutory options to purchase 10,000 shares of Common Stock at
an exercise price of $6.53 per share. All options become
exercisable in five equal annual installments, commencing one
year from the date of grant.
Compensation Committee Report on Executive Compensation
This report of the Compensation Committee (the "Committee") and
the stock performance graph shall not be deemed incorporated by
reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of
1933, as amended (the "Securities Act") or the Exchange Act,
except to the extent that the Company specifically incorporates
this information by reference, and shall not otherwise be deemed
filed under such Acts.
Under rules established by the Securities and Exchange
Commission ("SEC"), the Company is required to provide certain
information regarding the compensation and benefits provided to
the Company's Chief Executive Officer and other executive
officers of the Company. The disclosure requirements for the
Chief Executive Officer and other executive officers include the
use of tables and a report explaining the rationale and
considerations that led to fundamental compensation decisions
affecting those individuals. In fulfillment of this
requirement, the Committee, at the direction of the Board of
Directors, has prepared the following report for inclusion in
this proxy statement.
Compensation Policies
The Committee has established a policy for executive
compensation, taking into account both subjective performance
criteria and certain specified objective performance measures.
The purpose of the policy is to: (i) provide compensation
opportunities that are competitive with other financial services
companies; (ii) support the Company's goal setting and strategic
planning process; (iii) motivate the executive management of the
Company to achieve profit and other key goals of the
institution, including but not limited to the Company's
commitment to the communities it serves and to its employees,
customers and investors; (iv) motivate the executive management
to operate the Company in a safe and sound manner and in
compliance with all pertinent governmental and regulatory
requirements; and (v) minimize potential overhead by designating
a portion of the annual compensation of executives as variable
rather than fixed.
During the course of 2001, the Company took into account a
variety of objective and subjective criteria in evaluating the
performance of the executive management of the Company. The
Committee assessed in detail the various opportunities and
challenges facing the Company and the significant competitive
pressures within the Company's trading area.
In the course of this assessment of competitive salary ranges
among other similarly situated companies, it was noted that
competitive executive compensation packages vary in relationship
to these various subjective and objective factors. A variety of
resources were utilized that provided peer data regarding
executive compensation and financial performance of the Company,
that included but was not limited to the "SNL Executive
Compensation Review" for 2001 for both Commercial Banks and
Thrifts, an assessment that reviews executive compensation and
company performance for publicly traded banks and thrifts.
Comparisons were made with institutions located within the Mid-
Atlantic trading area. The peer groups considered in these
analyses are not necessarily comprised of the same institutions
used in the peer group for the stock performance graph.
In establishing an Executive Compensation Plan for 2001, the
Committee of the Company established certain specific objectives
for executive management, which included the creation and
execution of a strategic business plan, reaching certain
financial goals based on earnings per share, return on equity,
net income and return on assets, strengthening of senior
management, reaching certain volume goals for loans and core
deposits, achieving certain asset quality targets, achieving
certain customer satisfaction criteria and maintaining positive
relationships with external constituents.
Additionally, the Company utilized a number of subjective
elements as part of the decision making process regarding
executive compensation. The individual skills and talents of
the executive managers of the Company, including but not limited
to experience, leadership ability, planning and organizational
skills, administrative talent, vision for the future, and work
ethic were given consideration in establishing executive
compensation.
Mr. Elko was appointed President and Chief Executive Officer of
the Company and the Bank on November 3, 2000. Mr. Elko's annual
base salary is reviewed each November which corresponds with the
anniversary date of his appointment as President and Chief
Executive Officer. Mr. Elko's 2001/2002 annual salary of
$245,000 was determined by the Committee after a review of the
compensation practices of similarly sized institutions. The
Committee set Mr. Elko's 2001/2002 base compensation at 91% of
the 2000 average base compensation for Chief Executive Officers
of comparable institutions in recognition of Mr. Elko's ability
to earn higher than average incentive compensation. The
Committee awarded Mr. Elko a bonus of $128,968 in light of his
achievement of specified goals and the shareholder value
created. Mr. Elko's bonus represented 109% of the 2000 average
bonus compensation for Chief Executive Officers of comparable
institutions.
The Compensation Committee
Larry V. Thren, Chairman
James A. Bentley, Jr.
James B. Elliott
Stock Performance Graph. The following graph shows a comparison
of total shareholder return on the Common Stock, based on the
market price of the Common Stock, with the cumulative total
return of companies on The Nasdaq Stock Market (U.S.) Index and
The Nasdaq Banking Index for the period beginning on January 1,
1997, through December 31, 2001.
[Graphic]
In the printed version of the document, a line graph appears
that depicts the following plot points:
COMPARISON OF CUMULATIVE TOTAL RETURNS FOR PATRIOT BANK CORP.
COMMON STOCK, THE NASDAQ STOCK MARKET (U.S.) INDEX AND THE
NASDAQ BANKING INDEX.
[Summary]
<table>
<caption>
COMPANY/INDEX/MARKET 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
<s> <c> <c> <c> <c> <c> <c>
Patriot Bank Corp. Common Stock.............. $100.00 $192.92 $136.05 $128.44 $ 84.44 $138.57
The Nasdaq Stock Market (U.S.) Index
(Broad Market)............................. $100.00 $122.48 $172.68 $320.89 $193.01 $153.15
The Nasdaq Banking Index
(Industry Index)........................... $100.00 $167.41 $166.33 $159.89 $182.38 $197.44
</table>
Notes:
A. The lines represent annual index levels derived from
compounded daily returns that include all dividends.
B. The indexes are reweighed daily, using the market
capitalization on the previous trading day.
C. If the fiscal year-end is not a trading day, the preceding
trading day is used.
D. The index level for all the series was set to $100.00 on
December 31, 1996.
Summary Compensation Table. The following table shows, for the
years ended December 31, 2001, 2000 and 1999 the cash
compensation paid by the Company, as well as certain other
compensation paid or accrued for those years, to the President
and Chief Executive Officer, the Executive Vice President and
Chief Lending Officer, the Executive Vice President and Chief
Operating Officer and Senior Vice President and Chief Financial
Officer ("Named Executive Officers").
Summary Compensation Table
<table>
<caption>
ANNUAL COMPENSATION LONG TERM COMPENSATION
Awards Payouts
Other Restricted
Annual Stock LTIP All Other
Salary Bonus Compensation Awards Options Payouts Compensation
Name and Principal Position(1) YEAR ($)(2) ($) ($)(3) ($)(4) (#)(5) ($)(6) ($)(7)
<s> <c> <c> <c> <c> <c> c> <c> <c>
Richard A. Elko 2001 $233,269 $128,968 -- -- -- -- $ 15,893
President, Chief Executive 2000 $214,904 -- -- -- -- -- $ 12,458
Officer and Director 1999 $148,796 $ 95,849 -- -- -- -- $ 16,638
Kevin R. Pyle 2001 $155,000 $ 60,397 -- -- 5,000 -- $ 17,621
Executive Vice President and 2000 $140,192 $ 8,498 -- -- -- -- $ 12,753
Chief Lending Officer 1999 $ 95,192 $ 35,820 -- $16,611 5,500 -- $ 14,852
Joni S. Naugle 2001 $175,150 $ 39,843 -- -- 5,000 -- $ 12,985
Executive Vice President and 2000 $169,231 -- -- -- -- -- $ 10,090
Chief Operating Officer 1999 $110,577 $ 51,400 -- -- -- -- $ 721
James G. Blume 2001 $102,654 $ 38,128 -- -- 10,000 -- $ 13,857
Senior Vice President and 2000 $100,000 $ 4,386 -- -- -- -- $ 10,841
Chief Financial Officer 1999 $ 55,538 $ 35,000 -- -- -- -- $ 7,897
</table>
(1) Mr. Elko was appointed President and Chief Executive
Officer of the Company and the Bank on November 3, 2000.
Mr. Pyle was appointed Chief Lending Officer of the Company
and the Bank in March 1996. Ms. Naugle was appointed Chief
Operating Officer of the Company and the Bank in December
1998. Mr. Blume was appointed Chief Financial Officer of
the Company and the Bank in December 1999.
(2) Includes compensation deferred at the election of
Messrs. Elko, Pyle, Blume and Ms. Naugle through the
Company's 401(k) Plan.
(3) There were no (a) perquisites in excess of the lesser of
$50,000 or 10% of the individual's total salary and bonus
for the last year, (b) payments of above-market
preferential earnings on deferred compensation,
(c) payments of earnings with respect to long-term
incentive plans prior to settlement or maturation, (d) tax
payment reimbursements, or (e) preferential discounts on
stock.
(4) Pursuant to the Incentive Plan, Mr. Pyle was awarded 1,760
shares in 1999 that had a market value of $16,611 on the
date of grant and a market value of $18,744 at December 31,
2001. Stock awards granted under the Incentive Plan vest
in five equal annual installments on each anniversary of
the effective date of the stock award.
(5) Includes 10,500, 5,000 and 10,000 shares subject to options
granted to Mr. Pyle, Ms. Naugle and Mr. Blume,
respectively, under the Incentive Plan. All options
granted under the Incentive Plan become exercisable in five
equal annual installments on each anniversary of the
effective date of the grant.
(6) For 2001, 2000 and 1999, the Company had no long-term
incentive plans in existence. Accordingly, there were no
payments or awards under any long-term incentive plan.
(7) Includes 1,086, 1,050, 653 and 884 shares allocated to
Messrs. Elko, Pyle, Blume and Ms. Naugle, respectively, for
2001 pursuant to the ESOP with a market value of $11,566,
$11,183, $6,954 and $9,415, respectively. Includes $4,327,
$6,438, $6,031 and $4,442 in matching and discretionary
contributions by the Company to the Company's 401(k) plan
during 2001 for Messrs. Elko, Pyle, Blume and Ms. Naugle,
respectively. Includes 835, 815, 606 and 717 shares
allocated to Messrs. Elko, Pyle, Blume and Ms. Naugle,
respectively, for 2000, pursuant to the ESOP with a market
value of $5,636, $5,501, $4,091 and $4,840, respectively.
Includes $6,822, $7,252, $6,750 and $5,250 in matching and
discretionary contributions by the Company and the
Company's 401(k) plan during 2000 for Messrs. Elko, Pyle,
Blume and Ms. Naugle, respectively. Includes 858, 751 and
352 shares allocated to Messrs. Elko, Pyle and Blume,
respectively, for 1999 pursuant to the ESOP with a market
value of $9,224, $8,073 and $3,784, respectively. Includes
$7,414, $6,779, $4,113 and $721 in matching and
discretionary contributions by the Company to the Company's
401(k) plan during 1999 for Messrs. Elko, Pyle, Blume and
Ms. Naugle, respectively.
EMPLOYMENT AGREEMENTS
The Company and the Bank have entered into separate employment
agreements with Mr. Elko. The employment agreements are
intended to ensure that the Company and the Bank will be able to
maintain a stable and competent management base. The continued
success of the Company and the Bank depends to a significant
degree on the skills and competence of Mr. Elko.
The employment agreements provide for a three-year term for Mr.
Elko. The terms of the Company's employment agreement shall be
extended on a daily basis unless written notice of nonrenewal is
given by the Board of the Company. The employment agreements
provide that Mr. Elko's base salary will be reviewed annually.
The current base salary for Mr. Elko is $245,000. In addition
to the base salary, the employment agreements provide for, among
other things, participation in stock benefits plans and other
fringe benefits applicable to executive personnel. The
employment agreements provide for termination by the Company or
the Bank for cause, as defined in the employment agreements, at
any time. In the event the Company or the Bank chooses to
terminate Mr. Elko's employment for reasons other than for
cause, or in the event of Mr. Elko's resignation from the
Company and the Bank upon: (i) failure to re-elect Mr. Elko to
his current offices; (ii) a material change in Mr. Elko's
functions, duties or responsibilities; (iii) a relocation of Mr.
Elko's principal place of employment by more than 20 miles;
(iv) a material reduction in the benefits and perquisites
provided to Mr. Elko; (v) liquidation or dissolution of the
Company or the Bank; (vi) a breach of the agreement by the
Company or the Bank; (vii) the refusal of the Company or the
Bank to extend the agreement as described above; or (viii) the
voluntary or involuntary termination following a change in
control of the Company or the Bank, Mr. Elko or, in the event of
death, his beneficiary would be entitled to receive an amount
equal to the greater of: (a) the remaining payments due to Mr.
Elko or (b) three times Mr. Elko's average annual compensation
as defined in the employment agreements. The Company and the
Bank also would continue and pay for Mr. Elko's life, health and
disability coverage for the remaining term of the agreement.
Any payments under the employment agreements in the event of a
change in control may constitute some portion of an excess
parachute payment under Section 280G of the Internal Revenue
Code (the "Code") for executive officers, resulting in the
imposition of an excise tax on the recipient and denial of the
deduction for such excess amounts to the Company and the Bank.
Under the employment agreements the Company and the Bank has
agreed to pay to Mr. Elko such additional amount, if any, as is
necessary, after the deduction of any applicable taxes, to pay
any such excise tax imposed on Mr. Elko.
Payments to Mr. Elko under the Bank's agreement will be
guaranteed by the Company in the event that payments or benefits
are not paid by the Bank. Payments to Mr. Elko under the
Company's agreement would be made by the Company. All
reasonable costs and legal fees paid or incurred by Mr. Elko
pursuant to any dispute or question of interpretation relating
to the employment agreements shall be paid by the Company or the
Bank, respectively, if Mr. Elko is successful pursuant to a
legal judgment, arbitration or settlement. The employment
agreements also provide that the Company and the Bank shall
indemnify Mr. Elko to the fullest extent allowable under federal
and Pennsylvania law, respectively.
In February 2001, the Bank has entered into employment
agreements with Mr. Pyle, Ms. Naugle and Mr. Blume
(individually, the "Executive") each having a term of three
years (individually, an "Employment Agreement"). Each
Employment Agreement is substantially similar to prior
employment agreements that existed for the Executive, except
that in addition to the existing provisions, the new Employment
Agreement contains a one-year covenant not to compete. As
consideration for the Executive agreeing to the covenant not to
compete, Mr. Pyle, Ms. Naugle and Mr. Blume were granted options
to acquire 5,000, 5,000 and 10,000 shares of Common Stock,
respectively. The Employment Agreement provides that,
commencing on the first anniversary date and continuing on each
anniversary date thereafter, the disinterested members of the
Board of Directors of the Bank may extend the Employment
Agreement for an additional year so that the remaining term
shall be three years, unless written notice of nonrenewal is
given by the Board of Directors after conducting a performance
evaluation of the Executive. The current base salaries for
Mr. Pyle, Ms. Naugle and Mr. Blume are $175,000, $175,000 and
$125,000, respectively. In addition to the base salary, the
Employment Agreement provides for, among other things,
participation in stock benefit plans and other fringe benefits
applicable to executive personnel.
The Employment Agreements of Mr. Pyle, Ms. Naugle and Mr. Blume
provides for termination by the Bank for cause, as defined in
the Employment Agreement, at any time. In the event the Bank
chooses to terminate the Executive's full-time employment for
reasons other than for cause, or in the event of the Executive's
resignation from the Bank upon: (i) failure to reelect, appoint
or reappoint the Executive to office; (ii) material change in
the Executive's functions, duties or responsibilities which
change would cause the Executive's position to become one of
lesser responsibility, importance or scope, unless consented to
by the Executive; (iii) a relocation of the Executive's
principal place of employment by more than 20 miles; (iv) a
material reduction in the benefits and perquisites provided to
the Executive; (v) liquidation or dissolution of the Company or
the Bank; (vi) a breach of the Employment Agreement by the Bank;
(vii) the refusal of the Bank to extend the term of the
Employment Agreement; or (viii) the voluntary or involuntary
termination of the Executive's employment following a change in
control of the Company or the Bank, the Executive, or the
Executive's beneficiary in the event of the Executive's death,
would be entitled to receive an amount equal to the greater of:
(a) the remaining payments due to the Executive or (b) three
times the Executive's average annual compensation as defined in
the agreement. The Bank also would continue and pay for the
Executive's life, health and disability coverage for the three
years following the date of termination. Any amounts payable
under the Employment Agreement resulting from termination of
employment following a change in control would be reduced to the
extent necessary to avoid such payments constituting an excess
parachute payment under the Code.
Incentive Plan. On June 7, 1996, shareholders approved the
Incentive Plan under which all employees of the Company are
eligible to receive awards. The Company maintains the Incentive
Plan which provides discretionary awards to officers and key
employees as determined by a committee of nonemployee directors.
The following table provides certain information with respect to
the number of options to acquire shares of Common Stock granted
to the Named Executive Officers in the year ended December 31,
2001.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<table>
<caption>
Potential Realizable
Individual Grants Value at Assumed
Annual Rates of
Stock Price
Appreciation
for Option Term
- -------------------------------------------------------------------------------------------------
Number of % of
Securities Total Options/
Underlying SARs Granted Exercise or
Options/SARs to Employees Base Price Expiration
Name Granted (#) in Fiscal Year ($/sh) Date 5%($) 10%($)
<s> <c> <c> <c> <c> <c> <c>
(a) (b) (c) (d) (e) (f) (g)
Richard A. Elko - - - - - -
Kevin R. Pyle 5,000 25% 7.22 2/2011 22,700 57,550
Joni S. Naugle 5,000 25% 7.22 2/2011 22,700 57,550
James G. Blume 10,000 50% 7.22 2/2011 45,400 115,100
</table>
The following table provides certain information with respect to
the number of shares of Common Stock represented by outstanding
options held by the Named Executive Officers at December 31,
2001. Also reported are the values for "in-the-money" options
that represent the positive difference between the exercise
price of any such options and the closing sale price of the
Common Stock at December 31, 2001.
FISCAL YEAR END OPTION/SAR VALUES
<table>
<caption>
Number of Securities Underlying Value of Unexercised
Unexercised Options/SARS In-the-Money Option/SARS
at Fiscal Year End(#)(1) at Fiscal Year End($)(2)
Name Exercisable Unexercisable Exercisable Unexercisable
<s> <c> <c> <c> <c>
Richard A. Elko 101,765 - $352,717 -
Kevin R. Pyle 7,700 7,300 $ 21,491 $17,416
Joni S. Naugle 7,000 8,000 $ 3,430 $13,720
James G. Blume 3,000 8,250 $ 6,860 $27,440
</table>
(1) The 101,765 and 4,500 options granted to Messrs. Elko and
Pyle, respectively, on June 7, 1996, have an exercise price
of $7.184 and become exercisable at an annual rate of 20%
beginning June 7, 1997. The 5,500 options granted to Mr.
Pyle on June 7, 1999, have an exercise price of $9.53 and
become exercisable at an annual rate of 20% beginning June
7, 2000. The 10,000 options granted to Ms. Naugle on
December 1, 1998 have an exercise price of $12.00 and
become exercisable at an annual rate of 20% beginning
December 1, 1999. The 1,250 options granted to Mr. Blume
on January 9, 1998, have an exercise price of $13.70, and
become exercisable at an annual rate of 20% beginning
January 9, 1999. The 5,000, 5,000 and 10,000 options
granted to Mr. Pyle, Ms. Naugle and Mr. Blume,
respectively, on February 22, 2001 have an exercise price
of $7.22 and become exercisable at an annual rate of 20%
beginning February 22, 2002. The options will expire ten
years from the date of grant.
(2) Based on market value of the common stock at the fiscal
year end, minus the exercise price. The market price on
December 31, 2001, was $10.65.
Supplemental Retirement Plan. The Company maintains a
nonqualified Supplemental Retirement Plan for the benefit of
certain executive officers and directors. The Supplemental
Retirement Plan ("SRP") has been adopted by the Company to
provide supplemental retirement benefits to selected executives
and directors of the Company. Benefits under the SRP vest on a
seven-year schedule subject to acceleration upon a change in
control. The SRP provides a defined benefit payable in fifteen
(15) annual installments of an amount that is determined at the
discretion of the Board. The participants under the SRP are
Messrs. Bentley, Elko, Elliott and Thren. The SRP provides for
an early start to payment of the installments in the event of
disability, death prior to retirement, retirement, or a change
in control. The SRP is unfunded for purposes of its tax
treatment, however, the Company has entered into certain life
insurance contracts, the proceeds of which could be used to fund
the SRP in the future.
Transactions with Certain Related Persons
The Company's current policy provides that all loans made by the
Company to its directors and officers are made in the ordinary
course of business on substantially the same terms, including
interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons and do not
involve more than the normal risk of collectibility or present
other unfavorable features.
APPROVAL OF PATRIOT BANK CORP. 2002 STOCK OPTION PLAN
MATTER NO. 2
PROPOSAL TO APPROVE THE
2002 STOCK OPTION PLAN
Background
The Board of Directors believes that Patriot's stock
compensation plans constitute an important part of its
compensation programs and, accordingly, Patriot has adopted a
new 2002 Stock Option Plan, which is subject to shareholder
approval.
Shareholders have previously authorized grants of options and
restricted stock to employees and nonemployee directors under
the Incentive Plan. The Incentive Plan has a limited number of
shares of Common Stock available for issuance thereunder.
Previously granted options and restricted stock remain
unexercised/unvested under such plan. Therefore, subject to
shareholder approval, Patriot has adopted the 2002 Stock Option
Plan (the "2002 Plan" or "Plan").
The 2002 Plan is designed to improve the performance of Patriot
and its subsidiaries and, by doing so, to serve the interests of
Patriot's shareholders. By continuing to encourage ownership of
Patriot shares among those who play significant roles in its
success, implementation of the 2002 Plan will continue to align
the interests of Patriot's employees and nonemployee directors
with those of its shareholders by relating capital accumulation
to increases in shareholder value. Moreover, adoption of the
2002 Plan should have a positive effect on Patriot's ability to
attract, motivate and retain employees and directors of
outstanding leadership and management ability.
The principal features of the 2002 Plan are described below.
See Exhibit "A" to this Proxy Statement for the full text of the
2002 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE
APPROVAL OF THE PATRIOT BANK CORP. 2002 STOCK OPTION PLAN
General Information
The Board adopted the Plan on January 31, 2002 (the "Effective
Date"). The Plan authorizes Patriot to award (i) incentive
stock options (options qualified under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code")), herein
referred to as "ISOs," and (ii) nonqualified stock options
(options not qualified under Code Section 422), herein referred
to as "NQSOs," to purchase shares of Common Stock. Nonemployee
directors, however, are only entitled to receive grants of
NQSOs. The Plan is designed to further the success of Patriot
by making shares of the Common Stock available to its
nonemployee directors and eligible employees of Patriot, or
certain subsidiary companies in which it has a 50% or greater
ownership interest, thereby providing an additional incentive to
such persons to continue their relationship with Patriot, or
such subsidiary, and to give such persons a greater interest in
Patriot's success.
An aggregate of 300,000 authorized shares of Common Stock
(approximately 4.7% of Patriot's presently outstanding shares of
Common Stock) have been reserved for issuance under the Plan
pursuant to the grant of Options. The maximum number of shares
of Common Stock that may be made subject to Options granted to
an employee during any 12-month period is 75,000. The maximum
number of shares of Common Stock that may be made subject to
Options granted to a nonemployee director during any 12-month
period is 20,000. The foregoing numbers are subject to
adjustment in the case of certain events affecting the Common
Stock. (See "Amendment, Suspension, or Termination of the Plan;
Share and Option Adjustment.") Shares of Common Stock
attributable to Options, which are forfeited or otherwise
terminate, may be made the subject of future grants.
The Plan is not subject to the Employee Retirement Income
Security Act of 1974 and is not qualified under Code Section
401(a), which relates to qualification of certain pension,
profit-sharing and stock bonus plans.
Administration of Plan
Except for Options granted to nonemployee directors, the Plan
will be administered by a committee appointed by the Board (the
"Committee") consisting of at least two "nonemployee directors"
(as defined under the Exchange Act) and "outside directors" (as
defined under the Code). The Board may from time to time remove
members from the Committee and appoint their successors. The
Board will administer the Plan with respect to nonemployee
director Options.
Subject to the terms and conditions of the Plan document and
subject to Board approval (where required thereby), the
Committee has discretionary authority (a) to determine the
employees to receive grants of NQSOs and ISOs (individually and
collectively, "Option(s)" or "Stock Option(s)"); the times when
Options shall be granted; the number of shares to be subject to
each Option; the Option exercise price; the Option period; the
time or times when each Option shall be exercisable and whether
an Option is to be a NQSO or an ISO; (b) to interpret the Plan;
(c) to prescribe, amend and rescind rules and regulations
relating to the Plan; (d) to determine the terms and provisions
(and amendments of the terms and provisions) of the agreements
to be entered into between Patriot and each employee granted an
Option (the "Participant") under the Plan (which agreements need
not be identical), including such terms and provisions as shall
be required in the Committee's judgment to conform to any change
in any applicable law or regulation and such other terms and
conditions as the Committee may desire to establish as
performance goals applicable to a particular Option; and (e) to
make all other determinations the Committee shall deem necessary
or advisable for the Plan's administration.
Each Option must be evidenced by a written agreement. The
source of the shares issued pursuant to the Plan will be the
authorized but unissued shares of the Common Stock or issued
shares of Common Stock that previously have been reacquired by
Patriot.
Eligibility
Any common law employee of Patriot, or a subsidiary in which
Patriot has a 50% or greater ownership interest, is eligible to
receive Options under the Plan. In designating Participants and
in recommending to the Board the number of shares of Common
Stock to be covered by each Option granted to a Participant, the
Committee shall take into account the nature of the services
rendered by a Participant, his or her present and potential
contributions to Patriot's or a subsidiary's success, and such
other factors as the Committee in its discretion deems relevant.
Patriot may grant additional Options to Participants who have
previously been granted Options under the Plan.
Nonemployee directors of Patriot are also eligible to receive
grants of NQSOs. Such grants will be made by the Board, taking
into account such criteria as it deems relevant and appropriate
at the time of grant.
As of March 4, 2002, Patriot (and its subsidiaries) had
approximately two hundred and twenty (220) employees and Patriot
nonemployee directors eligible to participate in the Plan.
Nonqualified Stock Options
The NQSOs that the Committee grants to Participants to purchase
Common Stock will be evidenced by an Option agreement that
contains such terms and conditions as the Committee shall
specify and which are not inconsistent with the terms of the
Plan document. The Committee will determine the exercise price
of each Option to purchase Common Stock, which exercise price
may not be less than 100% of the fair market value of the Common
Stock at the grant date, as determined by the Committee in
accordance with rules specified in the Plan document. Except as
otherwise provided in the Plan document, once vested, a NQSO may
be exercised in whole or in part from time to time during the
term of the Option, which term may not extend more than ten
years and one month from the date the Option is granted. The
Committee will impose vesting and may impose other restrictions
(such as the attainment of performance goals) on the
exercisability of the Options. In general, a NQSO will vest
upon the earlier of (i) continuous employment of not less than
one year following the grant date, or (ii) the occurrence of a
change in control (as defined in the Plan). Unless otherwise
provided in an Option agreement, a change in control will be
deemed to have occurred, among other events, upon shareholder
approval of the acquisition of Patriot (or all or substantially
all of its assets).
Unless otherwise provided in an Option agreement, the exercise
price per share of an Option must be paid in full in cash upon
the exercise of the Option. If the agreement permits, the
exercise price may be paid in whole or in part by surrendering
certain previously owned shares of Common Stock. If shares are
used to pay all or part of the exercise price, the cash and any
shares surrendered must have a fair market value (determined as
of the date of exercise) that is not less than the aggregate
exercise price for the number of shares for which the Option is
being exercised. Shares surrendered in payment of all or a
portion of the exercise price of an Option must have been held
for certain minimum periods of time specified in the Plan
document. The Committee may also approve a "cashless exercise"
of a NQSO, whereby the Option is exercised and the acquired
Common Stock (or a portion thereof) is sold through a third
party to minimize or eliminate the need of the Participant to
utilize cash to effect the exercise of such Option.
A Participant will not have any rights of a shareholder with
respect to the shares of Common Stock subject to a NQSO until
the shares are paid for and issued to him or her. The Committee
may permit a Participant to defer receipt of shares attributable
to the exercise of a NQSO. In the event of such a deferral, the
Participant will not be treated as a shareholder with respect to
such shares until they are issued, although the Committee may
authorize the subsequent delivery of additional shares of Common
Stock to take into account dividends paid during the deferral
period.
Except as determined by the Committee and set forth in an Option
agreement, NQSOs granted to a Participant are not assignable or
transferable other than by will or the laws of descent and
distribution, and during the Participant's lifetime are
exercisable only by the Participant or his or her duly appointed
legal representative.
A vested NQSO may be exercised by a Participant only during its
term and only during his or her employment, except as provided
below. In general, in the event of a Participant's termination
of employment:
- by reason of retirement on or after age 65, a vested
NQSO may be exercised until the earlier of its
expiration or a date which is up to 24 months (as
specified in the Option agreement) following
termination;
- by reason of death or disability (as defined in the
Plan), a vested NQSO may be exercised until the earlier
of its expiration or the date which is 12 months
following termination;
- by Patriot for cause (as defined in the Plan), a vested
NQSO will be forfeited on the date of termination;
- by Patriot without cause, a vested NQSO may be exercised
until the earlier of its expiration or the date which is
three months following termination; and
- by reason of voluntary termination (other than
retirement on or after age 65), a vested NQSO will be
forfeited on the date of termination.
Plan contains provisions whereby, in the case of corporate
downsizing, retirement or other circumstances where it is
considered equitable to do so, the Committee (with Board
approval) may waive the applicable service requirement for the
vesting of a NQSO and extend the period during which it may be
exercised to a date that is the earlier of the expiration date
of the Option or a date which is up to 24 months from the date
of termination of employment.
In general, the foregoing discussion with respect to NQSOs is
equally applicable to NQSOs granted to nonemployee directors of
Patriot, except that (i) references to termination of employment
shall be interpreted as references to the termination of the
director's service as a member of the Board, and (ii) in the
case of the voluntary termination of a nonemployee director's
service, he or she may exercise a vested Option until the
earlier of the expiration of the Option or three months
following such termination.
Incentive Stock Options
The ISOs that the Committee grants to Participants to purchase
shares of Common Stock will also be evidenced by an Option
agreement. The Committee will determine the exercise price of
each Option to purchase shares of Common Stock, which exercise
price shall not be less than 100% of the fair market value of
the Common Stock at the grant date (110% in the case of certain
ten percent or greater shareholders), as determined by the
Committee in accordance with rules specified in the Plan
document. Except as otherwise provided in the Plan document,
once vested, an ISO may be exercised in whole or in part from
time to time during the term of the Option, which term may not
extend more than ten years from the date the Option is granted
(five years in the case of certain ten percent or greater
shareholders). The Committee will impose vesting and may impose
other restrictions (such as the attainment of performance
goals) on the exercisability of the Options. In general, an ISO
will vest upon the earlier of (i) continuous employment of not
less than one year following the grant date, or (ii) the
occurrence of a change in control (as defined in the Plan).
Unless otherwise provided in an Option agreement, a change in
control will be deemed to have occurred, among other events,
upon shareholder approval of the acquisition of Patriot (or all
or substantially all of its assets).
Unless otherwise provided in an Option agreement, the exercise
price per share of an Option must be paid in full in cash upon
the exercise of the Option. If the agreement permits, the
exercise price may be paid in whole or in part by surrendering
certain previously owned shares of Common Stock. If shares are
used to pay all or part of the exercise price, the cash and any
shares surrendered must have a fair market value (determined as
of the date of exercise) that is not less than the aggregate
exercise price for the number of shares for which the Option is
being exercised. Shares surrendered in payment of all or a
portion of the exercise price of an Option must have been held
for certain minimum periods of time specified in the Plan
document. The Committee may also approve a "cashless exercise"
of an ISO, whereby the Option is exercised and the acquired
Common Stock (or a portion thereof) is sold through a third
party to minimize or eliminate the need of the Participant to
utilize cash to effect the exercise of the Option. (Such a
transaction, however, will result in a "disqualifying
disposition" of the sold shares and may result in adverse tax
consequences to a Participant, as discussed below.)
The aggregate fair market value (determined at the time an ISO
is granted) of the shares of Common Stock with respect to which
ISOs are exercisable for the first time by an individual during
any calendar year is $100,000.
A Participant will not have any rights of a shareholder with
respect to the shares of Common Stock subject to an ISO until
the shares are paid for and issued to the Participant.
ISOs granted to a Participant are not assignable or transferable
other than by will or the laws of descent and distribution, and
during the Participant's lifetime are exercisable only by the
Participant or his or her duly appointed legal representative.
A vested ISO may be exercised by a Participant only during its
term and only during his or her employment, except as provided
below. In general, in the event of a Participant's termination
of employment:
- by reason of retirement on or after age 65, a vested ISO
may be exercised until the earlier of its expiration or
the date which is three months following termination;
- by reason of death or disability (as defined in the
Plan), a vested ISO may be exercised until the earlier
of its expiration or the date which is 12 months
following termination;
- by Patriot for cause (as defined in the Plan), a vested
ISO will be forfeited on the date of termination;
- by Patriot without cause, a vested ISO may be exercised
until the earlier of its expiration or the date which is
three months following termination; and
- by reason of voluntary termination (other than
retirement on or after age 65), a vested ISO will be
forfeited on the date of termination.
The Plan contains provisions whereby, in the case of corporate
downsizing, retirement or other circumstances where it is
considered equitable to do so, the Committee (with Board
approval) may waive the applicable service requirement for the
vesting of an ISO and extend the period during which it may be
exercised to a date that is the earlier of the expiration date
of the Option or the date which is three months from the date of
termination of employment. (Any such change could result in a
disqualification of an ISO.)
Certain United States Federal Income Tax Consequences
The following is a brief summary of the principal United States
Federal income tax consequences of transactions under the Plan,
based on current law. This summary is not intended to be
exhaustive with respect to all potential Federal income tax
consequences that may affect a particular person, including one
who is subject to the restrictions of Section 16(b) of the
Exchange Act and one who may be permitted to elect the deferred
delivery of shares of Common Stock. In addition, this summary
does not constitute tax advice, and, among other things, does
not discuss state, local or foreign income tax consequences, nor
does it address estate or gift tax consequences, relating to the
Plan's operation. Participants are urged to consult with their
tax advisors with regard to their participation in the Plan.
Nonqualified Stock Options
No taxable income is realized by a Participant upon the grant of
a NQSO. Upon the exercise of a NQSO, the Participant will
recognize ordinary compensation income in an amount equal to the
excess, if any, of the fair market value of the shares of Common
Stock exercised over the aggregate Option exercise price (the
"Spread"). Special rules may apply to the timing and amount of
income recognition for persons who are subject to the
restrictions of Section 16(b) of the Exchange Act. The Spread
is generally deductible by Patriot for Federal income tax
purposes, subject to the possible limitations on deductibility
of compensation paid to certain executives pursuant to Code
Section 162(m). (See "Certain Limitations on Deductibility of
Executive Compensation".) The Participant's tax basis in shares
of Common Stock acquired by exercise of a NQSO will be equal to
the exercise price plus the amount taxable as ordinary income.
Upon a sale of the shares of Common Stock received by a
Participant through exercise of a NQSO, any gain or loss
generally will be treated for Federal income tax purposes as
long-term or short-term capital gain or loss, depending upon the
holding period of such stock. In general, the Participant's
holding period for shares acquired pursuant to the exercise of a
NQSO begins on the date of exercise of such Option.
If a Participant pays the exercise price in full or in part with
shares of previously owned Common Stock, such exercise will not
affect the tax treatment described above. With respect to such
exercise, no gain or loss generally will be recognized to the
Participant upon the surrender of the previously owned shares to
Patriot. The shares received upon exercise which are equal in
number to the previously owned shares tendered will have the
same tax basis as the previously owned shares surrendered to
Patriot, and they will have a holding period for determining
capital gain or loss that includes the holding period of the
shares surrendered. The fair market value of the remaining
shares received by the Participant will be taxable to the
Participant as compensation. Such remaining shares will have a
tax basis equal to the fair market value recognized by the
Participant as compensation income and the holding period will
commence on the exercise date.
Incentive Stock Options
No taxable income is realized by a Participant upon the grant or
exercise of an ISO. If shares of Common Stock are issued to a
Participant pursuant to the exercise of an ISO and if no
disqualifying disposition of such shares is made by the
Participant within two years after the date of grant or within
one year after the receipt of such shares by the Participant,
then (a) upon the sale of such shares, any amount realized in
excess of the Option exercise price will normally be taxed to
the Participant as a long-term capital gain and (b) no deduction
will be allowed to Patriot. Additionally, the Spread
attributable to the exercise of an ISO will give rise to an item
of tax preference, in the year of exercise, that may result in
alternative minimum tax liability for the Participant.
If shares of Common Stock acquired upon the exercise of an ISO
are disposed of prior to the expiration of either holding period
described above, such disposition would be a "disqualifying
disposition," and generally (a) the Participant will realize
ordinary income in the year of disposition in an amount equal to
the excess, if any, of the fair market value of the shares on
the date of exercise (or, if less, the amount realized on the
disposition of the shares) over the Option exercise price, and
(b) Patriot will be entitled to deduct such amount. Any other
gain realized by the Participant on such disposition will be
taxed as short-term or long-term capital gain, and will not
result in any deduction to Patriot.
If a Participant pays the exercise price in full or in part with
previously owned shares of Common Stock, the exchange will not
affect the tax treatment of the exercise. Upon such exchange,
no gain or loss generally will be recognized upon the delivery
of the previously owned shares to Patriot, and the shares issued
in replacement of the shares tendered to pay the exercise price
will have the same basis and holding period for capital gain
purposes as the previously owned shares. A Participant,
however, would not be able to utilize the holding period for the
previously owned shares for purposes of satisfying the ISO
statutory holding period requirements. Additional shares of
Common Stock will have a basis of zero and a holding period that
commences on the date the Common Stock is issued to the
Participant upon exercise of the ISO.
Tax Withholding
As a condition of the exercise of an Option, Patriot will
require that appropriate provision be made for any required tax
withholdings. In general, (i) NQSOs will be subject to federal
income and employment tax withholding upon exercise, and
(ii) ISOs may be subject to federal employment tax withholding
upon exercise after 2002, unless recent Internal Revenue Service
pronouncements are withdrawn or otherwise overruled through
legislation. (In addition, each type of Option may also be
subject to state and local taxation at some point in time.)
Provision for withholding may be made, with Committee approval
and subject to applicable law, by electing to have shares
(otherwise issuable) withheld with a value equal to the required
withholding. Any such transaction would normally be treated for
tax purposes as the acquisition by the Participant of the
relevant shares and then their sale or exchange.
Certain Limitations on Deductibility of Executive Compensation
With certain exceptions, Code Section 162(m) limits the
deduction to Patriot for compensation paid to certain executive
employees in excess of $1 million per executive per taxable
year. However, compensation paid to such executives will not be
subject to such deduction limit if it is considered "qualified
performance-based compensation" (as defined in regulations under
Code Section 162(m)). It is anticipated that any taxable income
derived from Options granted under the Plan will be treated as
qualified performance compensation and, therefore, will not be
subject to the deduction disallowance provisions of Code Section
162(m).
Termination of Options on Liquidation, Merger or Sale of Assets
All Options outstanding under the Plan will terminate upon a
liquidation or dissolution of Patriot, a merger or consolidation
in which Patriot is not the surviving or resulting corporation,
or a sale of all or substantially all of Patriot's assets,
except to the extent that another corporation may and does, in
the transaction, assume and continue the Options, substitute its
own options and/or otherwise provide for the payment of value
therefor.
Amendment, Suspension or Termination of the Plan; Share and
Option Adjustment
The Board may terminate, amend, modify or suspend the Plan at
any time and from time to time to ensure that Options granted
under the Plan conform to any changes in the law or for any
other reason the Board determines to be in the best interest of
Patriot. Modifications or amendments to the Plan are not
required to be approved by Patriot's shareholders, except to the
extent required by certain state or federal law, or by exchange-
related rules. No termination, modification or amendment of the
Plan, without the consent of the Participant to whom an Option
has previously been granted, may adversely affect such
Participant's rights under such Option. Unless terminated
earlier by the Board, the Plan will terminate, and no additional
Options will thereafter be granted, on the day immediately
preceding the tenth anniversary of the Effective Date (i.e.,
January 30, 2012).
In the event of any change in the Common Stock by reason of any
stock dividend, stock split, reverse stock split,
recapitalization, combination or exchange of shares, merger,
consolidation or similar action, appropriate adjustment will be
made to (i) the number of shares of Common Stock authorized to
be made subject to Options under the Plan, (ii) the number of
shares into which outstanding Options may be converted upon
exercise, (iii) the exercise price of outstanding Options,
(iv) the maximum number of Options that may be granted to any
one person within a 12-month period, and (v) such other terms as
are appropriate under the circumstances. In addition, the Board
may make similar changes to outstanding Options in other
circumstances where such changes are deemed equitable under such
circumstances.
MATTER NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Company's independent auditors for the fiscal year ended
December 31, 2001, were KPMG LLP. The Company's Board of
Directors has appointed KPMG LLP as independent auditors for the
Company for the year ending December 31, 2002, subject to
ratification of such appointment by the shareholders.
Representatives of KPMG LLP will be present at the Annual
Meeting. They will be given an opportunity to make a statement
if they desire to do so and will be available to respond to
appropriate questions from shareholders present at the Annual
Meeting.
Unless marked to the contrary, the shares represented by the
enclosed proxy card will be voted "FOR" ratification of the
appointment of KPMG LLP as the independent auditors of the
Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS THE INDEPENDENT
AUDITORS OF THE COMPANY
Audit Committee Report and Related Matters
Pursuant to rules adopted by the SEC designed to improve
disclosures related to the functioning of corporate audit
committees and to enhance the reliability and credibility of
financial statements of public companies, the Audit Committee of
Company's Board of Directors submits the following report:
Audit Committee Report to Shareholders
The Audit Committee of the Board of Directors is responsible for
providing independent, objective oversight of the Company's
accounting functions and internal controls. The Audit Committee
is composed of directors Bentley, Elliott, Kunkel, Paulus and
Thren, each of whom is independent as defined by the National
Association of Securities Dealers' listing standards. The Audit
Committee operates under a written charter approved by the Board
of Directors.
Management is responsible for the Company's internal controls
and financial reporting process. The independent accountants
are responsible for performing an independent audit of the
Company's consolidated financial statements in accordance with
generally accepted auditing standards and to issue a report
thereon. The Audit Committee's responsibility is to monitor and
oversee these processes.
In connection with these responsibilities, the Audit Committee
met with management and the independent accountants to review
and discuss the December 31, 2001, financial statements. The
Audit Committee also discussed with the independent accountants
the matters required by Statement on Auditing Standards No. 61
(Communication with Audit Committees). The Audit Committee also
received written disclosures from the independent accountants
required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Audit
Committee discussed with the independent accountants that firm's
independence.
Based upon the Audit Committee's discussions with management and
the independent accountants, and the Audit Committee's review of
the representations of management and the independent
accountants, the Audit Committee recommended that the Board of
Directors include the audited consolidated financial statements
in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001, to be filed with the SEC.
Respectfully submitted,
THE AUDIT COMMITTEE
Russell J. Kunkel, Chairman
James A. Bentley, Jr.
James B. Elliott
Thomas D. Paulus
Larry V. Thren
Consideration of Non-audit Services Provided by the Independent
Accountant
The Audit Committee has considered whether the services provided
under other non-audit services are compatible with maintaining
the auditor's independence.
Audit Fees, Financial Information Systems Design and
Implementation Fees and All Other Fees
Fees for the last annual financial statement audit, excluding
audit-related fees, were $110,210, financial information systems
design and implementation fees were $0 and all other fees were
$76,527, including fees for non-audit services of $61,565 and
audit-related services of $15,962. Non-audit services consisted
of tax services. Audit-related services consisted of review of
registration statements, issuance of consents and other
attestation reports.
ADDITIONAL INFORMATION
Shareholder Proposals
To be considered for inclusion in the Company's proxy statement
and form of proxy relating to the 2003 Annual Meeting of
Shareholders, a shareholder proposal must be received by the
Secretary of the Company at the address set forth on the Notice
of Annual Meeting of Shareholders not later than November 20,
2002. Any such proposal will be subject to 17 C.F.R.
ss.240.14a-8 of the Rules and Regulations under the Exchange
Act.
Notice of Business to be Conducted at an Annual Meeting
The Bylaws of the Company provide an advance notice procedure
for a shareholder to properly bring business before an Annual
Meeting. The shareholder must give written advance notice to
the Secretary of the Company not less than ninety (90) days
before the date originally fixed for such meeting; provided,
however, that in the event that less than twenty-one (21) days
notice of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be
received not later than the close of business on the seventh day
following the date on which the Company's notice to shareholders
of the annual meeting date was mailed. Nominations for
directors by shareholders must be received by the Secretary of
the Company no later than the close of business on the 90th day
preceding the date of the annual meeting. In the case of
nominations to the Board of Directors, certain information
regarding the nominee must be provided. Nothing in this
paragraph shall be deemed to require the Company to include in
its proxy statement or the proxy relating to an annual meeting
any shareholder proposal that does not meet all of the
requirements for inclusion established by the SEC in effect at
the time such proposal is received.
Other Matters
The Board of Directors knows of no business that will be
presented for consideration at the Annual Meeting other than as
stated in the Notice of Annual Meeting of Shareholders. If,
however, other matters are properly brought before the Annual
Meeting, it is the intention of the persons named in the
accompanying proxy to vote the shares represented thereby on
such matters in accordance with their best judgment.
Whether or not you intend to be present at the Annual Meeting,
you are urged to return your proxy card promptly. If you are
then present at the Annual Meeting and wish to vote your shares
in person, your original proxy may be revoked by voting at the
Annual Meeting.
By Order of the Board of Directors
Diane M. Davidheiser
Secretary
Pottstown, Pennsylvania
March 20, 2002
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED
TO SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY CARD IN
THE ENCLOSED POSTAGE-PAID ENVELOPE.
EXHIBIT A
PATRIOT BANK CORP.
2002 STOCK OPTION PLAN
ARTICLE 1. PURPOSE OF THE PLAN; TYPES OF OPTIONS
1.1 Purpose. The Patriot Bank Corp. 2002 Stock Option
Plan is intended to provide selected Employees of Patriot Bank
Corp. and its Subsidiaries and Directors with an opportunity to
acquire Common Stock of the Corporation. The Plan is designed
to help the Corporation attract, retain and motivate selected
Employees and Directors to make substantial contributions to the
success of the Corporation's business and the businesses of its
Subsidiaries. Options will be granted under the Plan based,
among other things, on the Participant's level of responsibility
and performance within the Corporation and its affiliated
companies.
1.2 Authorized Plan Options. Incentive Stock Options and
Nonqualified Stock Options may be awarded within the limitations
of the Plan herein described.
ARTICLE 2. DEFINITIONS
2.1 "Agreement". A written instrument evidencing the
grant of an Option. A Participant may be issued one or more
Agreements from time to time, reflecting one or more Options.
2.2 "Board". The Board of Directors of the Corporation.
2.3 "Change in Control". Except as otherwise provided in
an Agreement, the first to occur of any of the following events:
(a) any "Person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), except for any of the
Corporation's employee benefit plans, or any entity holding the
Corporation's voting securities for, or pursuant to, the terms
of any such plan (or any trust forming a part thereof) (the
"Benefit Plan(s)"), is or becomes the beneficial owner, directly
or indirectly, of the Corporation's securities representing
19.9% or more of the combined voting power of the Corporation's
then outstanding securities other than pursuant to a transaction
excepted in Clause (c) or (d);
(b) there occurs a contested proxy solicitation of
the Corporation's shareholders that results in the contesting
party obtaining the ability to vote securities representing
19.9% or more of the combined voting power of the Corporation's
then outstanding securities;
(c) a binding written agreement is executed (and, if
legally required, approved by the Corporation's shareholders)
providing for a sale, exchange, transfer or other disposition of
all or substantially all of the assets of the Corporation or of
Patriot Bank, a Pennsylvania banking corporation, to another
entity, except to an entity controlled directly or indirectly
by the Corporation;
(d) the shareholders of the Corporation approve a
merger, consolidation, or other reorganization of the
Corporation, unless:
(i) under the terms of the agreement approved by
the Corporation's shareholders providing for such merger,
consolidation or reorganization, the shareholders of the
Corporation immediately before such merger, consolidation or
reorganization, will own, directly or indirectly immediately
following such merger, consolidation or reorganization, at least
51% of the combined voting power of the outstanding voting
securities of the Corporation resulting from such merger,
consolidation or reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership of the
voting securities immediately before such merger, consolidation
or reorganization;
(ii) under the terms of the agreement approved
by the Corporation's shareholders providing for such merger,
consolidation or reorganization, the individuals who were
members of the Board immediately prior to the execution of such
agreement will constitute at least 51% of the members of the
board of directors of the Surviving Corporation after such
merger, consolidation or reorganization; and
(iii) based on the terms of the agreement
approved by the Corporation's shareholders providing for such
merger, consolidation or reorganization, no Person (other than
(A) the Corporation or any Subsidiary of the Corporation, (B)
any Benefit Plan, (C) the Surviving Corporation or any
Subsidiary of the Surviving Corporation, or (D) any Person who,
immediately prior to such merger, consolidation or
reorganization had beneficial ownership of 19.9% or more of the
then outstanding voting securities) will have beneficial
ownership of 19.9% or more of the combined voting power of the
Surviving Corporation's then outstanding voting securities;
(e) a plan of liquidation or dissolution of the
Corporation, other than pursuant to bankruptcy or insolvency
laws, is adopted; or
(f) during any period of two consecutive years,
individuals, who at the beginning of such period, constituted
the Board cease for any reason to constitute at least a majority
of the Board unless the election, or the nomination for election
by the Corporation's shareholders, of each new director was
approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the
period.
Notwithstanding Clause (a), a Change in Control shall not
be deemed to have occurred if a Person becomes the beneficial
owner, directly or indirectly, of the Corporation's securities
representing 19.9% or more of the combined voting power of the
Corporation's then outstanding securities solely as a result of
an acquisition by the Corporation of its voting securities
which, by reducing the number of shares outstanding, increases
the proportionate number of shares beneficially owned by such
Person to 19.9% or more of the combined voting power of the
Corporation's then outstanding securities; provided, however,
that if a Person becomes a beneficial owner of 19.9% or more of
the combined voting power of the Corporation's then outstanding
securities by reason of share purchases by the Corporation and
shall, after such share purchases by the Corporation, become the
beneficial owner, directly or indirectly, of any additional
voting securities of the Corporation (other than as a result of
a stock split, stock dividend or similar transaction), then a
Change in Control of the Corporation shall be deemed to have
occurred with respect to such Person under Clause (a). In no
event shall a Change in Control of the Corporation be deemed to
occur under Clause (a) with respect to Benefit Plans.
2.4 "Code". The Internal Revenue Code of 1986, as
amended.
2.5 "Committee". The committee which the Board appoints
to administer the Plan.
2.6 "Common Stock". The common stock of the Corporation
(no par value) as described in the Corporation's Articles of
Incorporation, or such other stock as shall be substituted
therefor.
2.7 "Corporation". Patriot Bank Corp., a Pennsylvania
corporation.
2.8 "Director". An individual who serves as a director of
the Corporation. References herein to a "Director" are intended
to mean a nonemployee director of the Corporation.
2.9 "Employee". Any common law employee of the
Corporation or a Subsidiary.
2.10 "Exchange Act". The Securities Exchange Act of 1934,
as amended.
2.11 "Incentive Stock Option". A Stock Option intended to
satisfy the requirements of Code Section 422(b).
2.12 "Nonqualified Stock Option". A Stock Option other
than an Incentive Stock Option.
2.13 "Optionee". A Participant who is awarded a Stock
Option pursuant to the provisions of the Plan.
2.14 "Participant". An Employee or Director to whom an
Option has been granted and remains outstanding.
2.15 "Plan". The Patriot Bank Corp. 2002 Stock Option
Plan.
2.16 "Retirement". The termination of a Participant's
employment following attainment of age 65.
2.17 "Securities Act". The Securities Act of 1933, as
amended.
2.18 "Stock Option" or "Option". A grant of a right to
purchase Common Stock pursuant to the provisions of the Plan.
2.19 "Subsidiary". A subsidiary corporation, as defined
in Code Section 424(f), that is a subsidiary of a relevant
corporation.
ARTICLE 3. ADMINISTRATION
3.1 The Committee. The Plan shall be administered by a
committee of the Board composed of two or more members of the
Board, all of whom are (a) "nonemployee directors" as such term
is defined under the rules and regulations adopted from time to
time by the Securities and Exchange Commission pursuant to
Section 16(b) of the Exchange Act, and (b) "outside directors"
within the meaning of Code Section 162(m). The Board may from
time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, howsoever caused, shall
be filled by the Board.
3.2 Powers of the Committee.
(a) The Committee shall be vested with full authority
to make such rules and regulations as it deems necessary or
desirable to administer the Plan and to interpret the provisions
of the Plan, unless otherwise determined by a majority of the
disinterested members of the Board. Any determination, decision
or action of the Committee in connection with the construction,
interpretation, administration or application of the Plan shall
be final, conclusive and binding upon all Participants and any
person claiming under or through a Participant, unless otherwise
determined by a majority of the disinterested members of the
Board.
(b) Subject to the terms, provisions and conditions
of the Plan and subject to review and approval by a majority of
the disinterested members of the Board, the Committee shall have
exclusive jurisdiction to:
(i) determine and select the Employees to be
granted Options (it being understood that more than one Option
may be granted to the same person);
(ii) determine the number of shares subject to
each Option;
(iii) determine the date or dates when the
Options will be granted;
(iv) determine the exercise price of shares
subject to Options in accordance with Article 6;
(v) determine the date or dates when an Option
may be exercised within the term of the Option specified
pursuant to Article 7;
(vi) determine whether an Option constitutes an
Incentive Stock Option or a Nonqualified Stock Option; and
(vii) prescribe the form, which shall be
consistent with the Plan document, of the Agreement evidencing
any Options granted under the Plan.
No Option shall be deemed granted until such time as it shall
have been approved by the Board, as provided above.
3.3 Liability. No member of the Board or the Committee
shall be liable for any action or determination made in good
faith by the Board or the Committee with respect to this Plan or
any Options granted under this Plan.
3.4 Director Options. Notwithstanding anything herein to
the contrary, all power and authority with regard to the grant
of Options to Directors, and the administration of the Plan with
respect thereto, shall be vested solely in the Board.
ARTICLE 4. COMMON STOCK SUBJECT TO THE PLAN
4.1 Common Stock Authorized. The aggregate number of
shares of Common Stock for which Options may be awarded under
the Plan shall not exceed 300,000. The limitation established
by the preceding sentence shall be subject to adjustment as
provided in Article 10.
4.2 Shares Available. The Common Stock to be issued under
the Plan shall be the Corporation's Common Stock which shall be
made available at the discretion of the Board, either from
authorized but unissued Common Stock or from Common Stock
acquired by the Corporation, including shares purchased in the
open market. In the event that any outstanding Option under the
Plan for any reason expires, terminates or is forfeited, the
shares of Common Stock allocable to such expiration, termination
or forfeiture may thereafter again be made subject to an Option
under the Plan.
ARTICLE 5. EMPLOYEE ELIGIBILITY
5.1 Participation. Options shall be granted by the
Committee only to persons who are Employees and shall be
ratified by a majority of the disinterested members of the
Board.
5.2 Incentive Stock Option Eligibility. Notwithstanding
any other provision of the Plan to the contrary, an individual
who owns more than ten percent of the total combined voting
power of all classes of outstanding stock of the Corporation
shall not be eligible for the grant of an Incentive Stock Option
unless the special requirements set forth in Sections 6.1 and
7.1 are satisfied. For purposes of this section, in determining
stock ownership, an individual shall be considered as owning the
stock owned, directly or indirectly, by or for his brothers and
sisters (whether by the whole or half blood), spouse, ancestors
and lineal descendants. Stock owned, directly or indirectly, by
or for a corporation, partnership, estate or trust shall be
considered as being owned proportionately by or for its
shareholders, partners or beneficiaries. "Outstanding stock"
shall include all stock actually issued and outstanding
immediately before the grant of the Option. "Outstanding stock"
shall not include shares authorized for issue under outstanding
Options held by the Optionee or by any other person.
ARTICLE 6. STOCK OPTIONS IN GENERAL
6.1 Exercise Price. The exercise price of an Option to
purchase a share of Common Stock shall be not less than 100% of
the fair market value of a share of Common Stock on the date the
Option is granted, except that the exercise price shall be not
less than 110% of such fair market value in the case of an
Incentive Stock Option granted to any individual described in
Section 5.2. The exercise price shall be subject to adjustment
as provided in Article 10.
6.2 Limitation on Incentive Stock Options. The aggregate
fair market value (determined as of the date an Option is
granted) of the Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by any
individual in any calendar year (under the Plan and all other
plans maintained by the Corporation and Subsidiaries) shall not
exceed $100,000.
6.3 Determination of Fair Market Value.
(a) During such time as the Common Stock is not
listed on an established stock exchange or exchanges but is
quoted on the NASDAQ National Market System, the fair market
value per share of the Common Stock shall be the closing sale
price for such a share on the relevant day. If no sale of
Common Stock has occurred on that day, the fair market value
shall be determined by reference to such price for the next
preceding day on which a sale occurred.
(b) During such time as the Common Stock is not
listed on an established stock exchange or quoted on the NASDAQ
National Market System, the fair market value per share of the
Common Stock shall be the mean between the closing "bid" and
"asked" prices for such a share on the relevant day. If no
closing "bid" and "asked" prices are quoted for that day, the
fair market value shall be determined by reference to such
prices for the next preceding day on which such closing prices
were quoted.
(c) If the Common Stock is listed on an established
stock exchange or exchanges, the fair market value per share of
the Common Stock shall be the composite closing sale price for
such a share on the relevant day. If no sale of Common Stock
has occurred on that day, the fair market value shall be
determined by reference to such price for the next preceding day
on which a sale occurred.
(d) In the event that the Common Stock is not traded
on an established stock exchange or quoted on the NASDAQ
National Market System, and no closing "bid" and "asked" prices
are available on a relevant day, then the fair market value per
share of Common Stock will be the price established by the
Committee in good faith.
In connection with determining the fair market value of a share
of Common Stock on any relevant day, the Committee may use any
source deemed reliable; and its determination shall be final and
binding on all affected persons, absent clear error.
6.4 Limitation on Option Awards. Grants of Options under
this Plan (and any other plan of the Corporation or a Subsidiary
providing for stock options) to an Employee described in Code
Section 162(m)(3) shall not exceed, in the aggregate, Options
with respect to 75,000 shares of Common Stock during any period
of 12 consecutive months. Such limitation shall be subject to
adjustment in the manner described in Article 10.
6.5 Transferability of Options.
(a) Except as provided in Subsection (b), an Option
granted hereunder shall not be transferable other than by will
or the laws of descent and distribution, and such Option shall
be exercisable, during the Optionee's lifetime, only by him or
her.
(b) An Optionee may, with the prior approval of the
Committee, transfer a Nonqualified Stock Option for no
consideration to or for the benefit of one or more members of
the Optionee's "immediate family" (including a trust,
partnership or limited liability company for the benefit of one
or more of such members), subject to such limits as the
Committee may impose, and the transferee shall remain subject to
all terms and conditions applicable to the Option prior to its
transfer. The term "immediate family" shall mean an Optionee's
spouse, parents, children, stepchildren, adoptive relationships,
sisters, brothers and grandchildren (and, for this purpose,
shall also include the Optionee).
ARTICLE 7. TERM, VESTING AND EXERCISE OF OPTIONS
7.1 Term and Vesting. Each Option granted under the Plan
shall terminate on the date determined by the Committee and
approved by a majority of the disinterested members of the
Board, and specified in the Agreement; provided, however, that
(i) each intended Incentive Stock Option granted to an
individual described in Section 5.2 shall terminate not later
than five years after the date of the grant, (ii) each other
intended Incentive Stock Option shall terminate not later than
ten years after the date of grant, and (iii) each Option granted
under the Plan which is intended to be a Nonqualified Stock
Option shall terminate not later than ten years and one month
after the date of grant. Each Option granted under the Plan
shall be exercisable (i.e., become vested) only after the
earlier of the date on which (i) the Optionee has completed one
year of continuous employment with the Corporation or a
Subsidiary immediately following the date of the grant of the
Option (or such later date as may be specified in an Agreement,
including a date that may be tied to the satisfaction of one or
more performance goals) or (ii) unless otherwise provided in an
Agreement, a Change in Control occurs.
7.2 Exercise.
(a) Subject to the provisions of Article 8, an Option
may exercised only during the continuance of an Optionee's
employment.
(b) A person electing to exercise an Option shall
give written notice to the Corporation of such election and of
the number of shares he or she has elected to purchase, in such
form as the Committee shall have prescribed or approved, and
shall at the time of exercise tender the full exercise price of
the shares he or she has elected to purchase. The exercise
price shall be paid in full, in cash, upon the exercise of the
Option; provided, however, that in lieu of cash, if permitted by
an Agreement, an Optionee may exercise an Option by tendering to
the Corporation shares of Common Stock owned by him or her and
having a fair market value equal to the cash exercise price
applicable to the Option (with the fair market value of such
stock to be determined in the manner provided in Section 6.3) or
by delivering such combination of cash and such shares as equals
the amount of such exercise price. Notwithstanding the
foregoing, Common Stock acquired pursuant to the exercise of an
Incentive Stock Option may not be tendered as payment unless the
holding period requirements of Code Section 422(a)(1) have been
satisfied, and Common Stock not acquired pursuant to the
exercise of an Incentive Stock Option may not be tendered as
payment unless it has been held, beneficially and of record, for
at least six months (or such longer time as may be required by
applicable securities law or accounting principles to avoid
adverse consequences to the Corporation or a Participant).
(c) A person holding more than one Option at any
relevant time may, in accordance with the provisions of the
Plan, elect to exercise such Options in any order.
(d) At the request of the Participant and to the
extent permitted by applicable law, the Committee may, in its
sole discretion, selectively approve arrangements whereby the
Participant irrevocably authorizes a third party to sell shares
of Common Stock (or a sufficient portion of the shares) acquired
upon the exercise of an Option and to remit to the Corporation a
sufficient portion of the sales proceeds to pay the entire
exercise price and any tax withholding required as a result of
such exercise.
7.3 Deferred Delivery of Nonqualified Stock Option Shares.
The Committee may approve an arrangement whereby an Optionee may
elect to defer receipt of Common Stock otherwise issuable to him
or her upon exercise of a Nonqualified Stock Option. Any such
arrangement, if approved at all, shall be subject to such terms
and conditions as the Committee, in its sole discretion, may
specify, which terms and conditions may (but need not) include
provision for the award of additional shares to take into
account dividends paid subsequent to exercise of the Option.
ARTICLE 8.
EXERCISE OF OPTIONS FOLLOWING TERMINATION OF EMPLOYMENT
8.1 Retirement. In the event of an Optionee's termination
of employment due to Retirement, his or her Option shall lapse
at the earlier of the expiration of the term of the Option or:
(a) in the case of an Incentive Stock Option, three
months from the date of Retirement; and
(b) in the case of a Nonqualified Stock Option, up to
24 months from the date of Retirement (as specified in the
relevant Agreement).
8.2 Death or Total and Permanent Disability. In the event
of termination of an Optionee's employment due to death or being
"disabled" (within the meaning of Code Section 22(e)(3)), his or
her Option shall lapse at the earlier of (a) the expiration of
the term of the Option, or (b) one year after termination due to
such a cause.
8.3 Termination For Cause. In the event of an Optionee's
termination of employment "for cause," his or her Option shall
lapse on the date of such termination. Termination "for cause"
shall mean the Optionee was terminated after:
(a) any government regulatory agency recommends or
orders in writing that the Corporation or a Subsidiary terminate
the employment of the Optionee or relieve him or her of his or
her duties;
(b) the Optionee is convicted of or enters a plea of
guilty or nolo contendere to a felony, a crime of falsehood, or
a crime involving fraud or moral turpitude, or the actual
incarceration of the Optionee for a period of 45 consecutive
days; or
(c) the Optionee willfully fails to follow the lawful
instructions of the Board after receipt of written notice of
such instructions, other than a failure resulting from the
Optionee's incapacity because of physical or mental illness.
8.4 Special Termination Provisions.
(a) In the case of a corporate downsizing, the
Retirement of an Optionee or other circumstances where it is
deemed equitable to do so, the Committee may, in its discretion
and subject to the approval of a majority of the disinterested
members of the Board, waive the one-year (or other) continuous
service requirement for vesting specified in an Agreement
pursuant to Section 7.1 and permit the exercise of an Option
held by an Optionee prior to the satisfaction of such
requirement. Any such waiver may be made with retroactive
effect, provided it is made within 60 days following the
Optionee's termination of employment.
(b) In the event the Committee waives the continuous
service requirement with respect to an Option and the
circumstance of an Optionee's termination of employment is
described in Section 8.1 or 8.2, the affected Option will lapse
as otherwise provided in the relevant section.
(c) In the case of a corporate downsizing or other
circumstances where it is deemed equitable to do so, the
Committee may, in its discretion and subject to the approval of
a majority of the disinterested members of the Board, waive the
otherwise applicable lapse provision of the Option of a
Participant and permit its exercise until a date which is the
earlier of the expiration of the term of the Option or:
(i) in the case of an Incentive Stock Option,
three months from the date of termination of employment; and
(ii) in the case of a Nonqualified Stock Option,
up to 24 months from the date of termination of employment (as
specified in the relevant resolution).
(d) No exercise of discretion under this section with
respect to an event or person shall create an obligation to
exercise such discretion in any similar or same circumstance.
8.5 Other Termination By the Corporation or Optionee.
Except as otherwise provided elsewhere in this article, (a) in
the event of an Optionee's termination of employment at the
election of the Corporation, his or her Option shall lapse at
the earlier of (i) the expiration of the term of the Option, or
(ii) three months after such termination; and (b) in the event
of termination of employment at the election of an Optionee, his
or her Option shall lapse on the date of such termination.
ARTICLE 9. PROVISIONS RELATING TO DIRECTOR OPTIONS
9.1 In General. Subject to Section 9.2, Options granted
to nonemployee Directors shall be subject to the same terms and
conditions as are applicable to Options granted to Employees,
except for any term or condition that is clearly not applicable
under the circumstances.
9.2 Special Provisions. The following provisions shall,
with respect to nonemployee Director Options, supersede any
contrary provision in this Plan document.
(a) References herein to an individual's employment
or termination of employment shall be deemed references to a
nonemployee Director's service or termination of service as a
member of the Board.
(b) Incentive Stock Options may not be granted to
nonemployee Directors.
(c) Grants of Options to any nonemployee Director
under this Plan (and any other plan of the Corporation or a
Subsidiary) shall not exceed, in the aggregate, Options to
acquire 20,000 shares of Common Stock during any period of 12
consecutive months. Such limitation shall be subject to
adjustment in the manner described in Article 10.
(d) The provisions of Section 8.5(a) shall apply in
the case of a termination described in Section 8.5(b).
ARTICLE 10. ADJUSTMENT PROVISIONS
10.1 Share Adjustments.
(a) In the event that the shares of Common Stock of
the Corporation, as presently constituted, shall be changed into
or exchanged for a different number or kind of shares of stock
or other securities of the Corporation, or if the number of such
shares of Common Stock shall be changed through the payment of a
stock dividend, stock split or reverse stock split, then (i) the
remaining shares of Common Stock authorized hereunder to be made
the subject of Options, (ii) the shares of Common Stock then
subject to outstanding Options and the exercise price thereof,
(iii) the maximum number of Options that may be granted within a
12-month period and (iv) the nature and terms of the shares of
stock or securities subject to Options hereunder shall be
increased, decreased or otherwise changed to such extent and in
such manner as may be necessary or appropriate to reflect any of
the foregoing events.
(b) If there shall be any other change in the number
or kind of the outstanding shares of the Common Stock of the
Corporation, or of any stock or other securities into which such
Common Stock shall have been changed, or for which it shall have
been exchanged, and if a majority of the disinterested members
of the Board shall, in its sole discretion, determine that such
change equitably requires an adjustment in any Option which was
theretofore granted or which may thereafter be granted under the
Plan, then such adjustment shall be made in accordance with such
determination.
(c) The grant of an Option pursuant to the Plan shall
not affect in any way the right or power of the Corporation to
make adjustments, reclassifications, reorganizations or changes
of its capital or business structure, to merge, to consolidate,
to dissolve, to liquidate or to sell or transfer all or any part
of its business or assets.
10.2 Corporate Changes. A liquidation or dissolution of
the Corporation, a merger or consolidation in which the
Corporation is not the surviving Corporation or a sale of all or
substantially all of the Corporation's assets, shall cause each
outstanding Option to terminate, except to the extent that
another corporation may and does, in the transaction, assume and
continue the Options, substitute its own options and/or
otherwise provide for the payment of value therefor. In the
case of an event described in the preceding sentence, vested and
nonvested Options may be treated differently.
10.3 Fractional Shares. Fractional shares resulting from
any adjustment in Options pursuant to this article may be
settled as a majority of the disinterested members of the Board
shall determine.
10.4 Binding Determination. To the extent that the
foregoing adjustments relate to stock or securities of the
Corporation, such adjustments shall be made by a majority of the
disinterested members of the Board, whose determination in that
respect shall be final, binding and conclusive. Notice of any
adjustment shall be given by the Corporation to each holder of
an Option which shall have been so adjusted.
ARTICLE 11. GENERAL PROVISIONS
11.1 Effective Date. The Plan shall become effective upon
its adoption by the Board (January 31, 2002), provided that any
grant of an Option is subject to the approval of the Plan by the
shareholders of the Corporation within 12 months of adoption by
the Board.
11.2 Termination of the Plan. Unless previously
terminated by the Board, the Plan shall terminate on, and no
Option shall be granted after, the day immediately preceding the
tenth anniversary of its adoption by the Board.
11.3 Limitation on Termination, Amendment or Modification.
(a) The Board may at any time terminate, amend,
modify or suspend the Plan, provided that, without the approval
of the shareholders of the Corporation, no amendment or
modification shall be made solely by the Board which:
(i) increases the maximum number of shares of
Common Stock as to which Options may be granted under the Plan;
(ii) changes the class of eligible Participants; or
(iii) otherwise requires the approval of
shareholders under applicable state or federal law, or by
exchange-related rules, to avoid potential liability or adverse
consequences to the Corporation or a Participant.
(b) No amendment, modification, suspension or
termination of the Plan shall in any manner affect any Option
theretofore granted under the Plan without the consent of the
Participant or any person validly claiming under or through the
Participant.
11.4 No Right to Grant of Option or Continued Employment.
Nothing contained in this Plan or otherwise shall be construed
to (a) require the grant of an Option to an individual who
qualifies as an Employee or a Director, or (b) confer upon a
Participant any right to continue in the employ of the
Corporation or any Subsidiary or limit in any respect the right
of the Corporation or of any Subsidiary to terminate the
Participant's employment at any time and for any reason.
11.5 Withholding Taxes.
(a) Subject to the provisions of Subsection (b), the
Corporation will require, as a condition to the exercise of an
Option where sufficient funds are not otherwise available, that
a Participant (or other relevant person) pay or reimburse to it
any withholding taxes at such time as withholding is required by
law.
(b) With the permission of the Committee, a
Participant may satisfy the withholding obligation described in
Subsection (a), in whole or in part, by electing to have the
Corporation withhold shares of Common Stock (otherwise issuable
to him or her) having a fair market value equal to the amount
required to be withheld. An election by a Participant to have
shares withheld for this purpose shall be subject to such
conditions as may then be imposed thereon by any applicable
securities law.
11.6 Listing and Registration of Shares.
(a) No Option granted pursuant to the Plan shall be
exercisable in whole or in part, and no share certificate shall
be delivered, if at any relevant time a majority of the
disinterested members of the Board shall determine in its
discretion that the listing, registration or qualification of
the shares of Common Stock subject to an Option on any
securities exchange or under any applicable law, or the consent
or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, such Option,
until such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any
conditions not acceptable to a majority of the disinterested
members of the Board.
(b) If a registration statement under the Securities
Act with respect to the shares issuable under the Plan is not in
effect at any relevant time, as a condition of the issuance of
the shares, a Participant (or any person claiming through a
Participant) shall give the Committee a written statement,
satisfactory in form and substance to the Committee, that he or
she is acquiring the shares for his or her own account for
investment and not with a view to their distribution. The
Corporation may place upon any stock certificate for shares
issued under the Plan the following legend or such other legend
as the Committee may prescribe to prevent disposition of the
shares in violation of the Securities Act or other applicable
law:
'THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 ("ACT") AND MAY NOT
BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT WITH RESPECT TO THEM UNDER THE ACT OR A WRITTEN
OPINION OF COUNSEL FOR THE CORPORATION THAT REGISTRATION IS NOT
REQUIRED.'
11.7 Disinterested Director. For purposes of this Plan, a
director shall be deemed "disinterested" if such person could
qualify as a member of the Committee under Section 3.1.
11.8 Gender; Number. Words of one gender, wherever used
herein, shall be construed to include each other gender, as the
context requires. Words used herein in the singular form shall
include the plural form, as the context requires, and vice
versa.
11.9 Applicable Law. Except to the extent preempted by
federal law, this Plan document, and the Agreements issued
pursuant hereto, shall be construed, administered and enforced
in accordance with the domestic internal law of the Commonwealth
of Pennsylvania.
11.10 Headings. The headings of the several articles and
sections of this Plan document have been inserted for
convenience of reference only and shall not be used in the
construction of the same.