COMMUNITY BANK OF TRI-COUNTY
EXECUTIVE INCENTIVE COMPENSATION PLAN
As Amended and Restated
Effective January 1, 1998
COMMUNITY BANK OF TRI-COUNTY
EXECUTIVE INCENTIVE COMPENSATION PLAN
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Table of Contents
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Page
ARTICLE I. General Provisions.......................................1
1.01 Purpose..................................................1
1.02 Effective Date...........................................1
ARTICLE II. Definitions..............................................1
2.01 "Affiliate"..............................................1
2.02 "Bank"...................................................1
2.03 "Beneficiary"............................................1
2.04 "Bonuses"................................................1
2.05 "Benefits"...............................................1
2.06 "Board"..................................................1
2.07 "Cause"..................................................1
2.08 "Code"...................................................2
2.09 "Committee"..............................................2
2.10 "Common Stock"...........................................2
2.11 "Compensation"...........................................2
2.12 "Corporation"............................................2
2.13 "Employee"...............................................2
2.14 "ERISA"..................................................2
2.15 "Multiplier".............................................2
2.16 "NIATBI..................................................3
2.17 "Option".................................................3
2.18 "Participant"............................................3
2.19 "Peer Group".............................................3
2.20 "Plan"...................................................3
2.21 "ROE Target Percentage"..................................3
2.22 "Share"..................................................3
2.23 "Stock Option Plan"......................................3
2.24 "Vesting Event...........................................3
ARTICLE III. Eligibility and Participation............................4
(i)
ARTICLE IV. Benefits Schedule........................................4
4.01 Bonuses..................................................4
4.02 Stock Option Grants......................................4
4.03 Revocation for Misconduct................................4
4.04 Payment of Benefits......................................5
4.05 Source of Benefits.......................................5
4.06 Minority, Disability, or Incompetency....................5
4.07 Designation of Beneficiary...............................5
ARTICLE V. Plan Administration......................................5
5.01 The Committee............................................5
5.02 Claims Procedure.........................................6
ARTICLE VI. Amendment and Termination................................6
6.01 Right to Amend or Terminate..............................6
ARTICLE VII. General Provisions.......................................6
7.01 Prohibition Against Alienation...........................6
7.02 No Enlargement of Employment Rights......................7
7.03 Gender...................................................7
7.04 Applicable Law...........................................7
7.05 Titles and Headings......................................7
7.06 Withholding..............................................7
(ii)
COMMUNITY BANK OF TRI-COUNTY
EXECUTIVE INCENTIVE COMPENSATION PLAN
ARTICLE I. General Provisions
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1.01 Purpose. This document sets forth the Community Bank of Tri-County
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Executive Incentive Compensation Plan. The Plan is maintained for the purpose of
providing certain Employees with incentive compensation in the form of Bonuses
and Stock Options in the event the Bank meets certain performance goals
indicative of its profitability and stability in comparison to all other
commercial banks headquartered in the Peer Group.
It is intended that the Plan be an unfunded plan maintained primarily
for the purpose of providing cash bonuses and deferred compensation for a select
group of management or highly compensated employees within the meaning of
Section 201(2) of ERISA and that benefits provided under the Plan be taxable to
Participants only when actually received. The plan shall be administered,
construed, and interpreted in a manner consistent with the purpose and intent
set forth in this Section.
1.02 Effective Date. The effective date of the Plan was January 1,
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1992. The effective date of this restatement of the Plan is January 1, 1998.
ARTICLE II. Definitions.
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Unless the context clearly requires otherwise, the terms defined in
this Article II shall, for all purposes of this Plan, have the respective
meanings specified in this Article II.
2.01 "Affiliate" means any company that would be considered an
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affiliate of the Bank or the Corporation pursuant to Section 424 of the Code.
2.02 "Bank" means Community Bank of Tri County.
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2.03 "Beneficiary" means the person or persons designated as a
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Participant's beneficiary or beneficiaries in accordance with Section 4.07
hereof.
2.04 "Bonuses" means cash bonuses payable to Participants pursuant to
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Section 4.01 hereof.
2.05 "Benefits" shall mean as to any Participant any incentive
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compensation provided under Article IV hereof.
2.06 "Board" means the Board of Directors of the Bank.
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2.07 "Cause" means personal dishonesty, incompetence, willful
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misconduct, breach of fiduciary duty involving personal profits, intentional
failure to perform stated duties, willful violation of a material provision of
any law, rule or regulation (other than traffic violations or similar offense),
or a material violation of a final cease-and-desist order or any other action
which results in a substantial financial loss to the Bank. A determination of
"Cause" shall be made by the Board within its sole discretion.
2.08 "Code" means the Internal Revenue Code of 1986, as amended from
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time to time. References to a Code section shall include any comparable section
or sections of future legislation that amends, supplements or supersedes such
section.
2.09 "Committee" means the members of the Compensation Committee of the
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Board who are non-employee directors within the meaning of Rule 16b-3 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended. In the absence at any time of a duly appointed Committee, the Plan
shall be administered by the Board.
2.10 "Common Stock" means the common stock, par value $.01 per share of
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the Corporation.
2.11 "Compensation" means a Participant's base salary for the calendar
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year, as adjusted from year to year pursuant to the Board's consideration of
changes both in the cost-of-living and in the compensation being paid to
similar-situated executive employees in the Peer Group. Base salary will include
only amounts paid by the Bank and will exclude amounts paid by third party
providers, such as disability.
2.12 "Corporation" means Tri-County Financial Corporation.
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2.13 "Employee" means any individual who performs service in the
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business of the Employer excluding any individual who performs such services as
a self-employed person.
2.14 "ERISA" means the Employee Retirement Income Security Act of 1974,
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as amended from time to time.
2.15 "Multiplier" means for any calendar year the average of --
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(i) the percentage obtained when the Bank's return-on-equity
("ROE") is divided by the product of the median ROE of the Peer Group and the
ROE Target Percentage, and
(ii) the percentage obtained when the median percentage of
noncurrent to gross loans of the Peer Group is divided by the percentage of the
Bank's noncurrent to gross loans;/1/ provided that the Multiplier shall not
exceed 1.0 for any year before 2002. Either of these percentages will be
negative if the Bank does not outperform the other banks in its Peer Group. The
Committee shall make its determinations of ROE and NPL in accordance with
generally accepted accounting principles, subject to the Committee's discretion
to take into account or to disregard any financial events that are extraordinary
in the opinion of the Committee.
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/1/ For example, the Multiplier would be 1.75--the average of 50% and 300% --
if (i) the Bank's ROE was 15% and the median ROE for its Peer Group times the
ROE Target Percentage was 10%, and (ii) the Bank's noncurrent to gross loan
percentage was 2% and the median percentage for its Peer Group was 6%.
2.16 "NIATBI" means the net income (after taxes and before Benefits
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accrued for the fiscal year) of the Bank and its Affiliates, and shall be
determined by the Committee in accordance with generally accepted accounting
principles, subject to the Committee's discretion to take into account or to
disregard any financial events that are extraordinary in the opinion of the
Committee.
2.17 "Option," "Option Price," and "Optioned Shares" have the meanings
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set forth in the Stock Option Plan.
2.18 "Participant" means an Employee who has become a Participant in
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the Plan as provided in Article III.
2.19 "Peer Group" means the peer base of commercial banks in the fifth
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Federal Reserve district (Richmond, VA); provided that the Committee may
redefine the Peer Group before any fiscal year to which the change relates.
2.20 "Plan" means the Community Bank of Tri-County Executive Incentive
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Compensation Plan as herein set forth and as it may from time to time be
amended.
2.21 "ROE Target Percentage" shall be 70% for 1998, and shall be
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determined each future calendar year by the Committee as it exercises its
discretion to establish this percentage as of any future January 1st. Any change
that the Committee makes hereunder shall be effective until further Committee
action taken before January 1st of the year to which the change relates.
2.22 "Share" means one share of Common Stock.
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2.23 "Stock Option Plan" means the Tri-County Financial Corporation
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1996 Stock Option and Incentive Plan, as amended from time to time.
2.24 "Vesting Event" means the first to occur of the following events:
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(i) termination of a Participant's employment with the Bank
and its Affiliates due to the Participant's retirement after age 65, death, or
disability (as determined by the Committee);
(ii) the occurrence of a "change in control" or "offer to
effect a change in control" of the Bank or of the Corporation. A "change in
control" of the Bank or of the Corporation is defined as the acquisition of the
beneficial ownership (as that term is defined in Rule 13d-3 of the General Rules
and Regulations under the Securities Exchange Act of 1934) of 25% or more of the
voting securities of the Bank or of the Corporation, as the case may be, by any
person or by persons acting as a group within the meaning of Section 13(d) of
the Securities Exchange Act of 1934; and "offer" shall refer to every offer to
buy or acquire, solicitation of an offer to sell, tender offer for, or request
of invitation for tenders of, the voting securities of the Bank or of the
Corporation for value, as such term is defined under 12 C.F.R. ss.563b.3(i). The
term "person" refers to an individual or a corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein. The
decision of the Committee as to whether a change in
control, or offer to effect a change in control, has occurred shall be
conclusive and binding as to all affected Participants.
ARTICLE III. Eligibility and Participation
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Each Employee who has been selected by the Committee in its discretion
as eligible to participate in the Plan shall be eligible to participate in the
Plan. The Committee may, in its sole discretion, limit eligibility for any
reason including, but not limited to, ensuring that the Plan at all times is a
plan described in Section 201(2) of ERISA. An eligible Employee who has complied
with such procedures, if any, as the Committee in the discretion may establish
from time to time for becoming a Participant shall become a Participant in the
Plan at such time as the Committee designates at the time the person is selected
for participation in the Plan.
ARTICLE IV. Benefits Schedule
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4.01 Bonuses. For each calendar year beginning on or after January 1,
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1998, the total Bonuses that the Bank shall pay in cash to Participants who are
Employees on December 31st of the year to which the Bonuses relate (or who were
employed on the date of a Vesting Event, if earlier in the year) shall equal the
product of the Multiplier and 10% of the Bank's NIATBI; provided that the
Committee may in its discretion change this percentage as of any January 1st
that occurs after the date on which the Committee acts. Any change that the
Committee makes hereunder shall be effective until further Committee action
taken before January 1st of the year to which the change relates. The Committee
shall divide the total amount available for Bonuses pro rata based on the ratio
of the Participant's Allocation Base to the total Allocation Bases for all
Participants who are entitled to Bonuses for the year. Such Allocation Bases
shall be determined according to the following schedule, unless the Chief
Executive Officer recommends otherwise and such changes are confirmed by
resolution adopted at the first meeting of the calendar year to which a
particular Bonus or Bonuses relate:
Participant's Title Allocation Base
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President 10% of Compensation
Senior Vice President 7.5% of Compensation
Vice President 5% of Compensation
Assistant Vice President 3.5% of Compensation
4.02 Stock Option Grants. For each calendar year after 1997, each
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Participant shall be granted, under the Stock Option Plan, an Option to purchase
Shares having a fair market value, as determined in accordance with the Stock
Option Plan, equal to 60% of the Bonus (if any) to which the Participant is
entitled under Section 4.01 hereof for the calendar year, unless the Committee
determines otherwise by resolution adopted before the first day of the calendar
year to which a particular grant or grants relate. The Option Price for each
Option shall equal the fair market value of the Optioned Shares on the date of
grant and shall be fully and immediately exercisable.
4.03 Revocation for Misconduct. Notwithstanding anything herein to the
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contrary, the Board may, by resolution, immediately revoke, rescind and
terminate any Benefits earned under this Plan, to the extent a Participant has
not collected a Bonus or exercised an Option, as the case may be, if the
Participant voluntarily or involuntarily leaves employment with the Bank or an
Affiliate for Cause, or is discovered after termination of employment to have
engaged in conduct that would have justified termination for Cause.
4.04 Payment of Benefits. All Benefits under this Plan shall be
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provided by the Bank directly to Participants, and the Committee shall have no
responsibility thereto other than to inform the Bank, as soon as practicable
after the end of each calendar year, in writing, as to the Benefits to be
provided.
4.05 Source of Benefits. The Benefits payable under the Plan shall be
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paid by the Bank out of its general assets and shall not be funded by trust or
otherwise. Nothing contained in this Plan shall constitute, or be treated as, a
trust or create any fiduciary relationship. The Bank shall be under no
obligation to segregate any assets for the purpose of providing Benefits under
the Plan and no person or entity which is entitled to payment under the terms of
the Plan shall have any claim, right, security interest, or other interest in
any fund, trust, account, insurance contract, or asset of the Employer. To the
extent that a Participant or any other person acquires a right to receive any
Benefit under the Plan, such right shall be limited to that of a recipient of an
unfunded, unsecured promise to pay amounts in the future and the Participant's
(or other person's) position with respect to such amounts shall be that of a
general unsecured creditor of the Employer.
4.06 Minority, Disability, or Incompetency. If any Benefit becomes
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payable under this Plan to a minor, to a person under legal disability or to a
person not adjudicated incompetent but who the Committee in its discretion
determines to be incapable by reason of illness or mental or physical disability
of managing his financial affairs, the Committee may direct that such Benefit
shall be paid to the legal representative or custodian of such person or to any
relative or friend of such person, or that such amount be paid directly for such
person's support and maintenance. Payments so made in good faith shall
completely discharge the Committee and the Bank of any and all obligations and
liabilities with respect to such payments.
4.07 Designation of Beneficiary. A Participant may file with the
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Committee a written designation of a Beneficiary who is to receive his vested
benefits in the event of the Participant's death prior to his or her collection
of said benefits. Such designation of Beneficiary may be changed at any time by
written notice to the Committee. The designation last filed with the Committee
shall be controlling. In the event of the death of a Participant and in the
absence of a beneficiary validly designated under the Plan who is living at the
time of the Participant's death, the Participant's estate shall be deemed to be
the Beneficiary for purposes of this plan.
ARTICLE V. Plan Administration
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5.01 The Committee. In its sole and absolute discretion, which
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discretion when exercised shall be final and binding on all parties, the
Committee shall have the responsibility and authority to control the operation
and administration of the Plan in accordance with its terms including, without
limiting the generality of the foregoing, the powers and duties: (i) to
interpret,
apply and administer the Plan, to decide all questions of eligibility,
participation, status, benefits, and rights of Participants and Beneficiaries
under the Plan; (ii) to establish and amend such rules and procedures as it
deems necessary or appropriate to the proper administration of the Plan; (iii)
to employ or retain such agents as it deems necessary or advisable to assist in
the administration of the Plan, and to delegate to the extent permitted by
applicable law such powers and duties as it deems necessary or advisable, (iv)
to prepare and file all statements, returns, and reports required to be filed by
the Plan with any agency of government; (v) to comply with all disclosure
requirements of all applicable state and federal law; and (vi) to perform all
functions otherwise assigned to it under the terms of the Plan.
5.02 Claims Procedure. Claims for Benefits under the Plan shall be
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filed in writing with the Committee. Written notice of the Committee's
disposition of a claim generally shall be furnished to the claimant within 60
days after the application therefor is filed. However, if special circumstances
exist of which the Committee notifies the claimant within such 60 day period,
the Committee may extend such period to the extent necessary, but in the event
beyond 180 days after the claim is filed. In the event the claim is denied, the
reasons for the denial shall be specifically set forth in writing, pertinent
provisions of the Plan shall be cited, and, where appropriate, an explanation as
to how the claimant can perfect the claim will be provided. Any claimant who has
been denied a Benefit shall be entitled, upon request to the Committee, to
appeal the denial of his claim within 60 days following the Committee's
determination described in the preceding sentence. Upon such appeal, the
claimant, or his representative, shall be entitled to examine pertinent
documents, submit issues and comments in writing to the Committee, and meet with
the Committee. The Committee shall review its decision and issue a final
decision to the claimant in writing, generally within 60 days following such
appeal. However, if special circumstances exist of which the Committee notifies
the claimant within such 60 day period, the Committee may extend such period to
the extent necessary, but in no event beyond 120 days following such appeal.
ARTICLE VI. Amendment and Termination
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6.01 Right to Amend or Terminate. The Bank reserves the right at any
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time to terminate or amend the Plan in any manner and for any reason; provided,
that no amendment or termination shall, without the consent of the Participant
or, if applicable, the Beneficiary, adversely affect such Participant's or
Beneficiary's rights with respect to Benefits accrued as of the date of such
amendment or termination.
ARTICLE VII. General Provisions
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7.01 Prohibition Against Alienation. Benefits payable to a Participant
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or Beneficiary under the terms of this Plan shall not be subject in any manner
to alienation, anticipation, sale, transfer, assignment, pledge, hypothecation,
attachment, receivership, or encumbrance of any kind, nor shall it pass to any
trustee in bankruptcy or be reached or applied by any legal process for the
payment of any obligations of the Participant or Beneficiary, except at such
times and in such manner as provided in this Plan. Notwithstanding the
foregoing, or any other provision of this Plan, a Participant who holds Options
may transfer such Options (but not incentive stock options) to his or her
spouse, lineal ascendants, lineal descendants, or to a duly established trust
for the benefit of one or more of these individuals. Options so transferred may
thereafter be
transferred only to the Participant who originally received the grant or to an
individual or trust to whom the Participant could have initially transferred the
Options pursuant to this Section 7.01. Options which are transferred pursuant to
this Section 7.01 shall be exercisable by the transferee according to the same
terms and conditions as applied to the Participant.
7.02 No Enlargement of Employment Rights. Nothing contained in this
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Plan shall give or be construed as giving any Employee the right to be retained
in the service of the Bank or shall interfere with the right of the Bank to
discharge or otherwise terminate any Employee's employment at any time.
7.03 Gender. Whenever any masculine terminology is used in this Plan,
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it shall be taken to include the feminine, unless the context otherwise
indicates.
7.04 Applicable Law. This Plan shall be construed and regulated, and
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its validity and effect and the rights hereunder of all parties interested shall
at all times be determined, in accordance with the laws of the State of
Maryland, except to the extent such state law is preempted by federal law.
7.05 Titles and Headings. The titles and headings included herein are
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included for convenience only and shall not be construed as in any way affecting
or modifying the text of the Plan, which text shall control.
7.06 Withholding. The Bank reserves the right to withhold from payments
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of Benefits such amounts of income, payroll, and other taxes as it deems
advisable, and if the amount of such cash payment is not sufficient, the Bank
may require the Participant or Beneficiary to pay the Bank the amount required
to be withheld as a condition of delivering Benefits under the Plan.
WHEREFORE, the undersigned executes this Community Bank of Tri-County
Executive Incentive Compensation Plan this 19th day of February, 1999.
Community Bank of Tri-County
By: /s/ Michael L. Middleton, President
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Attest: /s/ H. Beaman Smith, Secretary
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