NATIONAL PENN BANCSHARES, INC.
EXECUTIVE INCENTIVE PLAN
AMENDMENT AND RESTATEMENT - 2000
The National Penn Bancshares, Inc. Executive Incentive Plan is hereby
amended and restated in its entirety as follows:
Since formation, National Penn Bancshares, Inc. ("NPB"), as a holding
company for National Penn Bank (the "Bank"), has maintained in effect the
executive incentive plan originally adopted by the Bank on July 26, 1978. NPB
now desires to formalize the terms of the plan in a written document as set
forth herein.
The National Penn Bancshares, Inc. Executive Incentive Plan (the "Plan")
is an unfunded deferred compensation arrangement for selected employees. The
purpose of the Plan is to motivate executives to meet and exceed established
financial goals and to promote a superior level of performance relative to
competitive banking institutions. Through payment of incentive compensation
beyond a salary, the Plan provides reward for meeting and exceeding the
established financial goals as well as recognition of individual achievements
for certain employees.
1. Definitions. The following terms have the meanings specified below,
unless the context in which they are used otherwise requires:
(a) "Affiliate" means any corporation which is included within a
"controlled group of corporations" including NPB, as determined under Section
1563 of the Internal Revenue Code of 1986, as amended.
(b) "CEO" means the Chief Executive Officer of NPB.
(c) "Change in Control or Ownership" means:
(i) an acquisition by any "person" or "group" (as those terms are
defined or used in Section 13(d) of the Securities Exchange Act of 1934) of
"beneficial ownership" (within the meaning of Rule 13d-3 under such Act) of
securities of NPB representing 24.99% or more of the combined voting power of
NPB's securities then outstanding;
(ii) a merger, consolidation or other reorganization of Bank,
except where the resulting entity is controlled, directly or indirectly, by NPB;
(iii) a merger, consolidation or other reorganization of NPB,
except where shareholders of NPB immediately prior to consummation of any such
transaction continue to hold at least a majority of the voting power of the
outstanding voting
1
securities of the legal entity resulting from or existing after any transaction
and a majority of the members of the Board of Directors of the legal entity
resulting from or existing after any such transaction are former members of
NPB's Board of Directors;
(iv) a sale, exchange, transfer or other disposition of
substantially all of the assets of the Employer to another entity, except to an
entity controlled, directly or indirectly, by NPB;
(v) a sale, exchange, transfer or other disposition of
substantially all of the assets of NPB to another entity, or a corporate
division involving NPB; or
(vi) a contested proxy solicitation of the shareholders of NPB
that results in the contesting party obtaining the ability to cast 25% or more
of the votes entitled to be cast in an election of directors of NPB.
(d) "Committee" means the Compensation Committee of the Board of
Directors of NPB.
(e) "Employer" means NPB or the Affiliate which employs the
Participant.
(f) "Fund" means the pool of funds generated, based on the formula
established by the Committee, to be distributed to Plan Participants.
(g) "Mandatory Deferral" means twenty-five percent (25%) of the award
received by a Type A or Type B Participant under this Plan.
(h) "Participant" means an eligible officer or employee of NPB or an
Affiliate who is designated by the CEO and approved by the Committee for
participation in the Plan for the relevant Plan Year, or a person who was such
at the time of his retirement, death, disability or resignation and who retains,
or whose beneficiaries obtain, benefits under the Plan in accordance with its
terms.
(i) "Plan Year" means the calendar year.
(j) "Tax Deferral" means that portion of the award received by a Type
A or Type B Participant under the Plan which the Participant elects, pursuant to
Schedule C attached hereto and made a part hereof, to receive as a deferred
payment.
2
2. Plan Participation.
------------------
(a) To be eligible for an award under this Plan, a Participant must
be in the active full-time service of NPB or an Affiliate at the close of the
Plan Year.
(b) Effective January 1, 1985, prior to January 31 of each Plan Year,
the CEO shall recommend to the Committee, in writing, those employees who are
eligible to participate in the Plan for such Plan Year. The Committee shall meet
as soon as practicable thereafter and act upon the recommendations of the CEO.
Those employees approved by the Committee shall be entitled to participate in
the Plan for such Plan Year.
(c) At the Committee's discretion, the Committee may act upon the
recommendation of the CEO with respect to participation of an employee whose
employment with NPB or an Affiliate commences after January 1 but prior to July
1 of a Plan Year. Upon approval by the Committee, such Participant may
participate in the Plan based on his or her earnings for such Plan Year.
(d) Each year, the Committee shall classify the Participants into
Type A, Type B or Type C, as specified on Schedule A attached to this plan
document, and shall specify different award formulae for each category. The
Committee also shall specify the method by which the amount to be allocated for
the benefit of each Participant from the Fund shall be determined. Participants,
as classified into Type A, Type B or Type C, each year will be listed on
Schedule A attached to this plan document. This schedule will be revised each
year, as appropriate.
(e) At the Committee's discretion, the Committee may act upon the
recommendation of the CEO with respect to participation by a Participant whose
classification changes among Type A, Type B or Type C after January 1 but prior
to July 1 of a Plan Year. Upon approval by the Committee, such Participant may
participate in the Plan in the new classification based on his or her earnings
for such Plan Year.
3. Performance Goals.
-----------------
(a) Effective January 1, 1985, performance goals and appropriate
financial thresholds shall be established each Plan Year by the Committee prior
to January 31 of that Plan Year. The established goals shall relate to the
financial performance of NPB or an Affiliate or unit thereof.
(b) Each year, the performance goals for the year will be shown on
Schedule B attached to this plan document. This schedule shall be revised each
year, as appropriate.
3
(c) An award to a Participant may be conditioned on the performance
of such Participant, as determined by the Committee.
4. Calculation of Awards.
---------------------
If both the internal and external performance goals set forth in
Schedule B are met, the Fund shall be distributed among Participants as follows:
(a) 50% of the Fund shall be allocated to the Type A Participants and
shall be divided equally among (i) the Chairman of NPB, (ii) the CEO and
President of NPB, and (iii) the President of the Bank; provided, however, that
the amount distributed to any individual shall not exceed 50% of such
individual's base salary. To the extent that any amount allocated to the Type A
Participants is not distributed to them, such amount shall be added to the
amount to be allocated to and divided among the Type B and Type C Participants
as provided in subparagraph (2) below.
(b) 50% of the Fund shall be allocated to and divided among the Type
B and Type C Participants; provided, however, that no Type B Participant shall
receive an award in excess of 35% of base salary and no Type C Participant shall
receive an award in excess of 25% of base salary.
5. Distribution of Awards.
----------------------
(a) (i) The Committee shall cause an aggregate account to be
established on the Employer's books for all of the Type A and Type B
Participants (the "Mandatory Deferral Account") and shall credit annually the
Mandatory Deferral Account with an amount equal to the Mandatory Deferral of all
Type A and Type B Participants. The Mandatory Deferral Account shall be
credited, as of the last day of each calendar quarter, with interest calculated
at the rate paid on the Investors Trust Company Money Market account for such
quarter.
(ii) The human resources department of the Employer shall
maintain individual accounts which shall reflect the share of each Participant
in the Mandatory Deferral Account (each referred to as an "Individual Mandatory
Deferral Account"). Interest credited to the Mandatory Deferral Account shall be
allocated among the Participants in the respective proportions that the balance
in each Participant's Individual Mandatory Deferral Account bears to the total
balance in the Mandatory Deferral Account on the date that such interest is
credited.
(iii) The human resources department of the Employer shall
maintain records which shall reflect the amounts in each Participant's
Individual Mandatory Deferral Account attributable to each Plan Year, i.e., for
each Plan Year for which a Participant receives an award, such records shall
show the amount of such award
4
plus the interest earned thereon through the most recent date interest was
credited thereon (for each Plan Year, such amount is referred to herein as the
"Plan Year Balance"). The sum of all Plan Year Balances shall equal the total
balance in a Participant's Individual Mandatory Deferral Account.
(iv) If, at the end of the fifth Plan Year following the Plan
Year for which a particular award was made to a Participant, such Participant is
still employed by NPB or an Affiliate or has retired at age 60 or later or has
died on or before the last day of such Plan Year, such Participant's Individual
Mandatory Deferral Account shall be credited by the Employer with an additional
amount equal to the Plan Year Balance relating to the Plan Year of five years
before (the "Matching Contribution").
(v) For purposes of this subparagraph 5(a), a Participant shall
be deemed to be still employed by NPB or an Affiliate as of the last day of any
Plan Year on which a balance exists in such Participant's Individual Mandatory
Deferral Account if such Participant is no longer then performing services on
behalf of NPB or such Affiliate as a result of such Participant's disability.
(b) (i) Type A and Type B Participants may elect to have the payment
of all or a portion of the balance of their awards deferred, i.e., the Tax
Deferral amount. Effective January 1, 1985, such election shall be made before
the beginning of the relevant Plan Year or, in the case of a new employee or a
newly classified Type A or Type B Participant, prior to his or her commencement
of employment or new classification as a Type A or Type B Participant, and shall
be in the form of Schedule C attached to this plan document. The aggregate
amount of the Tax Deferral for the Type A and Type B Participants shall be
credited to an account on the Employer's books (the "Tax Deferral Account"). The
Tax Deferral Account shall be credited, as of the last day of each calendar
quarter, with interest calculated at the rate paid on the Investors Trust
Company Money Market account for such quarter.
(ii) The human resources department of the Employer shall
maintain individual accounts which shall reflect the share of each Participant
in the Tax Deferral Account (each referred to as an "Individual Tax Deferral
Account"). Interest credited to the Tax Deferral Account shall be allocated
among the Participants in the respective proportions that the balance in each
Participant's Individual Tax Deferral Account bears to the total balance in the
Tax Deferral Account on the date that such interest is credited.
(c) Awards to Type A and Type B Participants not deferred pursuant to
Subparagraph (b) above and all awards to Type C Participants shall be payable in
cash as soon as practicable after the close of the Plan Year.
5
(d) In the event of a Participant's death prior to receipt of his or
her award earned hereunder (including amounts allocated to such Participant's
Individual Mandatory Deferral Account and Individual Tax Deferral Account), the
award shall be paid, within thirty (30) days of the last day of the calendar
quarter during which the Participant's death occurred, to the Participant's
designated beneficiary under the Employer's group life insurance plan or, in the
absence of a valid designation, to the Participant's estate.
6. Manner of Payment of Mandatory and Tax Deferral Amounts.
-------------------------------------------------------
(a) Prior to the end of the fifth Plan Year following the Plan Year
for which an award was made to a Type A or Type B Participant, such Participant
may elect to have the balance on the last day of such fifth Plan Year in such
Participant's Individual Mandatory Deferral Account, after the addition of the
Matching Contribution (in the aggregate, the "Total Balance"), transferred and
credited to such Participant's Individual Tax Deferral Account, if any, for
distribution in accordance with the Participant's irrevocable election pursuant
to Schedule C. Such an election shall be in the form of Schedule D attached to
this plan document. If the Participant does not elect to transfer the Total
Balance to the Participant's Individual Tax Deferral Account, or if the
Participant does not have an Individual Tax Deferral Account, the Total Balance
shall be paid in cash to the Participant as soon as practicable after the close
of the Plan Year.
(b) The amount credited to a Participant's Individual Tax Deferral
Account, including amounts transferred pursuant to subparagraph (a) immediately
above, shall be paid to such Participant in one lump sum or in annual
installments. The actual manner of distribution will be in accordance with the
Participant's irrevocable election, the form of which is attached hereto as
Schedule C; provided, however, that if the Participant selects a distribution in
annual installments, such installment will be paid in a manner which complies
with any applicable rules, regulations or laws.
7. Funding.
-------
(a) Deferred award obligations under the Plan shall be paid from the
general assets of NPB or an Affiliate.
(b) NPB, or an Affiliate, in its sole discretion, may earmark assets
or other means to meet the deferred award obligations provided under the Plan.
Any assets which may be earmarked to meet NPB's or an Affiliate's deferred award
obligations provided under the Plan shall continue for all purposes to be part
of the general funds of NPB or an Affiliate and no person other than NPB or the
Affiliate shall by virtue of the provisions of the Plan have any interest in
such assets. To the
6
extent a Participant or his beneficiary acquires a right to receive deferred
award payments from NPB or an Affiliate under the Plan, such right shall be no
greater than the right of any unsecured general creditor of NPB or an Affiliate.
(c) Nothing contained in the Plan and no action taken pursuant to the
provisions of the Plan shall create or be construed to create a trust of any
kind, or a fiduciary relationship between NPB or an Affiliate and a Participant
or any other person.
8. Plan Administration.
-------------------
(a) The Committee shall, with respect to the Plan, have full power
and authority to construe, interpret and manage, control and administer the
Plan, and to pass and decide upon cases in conformity with the objectives of the
Plan under such rules as the Board of Directors of NPB may establish.
(b) Any decision made or action taken by the Board of Directors of
NPB or the Committee arising out of, or in connection with the administration,
interpretation, and effect of the Plan shall be at their absolute discretion and
shall be conclusive and binding on all parties.
(c) The members of the Committee and the members of the Board of
Directors of NPB shall not be liable for any act or action, whether of omission
or commission, made in connection with the interpretation and administration of
the Plan and which results in a loss, damage, expense or depreciation, except
when due to their own gross negligence or willful misconduct.
9. Amendment and Termination.
-------------------------
NPB reserves the right to amend the Plan from time to time and to
terminate the Plan at any time. All amendments, including any amendment to
terminate the Plan, shall be adopted by the Board of Directors of NPB.
10. Change in Control or Ownership.
------------------------------
(a) Subject to the further terms and provisions of this Paragraph 10,
the Plan shall automatically terminate on the date that a Change in Control or
Ownership shall occur, without necessity of any action by the Board of Directors
of NPB.
(b) If a Change in Control or Ownership shall occur, each
Participant's Individual Mandatory Deferral Account shall be credited, as of the
day immediately preceding the date on which such Change in Control or Ownership
occurred, with additional amounts as follows: An amount equal to each Plan Year
Balance
7
shall be credited by the Employer to such Participant's Individual Mandatory
Deferral Account (such additional amounts are referred to herein as "Change in
Control Matching Contributions").
(c) If a Change in Control or Ownership shall occur, the Employer
shall pay each Participant a cash amount equal to the total amounts credited, as
of the date such Change in Control or Ownership occurred, to (i) such
Participant's Individual Mandatory Deferral Account (including all Change in
Control Matching Contributions made pursuant to subparagraph (b) hereof) and
(ii) such Participant's Individual Tax Deferral Account, if any. The Employer
shall pay such total amounts to the Participants within thirty (30) days of the
termination of the Plan (as provided in subparagraph (a) hereof).
11. Effective Date.
--------------
The initial effective date of the Plan shall be January 1, 1984.
12. Miscellaneous Provisions.
------------------------
(a) The Plan does not constitute a contract of employment, and
participation in the Plan shall not give any Participant the right to be
retained in the service of NPB or an Affiliate or any right or claim to a
benefit under the Plan unless such right or claim has specifically accrued under
the terms of this plan document.
(b) NPB or an Affiliate reserves the right to withhold from any
deferred award payments payable hereunder, any amounts required to be withheld
under the federal income tax laws.
(c) The captions of the several paragraphs and subparagraphs of this
Plan are inserted for convenience of reference only and shall not be considered
in the construction hereof.
(d) Whenever any word is used herein in the singular form, it shall
be construed as though it were used in the plural form, as the context requires,
and vice versa.
(e) A masculine, feminine or neuter pronoun, whenever used herein,
shall be construed to include all genders as the context requires.
(f) This plan document may be executed in any number of counterparts,
each of which shall be deemed one and the same instrument which may be
sufficiently evidenced by any one counterpart.
8
(g) Except to the extent pre-empted by federal law, this plan
document shall be construed, administered and enforced in accordance with the
domestic internal law of the Commonwealth of Pennsylvania.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)
9
SCHEDULE A
----------
Participants for the ____ Plan Year consist of Types A, B, and C as
defined in the Plan document.
It is anticipated that the following named persons will meet the
eligibility requirements for participation as of December 31, ____. It is
expected that there could be additional individuals whose eligibility could be
determined later in the year, who would be named a participant as of December
31, ____.
Named participants are classified accordingly:
TYPE A (3 persons) (name and grade level)
[CHAIRMAN OF NPB]
[CEO AND PRESIDENT OF NPB]
[PRESIDENT OF THE BANK]
TYPE B (__ persons) (name and grade level)
[INSERT NAMES AND GRADE LEVELS]
TYPE C (__ persons) (name and grade level)
[INSERT NAMES AND GRADE LEVELS]
10
SCHEDULE B
----------
NATIONAL PENN BANCSHARES, INC.
EXECUTIVE INCENTIVE PLAN
____ PERFORMANCE GOALS
[SUBJECT TO CHANGE]
Awards pursuant to the Plan will not be made unless the internal and
external performance goals set forth below are met.
INTERNAL PERFORMANCE GOALS FOR THE PLAN YEAR
- -------------------------------------------------
The net operating income of NPB before securities transactions for ____ must
exceed the net operating income of NPB before securities transactions for ____.
EXTERNAL PERFORMANCE GOALS FOR THE PLAN YEAR
- -------------------------------------------------
The net operating income of NPB before securities transactions on realized
return on average common equity for ____ must exceed the average of the net
operating income before securities transactions on realized return on average
common equity for ____ for the banks or bank holding companies in the peer group
set forth on Schedule B-2 A.
11
SCHEDULE B-1
------------
PAY OUT FORMULA
1. Obtaining an operating return on average equity
triggers an incentive pay out as follows:
100% of peer group $0
100.1% of peer group .___% of average assets
130% of peer group .___% of average assets
Interpolation is required between 100.1% and 130%.
2. Obtaining #1 in return on equity triggers an added
pay out of $______.
12
SCHEDULE B-2
------------
The ____ banking companies which form the peer group are:
[INSERT PEER GROUP]
13
SCHEDULE C
----------
NATIONAL PENN BANCSHARES, INC.
EXECUTIVE INCENTIVE PLAN
DEFERRAL ELECTION LETTER
--------------------------
TO THE COMMITTEE:
In accordance with the National Penn Bancshares, Inc. Executive
Incentive Plan, as amended and restated in 1998, I hereby request to defer
receipt of that portion of any award earned by me (to the extent provided in
Paragraph 2 below) for services rendered as an eligible Participant in the Plan
during the calendar year specified below and eligible to be received in cash.
This election shall be governed by all of the provisions of the Plan.
1. This request shall be effective beginning with calendar year ____.
2. This request shall apply to _____________________of my award.
(Expressed as "all" or a designated dollar or percentage limitation.)
3. My deferred award and the interest thereon shall become payable on the
January 1 next following the date I retire or otherwise cease to be
employed by NPB or an Affiliate of NPB.
4. I irrevocably elect that, when payable, my deferred award and the
interest thereon shall be paid to me as indicated below:
( ) In one lump sum.
( ) In a series of five annual installments.
( ) In a series of ten annual installments.
I agree that such terms and conditions shall be binding upon my
beneficiaries, distributees, and personal representatives.
14
Unless noted below, my beneficiaries shall be the same as designated for my
group life insurance.
- ------------------------- --------------------------------
Date Signature of Participant
Approved By:
- ------------------------- --------------------------------
Date Signature of the Chairman of the
Committee
15
SCHEDULE D
----------
NATIONAL PENN BANCSHARES, INC.
EXECUTIVE INCENTIVE PLAN
TRANSFER ELECTION LETTER
--------------------------
TO THE COMMITTEE:
In accordance with the National Penn Bancshares, Inc. Executive
Incentive Plan, as amended and restated in 1998, I hereby request to transfer
the balance in the Individual Mandatory Deferral Account established in my name
for the award earned by me for services rendered as an eligible Participant in
the Plan during the calendar year specified below, eligible to be received in
cash, to the Individual Tax Deferral Account established in my name for the
award earned by me for services rendered as an eligible Participant in the Plan.
This election shall be governed by all of the provisions of the Plan.
1. This request shall be for the Individual Mandatory Deferral
Account established in my name for the award earned by me for
calendar year ____.
2. Payment of the award transferred and deferred pursuant hereto
shall be in accordance with the election made for the Tax
Deferral amount voluntarily deferred pursuant to deferral
election letter dated _______________________.
- ------------------------------ ------------------------------
Date Signature of Participant
Approved By:
- ------------------------------ ------------------------------
Date Signature of Chairman of the
Committee
16