-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CeDhnwiV+DY4Fl8+znkKBr3K0A1kenaz+Adal5sqW7xry4my4EY8ys8bSKqSJF4y F4hLypQKrLrYs0bVk0oNZA== 0000916641-02-000162.txt : 20020414 0000916641-02-000162.hdr.sgml : 20020414 ACCESSION NUMBER: 0000916641-02-000162 CONFORMED SUBMISSION TYPE: S-8 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20020201 EFFECTIVENESS DATE: 20020201 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMONWEALTH BANKSHARES INC CENTRAL INDEX KEY: 0000835012 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 541460991 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-8 SEC ACT: 1933 Act SEC FILE NUMBER: 333-81932 FILM NUMBER: 02524906 BUSINESS ADDRESS: STREET 1: 403 BOUSH ST CITY: NORFOLK STATE: VA ZIP: 23510 BUSINESS PHONE: 8044466900 MAIL ADDRESS: STREET 2: 403 BOUSH STREET CITY: NORFOLK STATE: VA ZIP: 23510 S-8 1 ds8.txt FORM S-8 As filed with the Securities and Exchange Commission on February 1, 2002 Registration No. 333-_____ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-8 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Commonwealth Bankshares, Inc. (Exact Name of Registrant as Specified in Its Charter) Virginia 54-1460991 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 403 Boush Street Norfolk, Virginia 23510 (Address of Principal Executive Office) (Zip Code) Bank of the Commonwealth Directors' Deferred Compensation Plan Bank of the Commonwealth Supplemental Executive Retirement Plan (Full Title of the Plan) T. Richard Litton, Jr., Esq. Kaufman & Canoles P. O. Box 3037 Norfolk, VA 23514-3037 (Name and Address of Agent for Service) (757) 624-3241 (Telephone Number, Including Area Code, of Agent for Service) CALCULATION OF REGISTRATION FEE
============================ =============== ================= ================== ============== Proposed Title of Proposed Maximum Securities Amount Maximum Aggregate Amount of to be to be Offering Price Offering Registration Registered Registered Obligation Price Fee - ---------------------------- --------------- ----------------- ------------------ -------------- Deferred(1) Compensation Obligations $1,500,000(2) 100% $1,500,000 $138
(1) The Deferred Compensation Obligations are unsecured obligations of Commonwealth Bankshares, Inc. to pay deferred compensation in the future in accordance with the terms of the Bank of the Commonwealth Directors' Deferred Compensation Plan and Bank of the Commonwealth Supplemental Executive Retirement Plan. (2) Estimated solely for the purpose of calculating the registration fee. Such estimate has been computed in accordance with Rule 457(h) and is based upon an estimate of the amount of compensation to be deferred by participants. PART II INFORMATION REQUIRED IN REGISTRATION STATEMENT AND NOT REQUIRED IN PROSPECTUS Item 3: Incorporation of Documents by Reference. --------------------------------------- The following documents previously filed by the Registrant with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") are incorporated herein by reference and made a part hereof: (1) The Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2000, File No. 000-17377; (2) The Registrant's Quarterly Report on Form 10-QSB for the quarters ended March 31, 2001, June 30, 2001 and September 30, 2001, File No. 000-17377; and (3) The description of the Registrant's Common Stock contained in the Registrant's Registration Statement on Form 8-B, File No. 000-17377. All documents subsequently filed by the Registrant pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold, shall be deemed to be incorporated by reference herein and to be a part hereof from the date of filing of such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Registration Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such earlier statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Registration Statement. Item 4: Description of Securities. ------------------------- The Registrant is a holding company and its principal assets are its operating subsidiaries. One such operating subsidiary is the Bank of the Commonwealth, a Virginia corporation (the "Bank Subsidiary"). The securities being registered are deferred compensation obligations ("Deferred Compensation Obligations") of the Bank Subsidiary under the Bank of the Commonwealth Directors' Deferred Compensation Plan (the "Directors' Plan") and the Bank of the Commonwealth Supplemental Executive Retirement Plan (the "SERP") (sometimes referred to collectively as the "Plans"). The following description of the Deferred Compensation Obligations is qualified in its entirety by reference to the complete text of the Plans set forth as Exhibits 4.1 and 4.2 to this Registration Statement. Capitalized terms used in this Item 4 and not otherwise defined in this Registration Statement shall have the respective meanings attributed to such terms in the Plans, or, to the extent that a Capitalized term has a meaning attributed to it by only one of the Plans, in such Plan. The Deferred Compensation Obligations incurred by the Bank Subsidiary under the Plans are unsecured general obligations of the Bank Subsidiary, and will rank equally with other unsecured and unsubordinated indebtedness of the Bank Subsidiary outstanding from time to time. Pursuant to Revenue Procedure 92-64, I.R.B. 1992-33, the Bank Subsidiary has adopted an irrevocable grantor rabbi trust as a method of establishing a fund with which to satisfy the Bank Subsidiary's Deferred Compensation Obligations. For purposes of the Employee Retirement Income Security Act of 1974, the adoption and maintenance of the rabbi trust does not cause the Plans to be considered funded. 2 Under the Directors' Plan, the Bank Subsidiary will provide its directors with the opportunity to elect to defer part or all of the director's Fees payable to such directors during any Plan Year. Under the SERP, the Bank Subsidiary will provide the select group of executives the opportunity to elect to defer part or all of the Compensation and Bonuses payable to such executives during any Plan Year; provided however, that an executive may not be permitted to defer an amount of his Compensation and/or Bonus which, after deferrals to this Plan, would reduce the executive's Compensation and/or Bonus to an amount that is less than the maximum amount of earnings subject to employment taxes. The Bank Subsidiary will establish an Account under each Plan for each director and executive, as applicable, who elects to participate in such Plan. A Participant may designate a fixed dollar amount or a percentage to be deducted from his or her Fee (if a director) or Compensation and/or Bonus (if an executive) ("Deferral Contribution") and shall indicate how the Deferral Contribution in the Participant's Account is to be deemed invested as between the Bank Stock Fund and the Interest Bearing Fund. Each Participant's Account shall be further sub-divided, as appropriate, into an Interest Bearing Account and a Bank Stock Account. All Deferral Contribution amounts that are deemed invested in the Interest Bearing Fund are credited for interest in the same manner under both Plans, with one variation. Under the SERP, as of each Valuation Date (March 31st, June 30th, September 30th, and December 31st), the Bank will credit to the Participant's Interest Bearing Account an amount for interest earned, calculated at a rate equal to the five-year U.S. Treasury Bill rate that was in effect on the immediately preceding Valuation Date. Under the Directors' Plan, the Deferral Contribution amount deemed invested in the Interest Bearing Fund is treated the same as described above, with the exception that for Deferral Contribution amounts credited to the Participant's Interest Bearing Account prior to January 1, 1992, the Bank will credit, as of each Valuation Date, an amount for interest earned, calculated at the highest rate of interest which the Bank Subsidiary has paid or accrued on any savings or time account during the calendar quarter ending on such Valuation Date. In all cases, and in both Plans, the interest earned will be calculated utilizing a 360 day year and utilizing the aggregate Account balance of each Participant that is deemed to be invested in the Interest Bearing Fund, including all prior accruals of interest. All Deferral Contribution amounts deemed invested in the Bank Stock Fund shall be credited to the Participant's Bank Stock Account on the date when the Deferral amount would otherwise be paid to the Participant. All Deferral Contribution amounts deemed to be invested in the Bank Stock Fund shall be credited to the Participant's Bank Stock Account in units or fractional units. Dividends paid on Bank Stock shall also be deemed invested in Bank Stock and shall be credited to the Participant's Bank Stock Account in units or fractional units on the date when the dividend would otherwise be paid to the Participant. The value of each unit shall be determined on each Valuation Date and will be equal to the fair market value of one share of Bank Stock on such Valuation Date. The value of each partial unit shall be determined each Valuation Date pro-rata with reference to the value of each unit as determined each Valuation Date. On each date that Deferral or dividend amounts are credited to the Participant's Bank Stock Account, the number of units to be credited shall be determined by dividing the amount of such Deferral or dividend amounts by the value of a unit as of the Valuation Date coinciding with or immediately preceding such crediting date. If there is any change in the number or class of shares of Bank Stock through the declaration of a stock dividend or other extraordinary dividends, or recapitalization resulting in stock splits, or combinations or exchanges of such shares or in the event of similar transactions, the units in each Participant's Account shall be equitably adjusted to reflect any such change in the number or class of issued shares of Bank Stock or to reflect such similar transaction. The amounts deferred by Participants under the Plans represent an obligation of the Bank Subsidiary to make payments to the Participants at some time in the future. The amount that the Bank Subsidiary is required to pay to any Participant under the terms of the Plan is equal to the Deferral Contributions made by the Participant, as adjusted for the deemed investment gains or losses attributable to the such Deferral Contributions in shares of the Registrant's common stock or the deemed investment interest as provided for above. The Participant's Account will reflect the Deferral Contributions and the adjustments made thereto. The amounts payable to Participants under the Plan are distributed in accordance with the distribution provisions of the Plan. Generally, such distributions are available at retirement age, death, or on account of disability. In addition, a Participant who separates from service with the Bank Subsidiary other than on account of 3 retirement, death, or disability, is entitled to receive distributions upon attainment of age 65 (unless he or she dies or becomes disabled in the meantime, in which case benefits would be payable pursuant to the Plan terms regarding such distributions). Payment may also be made in certain situations following a Change in Control. Payment of benefits is made generally in the form of installment payments, although payment in lump sum is available in limited situations. The Bank Subsidiary is entitled to withhold all federal, state and local income, employment and other taxes required to be withheld by the Bank Subsidiary in connection with payments to be made to Participants under the Plans. Each Participant is at all times 100% vested in all Deferral Contributions, as well as in any appreciation (or depreciation) in the amount thereof due to appreciation or depreciation in the Registrant's common stock or the appreciation resulting from credited interest. However, the Participant shall forfeit all amounts in his or her Account if the Participant is terminated for Cause. Such forfeitures will revert to and become part of the Bank Subsidiary's general unrestricted assets. The Bank Subsidiary reserves the right to amend or terminate the Plan, provided that any such amendment does not decrease or restrict the value of a Participant's account balance under the Plan in existence at the time the amendment is made. Item 5: Interests of the Named Experts and Counsel. ------------------------------------------ Not applicable. Item 6: Indemnification of Directors and Officers. ----------------------------------------- Article 10 of Chapter 9 of Title 13.1 of the Code of Virginia (the "Code") permits a Virginia corporation to indemnify any director or officer for reasonable expenses incurred in any legal proceeding in advance of final disposition of the proceeding, if the director or officer furnishes the corporation a written statement of his good faith belief that he or she has met the standard of conduct prescribed by the Code, and a determination is made by the board of directors that such standard has been met. In a proceeding by or in the right of the corporation, no indemnification shall be made in respect of any matter as to which an officer or director is adjudged to be liable to the corporation, unless the court in which the proceeding took place determines that, despite such liability, such person is reasonably entitled to indemnification in view of all of the relevant circumstances. In any other proceeding, no indemnification shall be made if the director or officer is adjudged liable to the corporation on the basis that personal benefit was improperly received by him. Corporations are given the power to make any other or further indemnity, including advance of expenses, to any director or officer that may be authorized by the articles of incorporation or any bylaw made by the shareholders, or any resolution adopted, before or after the event, by the shareholders, except an indemnity against willful misconduct or a knowing violation of the criminal law. Unless limited by its articles of incorporation, indemnification of a director or officer is mandatory when he or she entirely prevails in the defense of any proceeding to which he or she is a party because he or she is or was a director or officer. The Articles of Incorporation of the Registrant contain provisions indemnifying the directors and officers of the Registrant to the full extent permitted by Virginia law. In addition, the Articles of Incorporation of the Registrant eliminate the personal liability of the Registrant's directors and officers to the Registrant or its shareholders for monetary damages to the full extent permitted by Virginia law. Item 7: Exemption from Registration Claimed. ----------------------------------- Not applicable. 4 Item 8: Exhibits. -------- Number Description ------ ----------- 4.1 Bank of the Commonwealth Directors' Deferred Compensation Plan. 4.2 Bank of the Commonwealth Supplemental Executive Retirement Plan. 5.1 Opinion of Kaufman & Canoles, P.C. 23.1 Consent of Poti, Walton & Associates, P.C. 23.2 Consent of Kaufman & Canoles, P.C. (contained in Exhibit 5.1) 24 Power of Attorney (included on the signature page of this Registration Statement) Item 9: Undertakings. ------------ (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information in this registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered therein; and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (h) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Norfolk, Commonwealth of Virginia, on February 1, 2002. COMMONWEALTH BANKSHARES, INC. By: /s/ Edward J. Woodard, Jr. ------------------------------------- Edward J. Woodard, Jr., CLBB President and Chief Executive Officer POWER OF ATTORNEY Each of the undersigned hereby appoints E. J. Woodard, Jr. and John H. Gayle as attorneys and agents for the undersigned, with full power of substitution, for and in the name, place and stead of the undersigned, to sign and file with the Securities and Exchange Commission under the Securities Act of 1933, as amended, any and all amendments and exhibits to the registration statement and any and all applications, instruments and other documents to be filed with the Securities and Exchange Commission pertaining to the registration of securities covered hereby with full power and authority to do and perform any and all acts and things whatsoever requisite or desirable. Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Edward J. Woodard, Jr. President, Chief Executive February 1, 2002 - ---------------------------- Officer and Director Edward J. Woodard, Jr. (Principal Executive Officer) /s/ John H. Gayle Executive Vice President and February 1, 2002 - ---------------------------- Cashier (Principal Financial John H. Gayle Officer) /s/ E. Carlton Baxter Director February 1, 2002 - ---------------------------- E. Carlton Baxter /s/ Laurence C. Fentriss Director February 1, 2002 - ---------------------------- Laurence C. Fentriss /s/ Morton Goldmeier Director February 1, 2002 - ---------------------------- Morton Goldmeier /s/ William P. Kellam Director February 1, 2002 - ---------------------------- William P. Kellam /s/ Thomas W. Moss, Jr. Director February 1, 2002 - ---------------------------- Thomas W. Moss, Jr. /s/ William D. Payne, M.D. Director February 1, 2002 - ---------------------------- William D. Payne, M.D. /s/ Herbert L. Perlin Director February 1, 2002 - ---------------------------- Herbert L. Perlin /s/ Richard J. Tavss Director February 1, 2002 - ---------------------------- Richard J. Tavss /s/ Kenneth J. Young Director February 1, 2002 - ---------------------------- Kenneth J. Young EXHIBIT INDEX TO FORM S-8 REGISTRATION STATEMENT Exhibit Number Description of Exhibit - -------------------------------------------------------------------------------- *4.1 Bank of the Commonwealth Directors' Deferred Compensation Plan. *4.2 Bank of the Commonwealth Supplemental Executive Retirement Plan. *5.1 Opinion of Kaufman & Canoles, P.C. *23.1 Consent of Poti, Walton & Associates, P.C. *23.2 Consent of Kaufman & Canoles, P.C. (contained in Exhibit 5.1) *24 Power of Attorney (included on the signature page of this Registration Statement) - -------------------------------------------------------------------------------- * Filed herewith. EX-4.1 3 dex41.txt DEFERRED COMPENSATION PROGRAM EXHIBIT 4.1 BANK OF THE COMMONWEALTH DIRECTORS' DEFERRED COMPENSATION PLAN Effective January 1, 2002 BANK OF THE COMMONWEALTH DIRECTORS' DEFERRED COMPENSATION PLAN TABLE OF CONTENTS ----------------- Page ---- PREAMBLE ......................................................................1 ARTICLE I .....................................................................3 DEFINITIONS .................................................................3 1.1 Account .........................................................3 1.2 Administrator ...................................................3 1.3 Bank ............................................................3 1.4 Bank Stock ......................................................3 1.5 Beneficiary .....................................................3 1.6 Board ...........................................................3 1.7 Cause ...........................................................4 1.8 Change in Control ...............................................4 1.9 Code ............................................................5 1.10 Declared Investment Rate ........................................5 1.11 Deferrals .......................................................5 1.12 Designation Date ................................................5 1.13 Disability ......................................................5 1.14 Effective Date ..................................................6 1.15 Election Form ...................................................6 1.16 Fees ............................................................6 1.17 Participant .....................................................6 1.18 Plan ............................................................6 1.19 Plan Year .......................................................6 1.20 Retirement ......................................................6 1.21 Retirement Benefit ..............................................6 1.22 Survivor Benefit ................................................7 1.23 Termination Benefit .............................................7 1.24 Trust ...........................................................7 1.25 Trustee .........................................................7 1.26 Valuation Date ..................................................7 ARTICLE II ....................................................................8 ELIGIBILITY .................................................................8 ARTICLE III ...................................................................9 CONTRIBUTIONS TO ACCOUNTS ...................................................9 3.1 Accounts ........................................................9 ARTICLE IV ...................................................................10 PARTICIPANT ELECTIONS TO DEFER .............................................10 i 4.1 Election to Defer ..............................................10 Deferral Election ............................................10 ARTICLE V ....................................................................11 ADJUSTMENTS TO ACCOUNTS FOR DECLARED INVESTMENT RATES ......................11 5.1 Adjustments to Accounts ........................................11 Bank Stock ...................................................11 Interest Bearing Fund ........................................12 Prior to January 1, 1992 ...................................12 January 1, 1992 and Thereafter .............................13 5.2 Accounting for Distributions ...................................14 5.3 Separate Accounts ..............................................14 5.4 Deemed Investment Directions of Participants ...................14 ARTICLE VI ...................................................................17 BENEFITS ...................................................................17 6.1 Retirement Benefit .............................................17 6.2 Disability .....................................................18 6.3 Termination Benefit ............................................18 Separations From Service As Director For Reasons Other Than Death, Disability, Or Retirement ................18 Vesting in Account ...........................................19 Forfeitures ................................................19 6.4 Survivor Benefits ..............................................19 Pre-Retirement ...............................................19 6.5 Change in Control Provisions ...................................19 Full Vesting .................................................19 Immediate Payouts Upon Termination of Employment .............20 6.6 Small Benefit ..................................................20 6.7 Withholding: Payroll Taxes ....................................20 ARTICLE VII ..................................................................21 BENEFICIARY DESIGNATION ....................................................21 7.1 Beneficiary Designation ........................................21 ARTICLE VIII .................................................................22 CONTRIBUTIONS ...............................................................22 ARTICLE IX ...................................................................24 ADMINISTRATION OF PLAN ......................................................24 9.1 Plan Administrator .............................................24 9.2 Examination of Records .........................................25 9.3 Reliance on Reports and Certificates ...........................25 9.4 Nondiscriminatory Exercise of Authority ........................25 9.5 Indemnification of Administrator ...............................25 ARTICLE X ....................................................................26 MISCELLANEOUS ..............................................................26 10.1 Alienability and Assignment Prohibition ........................26 10.2 Binding Obligation of Bank and Any Successor in Interest .......26 10.3 Amendment or Termination .......................................26 10.4 Claims Procedure ...............................................26 10.5 Employment and Other Rights ....................................27 ii 10.6 Governing Law ..................................................27 iii BANK OF THE COMMONWEALTH DIRECTORS' DEFERRED COMPENSATION PLAN THIS PLAN is made effective in the City of Norfolk, Virginia, this 1st day of January, 2002, by BANK OF THE COMMONWEALTH (the "Bank"). PREAMBLE -------- The purpose of the Bank of the Commonwealth Directors' Deferred Compensation Plan (the "Plan") is to provide a means whereby the Bank may afford a measure of financial security to Directors of the Bank who have rendered and continue to render valuable services to the Bank. The Plan is intended to provide for future income needs of these Directors, so that their services may be retained and their productive efforts encouraged. This Plan is an amendment, restatement, and consolidation of the Bank of Commonwealth Non-Employee Director's Deferred Compensation Plan and Employee Director's Deferred Compensation Plan, effective December 20, 1977, and December 27, 1978, respectively. This Plan will be maintained for the exclusive benefit of the Directors of the Bank who participate herein and is intended by the parties to constitute an unfunded "top hat" plan of deferred compensation for all purposes under the Employee Retirement Income Security Act of 1974 ("ERISA") and the Internal Revenue Code of 1986, as amended, as well as the regulations thereunder. By separate agreement, the Bank has created an irrevocable trust (the "Trust") to facilitate the payment of deferred compensation to the directors who participate in the Plan. The Trust and any assets held by the Trust to assist the Bank in meeting its obligations under this Plan will conform to the terms of the model trust described in Revenue Procedure 92-64. 2 ARTICLE I DEFINITIONS ----------- 1.1 "Account" means the bookkeeping reserve account established on the Bank's financial records to record the aggregate interest of a Participant in this Plan. Within each Account, separate sub-accounts shall be maintained pursuant to the terms of this Plan to the extent necessary for the administration of the Plan for each different Plan Year, including sub-accounts to record each Participant's Deferrals and Declared Investment Rate or method of payment elections related thereto. 1.2 "Administrator" means the person or committee as may be appointed from time to time by the Board or if the Board so elects, the Board, to supervise the administration of the Plan. 1.3 "Bank" means Bank of the Commonwealth and any successor, which shall maintain this Plan. 1.4 "Bank Stock" means Common Stock of Commonwealth Bankshares, Inc., the 100% parent of the Bank. 1.5 "Beneficiary" means the person or persons designated to receive any amount in the event of the death of a Participant or former Participant in accordance with Section 7.1. 1.6 "Board" means the Board of Directors of the Bank. 3 1.7 "Cause" means termination of a Participant's service as Director with the Bank on account of: (a) the Participant's misappropriation or embezzlement of any funds or property of the Bank; (b) the Participant's conviction of a felony or a crime involving moral turpitude; or (c) proven dishonesty by the Participant in the performance of services as a Director for the Bank. 1.8 "Change in Control" means (i) the purchase or other acquisition by any person, entity or group of persons, within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934 ("Act"), or any comparable successor provisions, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of 30 percent or more of the combined voting power of the then outstanding voting securities issued by the Bank or any of its parent corporations; (ii) the approval by the stockholders of the Bank or any of its parent corporations of a reorganization, merger, or consolidation, in each case, with respect to which persons who were stockholders of the Bank or any of its parent corporations immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50 percent of the combined voting power entitled to vote generally in the election of directors of the then outstanding securities of the reorganized, merged or consolidated Bank or parent corporation, as applicable, (iii) a liquidation or dissolution of the Bank, (iv) the sale of fifty percent (50%) or more, of the Bank's assets, or (v) a sale of any portion of the Bank's assets or operations which, on the basis of the Bank's most recent audited financial statement, will result or is projected to result in a fifty percent (50%) or more reduction in the Bank's gross revenues for the current period, compared to the period covered by such audited financial statement; (vi) any other corporate transaction, including a layoff or reduction in force, which results in the involuntary termination of employment of fifty percent (50%) or more of the Participants in this Plan; or (vii) a majority of members of the Bank's board of 4 directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the Bank's board of directors prior to the date of the appointment or election. 1.9 "Code" means the Internal Revenue Code of 1986, as amended, and any successor statute thereof, as interpreted by the rules and regulations issued thereunder, in each case as in effect from time to time. References to sections of the Code shall be construed also to refer to any successor sections. 1.10 "Declared Investment Rate" means with respect to any Plan Year a rate of return (positive or negative) that equals the notional gains or losses equal to those generated as if the Account balance had been invested in one or more of the deemed investments as may be made available by the Bank under this Plan. 1.11 "Deferrals" means the amount of Fees voluntarily elected to be deferred and credited to a Participant's Account under Article IV. 1.12 "Designation Date" means January 1st, April 1st, July 1st and October 1st. 1.13 "Disability" means any physical or mental impairment which, on the basis of medical evidence satisfactory to the Board, renders the Participant unable to continue the performance of his regular Director's duties with the Bank and that such impairment will be permanent and continuous during the remainder of the Participant's life. 5 1.14 "Effective Date" means January 1, 2002, the date of the amended and restated Plan. 1.15 "Election Form" means the election form or forms that a Director files with the Bank from time to time to participate in the Plan and make the various Deferral, distribution and investment elections permitted under the Plan. 1.16 "Fees" means the total amount of fees, as determined from time to time by the Board, paid to a Director on or before December 31st of each Plan Year for service on the Board and Committees thereof, including Deferrals elected by the Participant under this Plan. 1.17 "Participant" means a Director who has filed a completed and executed Election Form with the Administrator and is participating in the Plan. 1.18 "Plan" means this instrument and all amendments thereto. 1.19 "Plan Year" means a 12-month period beginning on January 1st and ending on the following December 31st of each year. 1.20 "Retirement" means the termination of a Participant's service to the Bank as a Director after his attainment of age sixty-five (65). 1.21 "Retirement Benefit" means the sum total of benefits payable to a Participant who is eligible for Retirement. 6 1.22 "Survivor Benefit" means those Plan benefits that become payable upon the death of a Participant pursuant to the provisions of Section 6.4. 1.23 "Termination Benefit" means the lump sum amount payable to a Participant who terminates service as a Director prior to death, Disability or becoming eligible for Retirement under Section 6.3. 1.24 "Trust" means the irrevocable trust agreement dated January 1, 2002, established by the Bank as grantor and the Bank Trust Department as Trustee, or any substitute or successor thereto. 1.25 "Trustee" means the trustee named in the agreement establishing the Trust and such successor and or additional trustees as may be named pursuant to the terms of the agreement establishing the trust. 1.26 "Valuation Date" means the last date of each calendar quarter, or, March 31st, June 30th, September 30th, and December 31st. 7 ARTICLE II ELIGIBILITY ----------- All Directors shall be eligible to participate in the Plan. The Directors, along with the effective date of their participation in the Plan shall be listed on Exhibit I attached hereto. 8 ARTICLE III CONTRIBUTIONS TO ACCOUNTS ------------------------- 3.1 Accounts. The Bank shall create a special account on its books and financial records (the "Account"), to which shall be credited each Participant's Deferrals, as specified in Section 4.1 and as elected by the Participant on his or her Election Form, together with earnings as specified in Article V. All amounts credited to each Participant's Account are credited solely for purposes of accounting and computations and shall remain the assets of the Bank subject to the claims of the Bank's general creditors. 9 ARTICLE IV PARTICIPANT ELECTIONS TO DEFER ------------------------------ 4.1 Election to Defer. Any Director may enroll in the Deferral feature of the Plan. The Deferral election may be made, effective as of the first day of a Plan Year, by filing a completed and fully executed Election Form with the Administrator during enrollment periods established by the Administrator, but in no event later than December 31st preceding the year of the Deferral. Notwithstanding the preceding sentence, a Director who, for the first time, becomes eligible to participate in the Plan during a Plan Year, may file an Election Form for the balance of such Plan Year, as long as such Election is filed within thirty (30) days of the date on which he first became eligible. On such Election Form, the Eligible Director shall irrevocably elect the amount of his Fees to defer for such Plan Year ("Deferrals") and the time and method for distribution of such Deferrals under Article VI. (a) Deferral Election. A Director may elect to defer a specific dollar amount or percentage of his Fees. 10 ARTICLE V ADJUSTMENTS TO ACCOUNTS FOR DECLARED INVESTMENT RATES ----------------------------------------------------- 5.1 Adjustments to Accounts. Pursuant to Section 5.4, each Participant shall have the right to direct the Bank as to how amounts in his or her Account, including amounts accumulated prior to January 1, 2002, shall be deemed to be invested as between the following two options: (1) Bank Stock Fund; or (2) Interest Bearing Fund. The Trustee may follow such investment direction but shall not be legally bound to do so. The Participant's Account will be credited and debited, as applicable, with either the increase or decrease in the value of Bank Stock, based on the increase or decrease in the per share value of Bank Stock, for the relevant period, or the applicable credited interest rate earned under the Interest Bearing Fund, as follows. (a) Bank Stock. The Bank shall establish and maintain a separate sub-account, a Bank Stock Account, for each Plan Year for each Participant who elects to have all or a portion of his of her Deferral amounts for such Plan Year invested in Bank Stock. A Participant's Bank Stock Account shall be credited as follows: (1) All Deferral amounts that are deemed, at the Participant's election, to be invested in Bank Stock shall be credited to the Participant's Bank Stock Account on the date when the Deferral amount would otherwise be paid to the Participant. (2) All Deferral amounts deemed to be invested in Bank Stock shall be credited to the Participant's Bank Stock Account in units or fractional units. Dividends paid on Bank Stock shall also be deemed invested in Bank Stock and shall be credited to the Participant's 11 Bank Stock Account in units or fractional units on the date when the dividend would otherwise be paid to the Participant. The value of each unit shall be determined each Valuation Date and shall equal the fair market value of one share of Bank Stock on such Valuation Date. The value of each partial unit shall be determined each Valuation Date pro-rata with reference to the value of each unit as determined each Valuation Date. On each date that Deferral or dividend amounts are credited to the Participant's Bank Stock Account, the number of units to be credited shall be determined by dividing the amount of such Deferral or dividend amounts by the value of a unit as of the Valuation Date coinciding with or immediately preceding such crediting date. (3) If there is any change in the number or class of shares of Bank Stock through the declaration of a stock dividend or other extraordinary dividends, or recapitalization resulting in stock splits, or combinations or exchanges of such shares or in the event of similar transactions, the units in each Participant's Bank Stock Account shall be equitably adjusted to reflect any such change in the number or class of issued shares of Bank Stock or to reflect such similar transaction. (b) Interest Bearing Fund. (1) Prior to January 1, 1992. For Deferral amounts credited to the Account of a Participant prior to January 1, 1992 (including but not limited to the annual Director's fees for calendar year 1991), as of each Valuation Date, the Bank shall credit, to the respective sub-account of the Participant, the Pre-1992 Interest Bearing Account, an amount for interest earned, calculated at the highest rate of interest which the Bank has paid or accrued on any savings or time 12 account during the calendar quarter ending on such Valuation Date. Said amount of interest earned shall be calculated utilizing a 360 day year and the aggregate Account balance of each Participant that is deemed to be invested in the Interest Bearing Fund, including all prior accruals of interest. (2) January 1, 1992 and Thereafter. As of each Valuation Date, the Bank shall credit, to the respective sub-account, the Post-1991 Interest Bearing Account, of each Participant who elects any portion of his Account deemed to be invested in the Interest Bearing Fund, an amount for interest earned, calculated at a rate equal to the five-year U.S. Treasury Bill rate as such rate was in effect on the immediately preceding Valuation Date. Said amount of interest earned shall be calculated utilizing a 360 day year and the aggregate Account balance of each Participant that is deemed to be invested in the Interest Bearing Fund, including all prior accruals of interest. (c) Notwithstanding any other provision of the Plan that may be interpreted to the contrary, the investment options, including Bank Stock, are to be used for measurement purposes only, and a Participant's election of any such investment option, the allocation to his or her Account balances thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participant's Account balances shall not be considered or construed in any manner as an actual investment of his or her Account balances in any such investment option. In the event that the Bank or the trustee of the Trust, in its own discretion, decides to invest funds in any or all of the investment options, no Participant shall have any rights in or to such investments themselves. Without limiting the foregoing, a Participant's Account balances shall at all times be a bookkeeping 13 entry only and shall not represent any investment made on the Participant's behalf by the Bank or the Trust. The Participant shall at all times remain an unsecured creditor of the Bank. 5.2 Accounting for Distributions. As of the date of any distribution hereunder pursuant to Article VI, the distribution to a Participant or his or her Beneficiary or Beneficiaries shall be charged to such Participant's Account. 5.3 Separate Accounts. A separate account under the Plan shall be established and maintained by the Bank on behalf of each Participant to record his or her interest in the Plan, with sub-accounts to show separately the deemed earnings and losses credited or debited to the deemed investments of the Account. 5.4 Deemed Investment Directions of Participants. Subject to such limitations as may from time to time be required by law, imposed by the Bank, or the Trustee, or contained elsewhere in the Plan, and subject to such operating rules and procedures as may be imposed from time to time by the Bank or the Trustee, prior to and effective for each Designation Date, each Participant may communicate to the Bank a direction as to how his or her Account should be deemed invested among the two deemed investments available hereunder. Such direction shall designate the percentage (in any whole percent multiples) of each portion of the Participant's Account that is requested to be deemed invested in the deemed investments and shall be subject to the following rules: 14 (a) Any initial or subsequent deemed investment direction shall be in writing, on a form supplied by and filed with the Bank, and shall be effective as of the next Designation Date that is at least ten (10) business days after such filing. (b) All amounts credited to a Participant's Account shall be deemed to be invested in accordance with the then effective deemed investment direction, and, as of the effective date of any new deemed investment direction, all or a portion of the Participant's Account at that date shall be reallocated among the designated deemed investment funds according to the percentages specified in the new deemed investment direction unless and until a subsequent deemed investment direction shall be filed and become effective. An election concerning deemed investment choices shall continue indefinitely as provided in the Participant's most recent Election Form or other form specified by the Bank. (c) If the Bank receives an initial deemed investment direction that it deems incomplete, unclear, or improper, the Participant's investment direction then in effect shall remain in effect (or, in the case of a deficiency in an initial deemed investment direction, the Participant shall be deemed to have filed a deemed investment direction to invest all of the account in the Interest Bearing Fund) until the next Designation Date, unless the Bank provides for, and permits the application of, corrective action prior thereto. (d) If the Bank possesses at any time directions as to the deemed investment of less than all of the Participant's Account, the Participant shall be deemed to have directed that the undesignated portion of the Account be deemed to be invested in the Interest Bearing Fund. 15 (e) Each reference in this Section 5.4 to a Participant shall be deemed to include, where applicable, a reference to a Beneficiary. 16 ARTICLE VI BENEFITS -------- 6.1 Retirement Benefit. A Participant is eligible for a Retirement Benefit under this Plan when he has satisfied all the requirements for Retirement. The Retirement Benefit will be based on the balance in the Participant's Account and will be paid in ten (10) annual installments as described below. The amount to be paid with each installment shall be the balance in the Participant's Account as of the "applicable valuation date," as defined below, multiplied by a fraction, the numerator of which is one (1) and the denominator of which is the number of installment payments remaining. For purposes of this Section, the applicable valuation date for the first installment payment shall be the date of the Participant's Retirement, and the applicable valuation date for subsequent installment payments shall be the first day of each Plan Year thereafter; provided, however, that in no event shall more than one installment payment be made to a Participant in any one Plan Year. A Participant shall receive the initial installment on the first day of the month next following the Participant's Retirement, and each subsequent installment payment shall be made within thirty (30) days of the applicable valuation date. If the Director should die on or after he has satisfied all the requirements for Retirement and before all of the ten installment payments are made, the unpaid balance will be paid to his designated Beneficiary in full as soon as practicable after the first day of the calendar year following the year in which the said Director dies. 17 Following receipt of his complete Retirement Benefit, a Participant shall be entitled to no further benefits under the Plan. 6.2 Disability. If a Participant suffers a Disability before he reaches Retirement, then the Bank shall make ten (10) annual installment payments to such Participant in the same manner and to the same extent as provided in Section 6.1 above. Such installments shall commence on the first day of the month next following the Participant's Disability, and each subsequent installment shall be paid within thirty (30) days of the applicable valuation date as set forth in Section 6.1; provided, however, that in no event shall more than one installment payment be made to a Participant in any one Plan Year. 6.3 Termination Benefit. (a) Separations From Service As Director For Reasons Other Than Death, Disability, Or Retirement. If a Participant ceases to be a Director for any reason other than death, Disability, or Retirement, then the amount in such Participant's Account shall continue to accrue the Deemed Investment Rate as provided in Article V and no payments shall be made until such Participant attains the age of 65, at which time payments shall be made in the same manner and to the same extent as set forth in Section 6.1 above. Notwithstanding the foregoing, if prior to attaining the age of 65 such Participant should become Disabled, or if prior to attaining the age of 65 such Participant should die, then payments shall be made in the same manner and to the same extent as set forth in Sections 6.2 (Disability Benefits) or 6.4 (Survivor Benefits), as applicable. 18 (b) Vesting in Account. Subject only to Section 6.3(b)(i) below, a Participant shall always be one hundred percent (100%) fully vested in his Account and, no portion of such Account balance is subject to forfeiture. (i) Forfeitures. Notwithstanding anything hereinabove to the contrary, a Participant whose service as director with the Bank is terminated for Cause shall forfeit all amounts in his Account and all rights of such director, his designated Beneficiary, executors, administrators, or other persons, to receive payments thereof shall be forfeited. Such forfeited amounts shall revert to and become part of the Bank's general unrestricted assets. 6.4 Survivor Benefits. (a) Pre-Retirement. If a Participant dies while serving as a Director of the Bank but before such Participant is otherwise eligible to receive Retirement Benefits, or after such Participant is eligible to receive Retirement Benefits but before receipt of all such benefits, a Survivor Benefit will be paid to his Beneficiary in a lump sum equal to the balance of his Account as soon as practicable after the first day of the Plan Year following the year in which such Participant died. 6.5 Change in Control Provisions. (a) Full Vesting. Notwithstanding anything hereinabove to the contrary, in the event of any Change in Control of the Company, each Participant's Account shall immediately vest and become 100% nonforfeitable as of the date of the occurrence of a Change in Control. 19 (b) Immediate Payouts Upon Termination of Employment. Each Participant who ceases to be a Director for any reason following a Change in Control or any series of two or more Changes in Control and each Participant who has previously terminated, retired or become Disabled and still maintains an Account hereunder, and each Beneficiary then receiving survivor benefits on account of the death of a Participant, shall receive his full Account balance in a lump sum within thirty (30) days after the later of the date of the Change in Control or the date on which the Participant ceases to be a Director, regardless of any previous election by the Participant to receive Retirement Benefits in installments. 6.6 Small Benefit. Notwithstanding anything herein to the contrary, in the event the total amount owed to a Participant or a Beneficiary after the Participant ceases to serve as a Director is $10,000 or less, the Administrator shall promptly distribute any such amount in a single lump sum payment. 6.7 Withholding: Payroll Taxes. To the extent required by the law in effect at the time payments are made, the Bank shall withhold from payments made hereunder the minimum taxes required to be withheld by the federal or any state or local government. As to any payroll tax that is due from a Participant for Fees deferred under this Plan, the Bank shall collect such tax from funds paid to such Participant with respect to other compensation not deferred under the Plan unless said other compensation is insufficient to pay such payroll taxes whereupon the shortfall shall serve to reduce the elected Deferral amount. 20 ARTICLE VII BENEFICIARY DESIGNATION ----------------------- 7.1 Beneficiary Designation. Each Participant shall have the right, at any time, to designate any person or persons as Beneficiary or Beneficiaries to whom payment under this Plan shall be made in the event of Participant's death prior to complete distribution to Participant of the Benefits due under the Plan. Each Beneficiary designation shall become effective only when filed in writing with the Administrator during the Participant's lifetime on a form prescribed by the Administrator. The filing of a new Beneficiary designation form will cancel all Beneficiary designations previously filed. If a Participant fails to designate a Beneficiary as provided above, or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Administrator shall direct the distribution of such benefits to the Participant's estate. 21 ARTICLE VIII CONTRIBUTIONS ------------- All Participants and Beneficiaries shall have the status of general unsecured creditors of the Bank. The Plan constitutes a mere promise by the Bank to pay the Participants' Accounts in the future, and nothing contained in this Plan and no action taken pursuant to the provisions of this Plan shall create or be construed to create a fiduciary relationship between the Bank and the Director, his designated beneficiary or any other person. The Bank shall not have any obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Plan. All Participants and Beneficiaries shall be and remain general creditors of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation. The Participant, his Beneficiary, or any other person claiming through the Participant, shall only have the right to receive from the Bank the benefits specified in this Plan. The Bank's obligation to pay the Participant the full amount of his vested Account balance shall be offset by any amounts paid from the Trust to the Participant or his Beneficiaries. Although the Bank reserves the absolute right at its sole discretion either to set aside funds to assist in fulfilling the obligations undertaken by this Plan or to refrain from so setting aside funds and to determine the extent, nature, and method of so setting aside funds, it is the Bank's intent to make contributions to the Trust of as much of the cumulative bookkeeping reserve associated with the Plan, determined in accordance with generally accepted accounting principles, as its operating cash flows permit. Nothing shall entitle the Bank to any reversion of assets from the Trust, other than in accordance with the terms and conditions of the Trust. At no time shall any Participant be deemed to have any lien, right, title or interest in or to any specific Trust investment or to any assets 22 of the Bank. At all times, either the Bank or the Trust shall be the owner of any assets used to satisfy the Bank's obligations hereunder. 23 ARTICLE IX ADMINISTRATION OF PLAN ---------------------- 9.1 Plan Administrator. The administration of the Plan shall be under the supervision of the Administrator. The Administrator will have full power to administer the Plan in all of its details, subject to applicable requirements of law. For this purpose, the Administrator's powers will include, but will not be limited to, the following authority, in addition to all other powers provided by this Plan: (a) To make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan, including the establishment of any claims procedures that may be required by applicable provisions of law; (b) To interpret the Plan, its interpretation thereof in good faith to be final and conclusive on all persons claiming benefits under the Plan; (c) To decide all questions concerning the Plan and the eligibility of any person to participate in the Plan; (d) To appoint such agents, counsel, accountants, consultants and other persons as may be required to assist in administering the Plan; and (e) To allocate and delegate its responsibilities under the Plan and to designate other persons to carry out any of its responsibilities under the Plan, any such allocation, delegation or designation to be in writing. 24 9.2 Examination of Records. The Administrator will make available to each Participant such of his or her records under the Plan as pertain to him or her, for examination at reasonable times during normal business hours. 9.3 Reliance on Reports and Certificates. In administering the Plan, the Administrator will be entitled to the extent permitted by law to rely conclusively upon any information furnished by any Bank, Participant, Beneficiary, accountant, controller, attorney, actuary, consultant or other advisor, and any agent of the foregoing, as the case may be. 9.4 Nondiscriminatory Exercise of Authority. Whenever, in the administration of the Plan, any discretionary action by the Administrator is required, the Administrator shall exercise its authority in a nondiscriminatory manner so that all persons similarly situated will receive substantially the same treatment. 9.5 Indemnification of Administrator. The Bank agrees to indemnify and to defend to the fullest extent permitted by law any Employee serving as the Administrator or as a member of a committee designated as Administrator (including any Employee or former Employee who formerly served as Administrator or as a member of such committee) against all liabilities, damages, costs and expenses (including attorneys' fees and amounts paid in settlement of any claim approved by the Bank) occasioned by any act or omission to act in connection with the Plan, if such act or omission is in good faith. 25 ARTICLE X MISCELLANEOUS ------------- 10.1 Alienability and Assignment Prohibition. A Participant's or Beneficiary's right to benefit payments under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Participant or the Participant's Beneficiaries. 10.2 Binding Obligation of Bank and Any Successor in Interest. The Bank expressly agrees that it shall not merge or consolidate into or with another corporation or sell substantially all of its assets to another corporation, firm or person until such corporation, firm or person expressly agrees, in writing, to assume and discharge the duties and obligations of the Bank under this Plan. 10.3 Amendment or Termination. The Bank expects the Plan to be permanent but, since future conditions affecting the Bank cannot be anticipated or foreseen, the Bank must necessarily and does hereby reserve the right to amend, modify or terminate the Plan at any time by action of the Board. No amendment or termination of the Plan shall operate to decrease any Participant's Account balance as of the date of such action. 10.4 Claims Procedure. In the event any claim by a Participant or Beneficiary is denied as to the amount and/or the method of payment under the Plan, such Participant or Beneficiary shall be given prompt notice in writing of such denial, which notice shall set forth the reason for the denial. The Participant or Beneficiary may, by filing notice in writing with the Board within sixty (60) days after the date of such notice of denial, request review of such denial. The Board shall 26 review such denial, and shall state its decision, in writing, in a manner calculated to be understood, to the Participant or Beneficiary concerned. 10.5 Employment and Other Rights. This Plan creates no rights whatsoever in any Participant to continue in the service of the Bank as a Director for any length of time. 10.6 Governing Law. To the extent not preempted by ERISA, this Plan shall be construed, administered and enforced according to the laws of the Commonwealth of Virginia. IN WITNESS WHEREOF, the Bank has caused this Plan to be executed on its behalf by its duly authorized officer, on the day and year first above written. This Plan document is signed on ________________________________, 2001. BANK OF THE COMMONWEALTH By: -------------------------------------- Title: ----------------------------------- ATTEST: By: ------------------------------------ Title: --------------------------------- 27 EXHIBIT I --------- BANK OF THE COMMONWEALTH DIRECTORS' DEFERRED COMPENSATION PLAN Schedule of Participants ------------------------ Date of Opening Balance Name Participation as of 01/01/2002 - ---- ------------- ---------------- 28 EX-4.2 4 dex42.txt EXECUTIVE RETIREMENT PLAN EXHIBIT 4.2 BANK OF THE COMMONWEALTH SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Effective January 1, 2002 BANK OF THE COMMONWEALTH SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE OF CONTENTS ----------------- Page ---- PREAMBLE ......................................................................1 ARTICLE I .....................................................................2 DEFINITIONS .................................................................2 1.1 Account .........................................................2 1.2 Administrator ...................................................2 1.3 Bank ............................................................2 1.4 Bank Stock ......................................................2 1.5 Beneficiary .....................................................2 1.6 Board ...........................................................2 1.7 Bonus ...........................................................2 1.8 Cause ...........................................................3 1.9 Change in Control ...............................................3 1.10 Code ............................................................4 1.11 Compensation ....................................................4 1.12 Declared Investment Rate ........................................4 1.13 Deferrals .......................................................4 1.14 Designation Date ................................................4 1.15 Disability ......................................................5 1.16 Effective Date ..................................................5 1.17 Election Form ...................................................5 1.18 Eligible Employee ...............................................5 1.19 Participant .....................................................5 1.20 Plan ............................................................5 1.21 Plan Year .......................................................5 1.22 Retirement ......................................................5 1.23 Retirement Benefit ..............................................6 1.24 Salary ..........................................................6 1.25 Survivor Benefit ................................................6 1.26 Termination Benefit .............................................6 1.27 Trust ...........................................................6 1.28 Trustee .........................................................6 1.29 Valuation Date ..................................................6 ARTICLE II ....................................................................7 ELIGIBILITY .................................................................7 ARTICLE III ...................................................................8 CONTRIBUTIONS TO ACCOUNTS ...................................................8 3.1 Accounts ........................................................8 ARTICLE IV ....................................................................9 i PARTICIPANT ELECTIONS TO DEFER ..............................................9 4.1 Election to Defer ...............................................9 Deferral Election .............................................9 Maximum Reduction in Compensation ............................10 ARTICLE V ....................................................................11 ADJUSTMENTS TO ACCOUNTS FOR DECLARED INVESTMENT RATES ......................11 5.1 Adjustments to Accounts ........................................11 Bank Stock ...................................................11 Interest Bearing Fund ........................................12 5.2 Accounting for Distributions ...................................13 5.3 Separate Accounts ..............................................13 5.4 Deemed Investment Directions of Participants ...................13 ARTICLE VI ...................................................................16 BENEFITS ...................................................................16 6.1 Retirement Benefit .............................................16 6.2 Disability .....................................................17 6.3 Termination Benefit ............................................17 Termination Of Employment For Reasons Other Than Death, Disability, or Retirement ...........................17 Vesting in Account ...........................................18 Forfeitures ................................................18 6.4 Survivor Benefits ..............................................18 Pre-Retirement ...............................................18 6.5 Change in Control Provisions ...................................18 Full Vesting .................................................18 Immediate Payouts Upon Termination of Employment .............18 6.6 Small Benefit ..................................................19 6.7 Withholding: Payroll Taxes ....................................19 ARTICLE VII ..................................................................20 BENEFICIARY DESIGNATION ....................................................20 7.1 Beneficiary Designation ........................................20 ARTICLE VIII .................................................................21 CONTRIBUTIONS ..............................................................21 ARTICLE IX ...................................................................23 ADMINISTRATION OF PLAN .....................................................23 9.1 Plan Administrator .............................................23 9.2 Examination of Records .........................................24 9.3 Reliance on Reports and Certificates ...........................24 9.4 Nondiscriminatory Exercise of Authority ........................24 9.5 Indemnification of Administrator ...............................24 ARTICLE X ....................................................................25 MISCELLANEOUS ..............................................................25 10.1 Alienability and Assignment Prohibition ........................25 10.2 Binding Obligation of Bank and Any Successor in Interest .......25 10.3 Amendment or Termination .......................................25 10.4 Claims Procedure ...............................................25 10.5 Employment and Other Rights ....................................26 ii 10.6 Governing Law ..................................................26 iii BANK OF THE COMMONWEALTH SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN THIS PLAN is made effective in the City of Norfolk, Virginia, this 1st day of January, 2002, by the BANK OF THE COMMONWEALTH (the "Bank"). PREAMBLE -------- The purpose of this Plan is to provide a means whereby the Bank may afford a measure of financial security to certain executive employees of the Bank who have rendered and continue to render valuable services for their Bank. The Plan is intended to provide for future income needs of these employees, so that their services may be retained and their productive efforts encouraged. This Plan will be maintained for the exclusive benefit of the Participants of the Plan and is intended to constitute an unfunded plan of deferred compensation for a select group of highly compensated or management employees pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA") and the Internal Revenue Code of 1986, as amended, and the regulations thereunder. By separate agreement, the Bank has created an irrevocable trust (the "Trust") to facilitate the payment of deferred compensation to Participants under this Plan. The Trust and any assets held by the Trust to assist the Bank in meeting its obligations under this Plan will conform to the terms of the model trust described in Revenue Procedure 92-64. 1 ARTICLE I DEFINITIONS ----------- 1.1 "Account" means the bookkeeping reserve account established on the Bank's financial records to record the aggregate interest of a Participant in this Plan. Within each Account, separate subaccounts shall be maintained pursuant to the terms of this Plan to the extent necessary for the administration of the Plan for each different Plan Year, including subaccounts to record each Participant's Deferrals and Declared Investment Rate or method of payment elections related thereto. 1.2 "Administrator" means the person or committee as may be appointed from time to time by the Board or if the Board so elects, the Board, to supervise the administration of the Plan. 1.3 "Bank" means the Bank of the Commonwealth, and any successor which shall maintain this Plan. 1.4 "Bank Stock" means Common Stock of Commonwealth Bankshares, Inc., the 100% parent of the Bank 1.5 "Beneficiary" means the person or persons designated to receive any amount in the event of the death of a Participant or former Participant in accordance with Section 7.1. 1.6 "Board" means the Board of Directors of the Bank. 1.7 "Bonus" means any annual, quarterly or other periodic payment of incentive Compensation for services rendered which is in addition to a Participant's regular Salary. 2 1.8 "Cause" means termination of a Participant's employment with the Bank on account of: (a) the Participant's misappropriation or embezzlement of any funds or property of the Bank; (b) the Participant's conviction of a felony or a crime involving moral turpitude; (c) gross misconduct, neglect or dereliction of duty, or disloyal conduct or proven dishonesty by the Participant in the performance of services for the Bank; or (d) the Participant's engaging in any activity or conduct which in the opinion of the Board is contrary to the best interests of the Bank. 1.9 "Change in Control" means (i) the purchase or other acquisition by any person, entity or group of persons, within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934 ("Act"), or any comparable successor provisions, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of 30 percent or more of the combined voting power of the then outstanding voting securities issued by the Bank or any of its parent corporations; (ii) the approval by the stockholders of the Bank or any of its parent corporations of a reorganization, merger, or consolidation, in each case, with respect to which persons who were stockholders of the Bank or any of its parent corporations immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50 percent of the combined voting power entitled to vote generally in the election of directors of the then outstanding securities of the reorganized, merged or consolidated Bank or parent corporation, as applicable, (iii) a liquidation or dissolution of the Bank, (iv) the sale of fifty percent (50%) or more, of the Bank's assets, or (v) a sale of any portion of the Bank's assets or operations which, on the basis of the Bank's most recent audited financial statement, will result or is projected to result in a fifty percent (50%) or more reduction in the Bank's gross revenues for the current period, compared to the period covered by such audited financial statement; (vi) any other corporate transaction, including a layoff 3 or reduction in force, which results in the involuntary termination of employment of fifty percent (50%) or more of the Participants in this Plan; or (vii) a majority of members of the Bank's board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the Bank's board of directors prior to the date of the appointment or election. 1.10 "Code" means the Internal Revenue Code of 1986, as amended, and any successor statute thereof, as interpreted by the rules and regulations issued thereunder, in each case as in effect from time to time. References to sections of the Code shall be construed also to refer to any successor sections. 1.11 "Compensation" means the total amount of Salary, Bonus and other payments made by the Bank to a Participant for services rendered to the Bank during the Plan Year, including pre-tax Deferrals elected by the Participant under this Plan, and pre-tax salary reduction contributions under any ss. 401(k) or ss. 125 plan sponsored by the Bank. 1.12 "Declared Investment Rate" means with respect to any Plan Year a rate of return (positive or negative) that equals the notional gains or losses equal to those generated as if the Account balance had been invested in one or more of the deemed investments as may be made available by the Bank under this Plan. 1.13 "Deferrals" means the amount of pre-tax Salary and/or Bonus payments voluntarily elected to be deferred and credited to a Participant's Account under Article IV. 1.14 "Designation Date" means January 1st, April 1st, July 1st and October 1st. 4 1.15 "Disability" means any physical or mental impairment which, on the basis of medical evidence satisfactory to the Board, renders the Participant unable to continue the performance of his regular duties with the Bank and that such impairment will be permanent and continuous during the remainder of the Participant's life. 1.16 "Effective Date" means January 1, 2002. 1.17 "Election Form" means the election form or forms which an Eligible Employee files with the Bank from time to time to participate in the Plan and make the various Deferral, distribution and investment elections permitted under the Plan. 1.18 "Eligible Employee" means an employee who is eligible to participate in the Plan as provided in Article II. 1.19 "Participant" means an Eligible Employee who has filed a completed and executed Election Form with the Administrator and is participating in the Plan. 1.20 "Plan" means this instrument, and all amendments thereto. 1.21 "Plan Year" means a 12-month period beginning on January 1st and ending on the following December 31st of each year. 1.22 "Retirement" means the termination of a Participant's employment with the Bank after his attainment of age sixty-five (65). 5 1.23 "Retirement Benefit" means the sum total of benefits payable to a Participant who is eligible for Retirement. 1.24 "Salary" means that portion of a Participant's Compensation which is payable on a regular and periodic basis in accordance with the Bank's normal and customary payroll procedures. 1.25 "Survivor Benefit" means those Plan benefits that become payable upon the death of a Participant pursuant to the provisions of Section 6.4. 1.26 "Termination Benefit" means the lump sum amount payable to a Participant who terminates employment before death, Disability or becoming eligible for Retirement under Section 6.3. 1.27 "Trust" means the irrevocable trust agreement dated January 1, 2002, established by the Bank as grantor and the Bank Trust Department as Trustee, or any substitute or successor thereto. 1.28 "Trustee" means the trustee named in the agreement establishing the Trust and such successor and or additional trustees as may be named pursuant to the terms of the agreement establishing the trust. 1.29 "Valuation Date" means the last date of each calendar quarter, or, March 31st, June 30th, September 30th, and December 31st. 6 ARTICLE II ELIGIBILITY ----------- The Administrator shall determine which Employees shall be eligible to participate in the Plan; provided, however, any such Employee must be a member of a select group of management or highly compensated employees. The management or highly compensated Employees determined by the Administrator from time to time to be Eligible Employees, along with the effective date of their participation in the Plan, shall be listed on Exhibit I attached hereto. 7 ARTICLE III CONTRIBUTIONS TO ACCOUNTS ------------------------- 3.1 Accounts. The Bank shall create a special account on its books and financial records (the "Account"), to which shall be credited each Participant's Deferrals, as specified in Section 4.1 and as elected by the Participant on his or her Election Form, together with earnings as specified in Article V. All amounts credited to each Participant's Account are credited solely for purposes of accounting and computations and shall remain the assets of the Bank subject to the claims of the Bank's general creditors. 8 ARTICLE IV PARTICIPANT ELECTIONS TO DEFER ------------------------------ 4.1 Election to Defer. Any Eligible Employee may enroll in the pre-tax Compensation Deferral feature of the Plan. The Deferral election may be made, effective as of the first day of a Plan Year, by filing a completed and fully executed Election Form with the Administrator during enrollment periods established by the Administrator, but in no event later than December 31st preceding the year of the Deferral. Notwithstanding the preceding sentence, an Employee who, for the first time, becomes eligible to participate in the Plan during a Plan Year, may file an Election Form for the balance of such Plan Year, as long as such Election is filed within thirty (30) days of the date on which he first became eligible. On such Election Form, the Eligible Employee shall irrevocably elect the amount of his Compensation to defer for such Plan Year ("Deferrals") and the time and method for distribution of such Deferrals under Article VI. With respect to any Employee who is designated as a Participant after the commencement of a Plan Year, the Deferral election shall only pertain to such Participant's Compensation earned and payable after the date such Employee is designated as a Participant. (a) Deferral Election. An Eligible Employee may elect to defer (i) a specific dollar amount and/or percentage from his Salary and/or (ii) a specific dollar amount and/or percentage of any Bonus to be deferred for the applicable Plan Year. An Eligible Employee must also elect the Declared Investment Rates that will apply to deferrals made pursuant to his election. If an Eligible Employee specifies a dollar amount of Bonus to be deferred, and the dollar amount of such Bonus is less than his actual Bonus payment for such Plan Year, the shortfall will not be credited to such Participant's Deferral Account. 9 (b) Maximum Reduction in Compensation. Notwithstanding the foregoing, a Participant may not reduce his taxable Compensation after Deferrals to this Plan to an amount less than the maximum amount of earnings subject to taxes imposed by Sections 3101(a) and 3111(a) of the Code (i.e., the FICA taxable wage base applicable to old-age, survivors, and disability insurance). 10 ARTICLE V ADJUSTMENTS TO ACCOUNTS FOR DECLARED INVESTMENT RATES ----------------------------------------------------- 5.1 Adjustments to Accounts. Pursuant to Section 5.4, each Participant shall have the right to direct the Bank as to how amounts in his or her Account shall be deemed to be invested as between the following two options: (1) Bank Stock Fund; or (2) Interest Bearing Fund. The Trustee may follow such investment direction but shall not be legally bound to do so. The Participant's Account will be credited and debited, as applicable, with either the increase or decrease in the value of Bank Stock, based on the increase or decrease in the per share value of Bank Stock, for the relevant period, or the applicable credited interest rate earned under the Interest Bearing Fund, as follows. (a) Bank Stock. The Bank shall establish and maintain a separate sub-account, a Bank Stock Account, for each Plan Year for each Participant who elects to have all or a portion of his of her Deferral amounts for such Plan Year invested in Bank Stock. A Participant's Bank Stock Account shall be credited as follows: (1) All Deferral amounts that are deemed, at the Participant's election, to be invested in Bank Stock shall be credited to the Participant's Bank Stock Account on the date when the Deferral amount would otherwise be paid to the Participant. (2) All Deferral amounts deemed to be invested in Bank Stock shall be credited to the Participant's Bank Stock Account in units or fractional units. Dividends paid on Bank Stock shall also be deemed invested in Bank Stock and shall be credited to the Participant's Bank Stock Account in units or fractional units on the date when the dividend would otherwise be 11 paid to the Participant. The value of each unit shall be determined each Valuation Date and shall equal the fair market value of one share of Bank Stock on such Valuation Date. The value of each partial unit shall be determined each Valuation Date pro-rata with reference to the value of each unit as determined each Valuation Date. On each date that Deferral or dividend amounts are credited to the Participant's Bank Stock Account, the number of units to be credited shall be determined by dividing the amount of such Deferral or dividend amounts by the value of a unit as of the Valuation Date coinciding with or immediately preceding such crediting date. (3) If there is any change in the number or class of shares of Bank Stock through the declaration of a stock dividend or other extraordinary dividends, or recapitalization resulting in stock splits, or combinations or exchanges of such shares or in the event of similar transactions, the units in each Participant's Bank Stock Account shall be equitably adjusted to reflect any such change in the number or class of issued shares of Bank Stock or to reflect such similar transaction. (b) Interest Bearing Fund. As of each Valuation Date, the Bank shall credit, to the respective Account of the Participant, an amount for interest earned, calculated at a rate equal to the five-year U.S. Treasury Bill rate as such rate was in effect on the immediately preceding Valuation Date. Said amount of interest earned shall be calculated utilizing a 360 day year and the aggregate Account balance of each Participant that is deemed to be invested in the Interest Bearing Fund, including all prior accruals of interest. (c) Notwithstanding any other provision of the Plan that may be interpreted to the contrary, the investment options, including Bank Stock, are to be used for measurement 12 purposes only, and a Participant's election of any such investment option, the allocation to his or her Account balances thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participant's Account balances shall not be considered or construed in any manner as an actual investment of his or her Account balances in any such investment option. In the event that the Bank or the Trustee, in its own discretion, decides to invest funds in any or all of the investment options, no Participant shall have any rights in or to such investments themselves. Without limiting the foregoing, a Participant's Account balances shall at all times be a bookkeeping entry only and shall not represent any investment made on the Participant's behalf by the Bank or the Trust. The Participant shall at all times remain an unsecured creditor of the Bank. 5.2 Accounting for Distributions. As of the date of any distribution hereunder pursuant to Article VI, the distribution to a Participant or his or her Beneficiary or Beneficiaries shall be charged to such Participant's Account. 5.3 Separate Accounts. A separate account under the Plan shall be established and maintained by the Bank on behalf of each Participant to record his or her interest in the Plan, with subaccounts to show separately the deemed earnings and losses credited or debited to the deemed investments of the Account. 5.4 Deemed Investment Directions of Participants. Subject to such limitations as may from time to time be required by law, imposed by the Bank, or the Trustee, or contained elsewhere in the Plan, and subject to such operating rules and procedures as may be imposed from time to time by the Bank or the Trustee, prior to and effective for each Designation Date, each Participant may communicate to the Bank a direction as to how his or her Account should be deemed invested 13 among the two deemed investments available hereunder. Such direction shall designate the percentage (in any whole percent multiples) of each portion of the Participant's Account that is requested to be deemed invested in the deemed investments and shall be subject to the following rules: (a) Any initial or subsequent deemed investment direction shall be in writing, on a form supplied by and filed with the Bank, and shall be effective as of the next Designation Date that is at least ten (10) business days after such filing. (b) All amounts credited to a Participant's Account shall be deemed to be invested in accordance with the then effective deemed investment direction, and, as of the effective date of any new deemed investment direction, all or a portion of the Participant's Account at that date shall be reallocated among the designated deemed investment funds according to the percentages specified in the new deemed investment direction unless and until a subsequent deemed investment direction shall be filed and become effective. An election concerning deemed investment choices shall continue indefinitely as provided in the Participant's most recent Election Form or other form specified by the Bank. (c) If the Bank receives an initial deemed investment direction that it deems incomplete, unclear, or improper, the Participant's investment direction then in effect shall remain in effect (or, in the case of a deficiency in an initial deemed investment direction, the Participant shall be deemed to have filed a direction to invest all of the account in the Interest Bearing Fund) until the next Designation Date, unless the Bank provides for, and permits the application of, corrective action prior thereto. 14 (d) If the Bank possesses at any time directions as to the deemed investment of less than all of the Participant's Account, the Participant shall be deemed to have directed that the undesignated portion of the Account be deemed to be invested in Interest Bearing Fund. (e) Each reference in this Section 5.4 to a Participant shall be deemed to include, where applicable, a reference to a Beneficiary. 15 ARTICLE VI BENEFITS -------- 6.1 Retirement Benefit. A Participant is eligible for a Retirement Benefit under this Plan when he has satisfied all the requirements for Retirement. The Retirement Benefit will be based on the balance in the Participant's Account and will be paid in ten (10) annual installments as described below. The amount to be paid with each installment shall be the balance in the Participant's Account, as of the date of the "applicable valuation date," as defined below, multiplied by a fraction, the numerator of which is one (1) and the denominator of which is the number of installment payments remaining. For purposes of this Section, the applicable valuation date for the first installment payment shall be the date of the Participant's Retirement, and the applicable valuation date for subsequent installment payments shall be the first day of each Plan Year thereafter; provided, however, that in no event shall more than one installment payment be made to a Participant in any one Plan Year. A Participant shall receive the initial installment on the first day of the month next following the Participant's Retirement, and each subsequent installment payment shall be made within thirty (30) days of the applicable valuation date. If the Participant should die on or after he has satisfied all the requirements for Retirement and before all of the ten installment payments are made, the unpaid balance of the Participant's Account will be paid to his designated Beneficiary in full as soon as practicable after the first day of the calendar year following the year in which the said Participant dies. 16 Following receipt of his complete Retirement Benefit, a Participant shall be entitled to no further benefits under the Plan. 6.2 Disability. If a Participant suffers a Disability before he reaches Retirement, then the Bank shall make ten (10) annual installment payments to such Participant in the same manner and to the same extent as provided in Section 6.1 above. Such installments shall commence on the first day of the month next following the Participant's Disability, and each subsequent installment shall be paid within thirty (30) days of the applicable valuation date as set forth in section 6.1; provided, however, that in no event shall more than one installment payment be made to a Participation in any one Plan Year. 6.3 Termination Benefit. (a) Termination of Employment For Reasons Other Than Death, Disability, or Retirement. If a Participant terminates employment for any reason other than death, Disability, or Retirement, then the amount in such Participant's Account shall continue to accrue the Deemed Investment Rate as provided in Article V and no payments shall be made until such Participant attains the age of 65, at which time payments shall be made in the same manner and to the same extent as set forth in Section 6.1 above. Notwithstanding the foregoing, if prior to attaining the age of 65 such Participant should become Disabled, or if prior to attaining the age of 65 such Participant should die, then payments shall be made in the same manner and to the same extent as set forth in Sections 6.2 (Disability Benefits) or 6.4 (Survivor Benefits), as applicable. 17 (b) Vesting in Account. Subject only to Section 6.3(b)(i) below, a Participant shall always be one hundred percent (100%) fully vested in his Account and, no portion of such Account balance is subject to forfeiture. (i) Forfeitures. Notwithstanding anything hereinabove to the contrary, a Participant whose employment with the Bank is terminated for Cause shall forfeit all amounts in his Account and all rights of such employee, his designated Beneficiary, executors, administrators, or other persons, to receive payments thereof shall be forfeited. Such forfeited amounts shall revert to and become part of the Bank's general unrestricted assets. 6.4 Survivor Benefits. (a) Pre-Retirement. If a Participant dies while employed by the Bank but before such Participant is otherwise eligible to receive Retirement Benefits, or after such Participant is eligible to receive Retirement Benefits but before receipt of all such benefits, a Survivor Benefit will be paid to his Beneficiary in a lump sum equal to the balance of his Account as soon as practicable after the first day of the Plan Year following the year in which such Participant died. 6.5 Change in Control Provisions. (a) Full Vesting. Notwithstanding anything hereinabove to the contrary, in the event of any Change in Control of the Company, each Participant's Account shall immediately vest and become 100% nonforfeitable as of the date of the occurrence of a Change in Control. (b) Immediate Payouts Upon Termination of Employment. Each Participant who terminates employment for any reason following a Change in Control or any series of two or 18 more Changes in Control and each Participant who has previously terminated, retired or become Disabled and still maintains an Account hereunder, and each Beneficiary then receiving survivor benefits on account of the death of a Participant, shall receive his full Account balance in a lump sum within thirty (30) days after the later of the date of the Change in Control or the date on which the Participant terminates employment, regardless of any previous election by the Participant to receive Retirement Benefits in installments. 6.6 Small Benefit. Notwithstanding anything herein to the contrary, in the event the total amount owed to a Participant or a Beneficiary after the Participant ceases to be employed by the Bank is $10,000 or less, the Administrator shall promptly distribute any such amount in a single lump sum payment. 6.7 Withholding: Payroll Taxes. To the extent required by the law in effect at the time payments are made, the Bank shall withhold from payments made hereunder the minimum taxes required to be withheld by the federal or any state or local government. As to any payroll tax that is due from a Participant for Compensation deferred under this Plan, the Bank shall collect such tax from funds paid to such Participant with respect to other compensation not deferred under the Plan unless said other compensation is insufficient to pay such payroll taxes whereupon the shortfall shall serve to reduce the elected Deferral amount. 19 ARTICLE VII BENEFICIARY DESIGNATION ----------------------- 7.1 Beneficiary Designation. Each Participant shall have the right, at any time, to designate any person or persons as Beneficiary or Beneficiaries to whom payment under this Plan shall be made in the event of Participant's death prior to complete distribution to Participant of the Benefits due under the Plan. Each Beneficiary designation shall become effective only when filed in writing with the Administrator during the Participant's lifetime on a form prescribed by the Administrator. The filing of a new Beneficiary designation form will cancel all Beneficiary designations previously filed. If a Participant fails to designate a Beneficiary as provided above, or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Administrator shall direct the distribution of such benefits to the Participant's estate. 20 ARTICLE VIII CONTRIBUTIONS ------------- All Participants and Beneficiaries shall have the status of general unsecured creditors of the Bank. The Plan constitutes a mere promise by the Bank to pay the Participants' Accounts in the future, and nothing contained in this Plan and no action taken pursuant to the provisions of this Plan shall create or be construed to create a fiduciary relationship between the Bank and the Participant, his designated beneficiary or any other person. The Bank shall not have any obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Plan. All Participants and Beneficiaries shall be and remain general creditors of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation. The Participant, his Beneficiary, or any other person claiming through the Participant, shall only have the right to receive from the Bank the benefits specified in this Plan. The Bank's obligation to pay the Participant the full amount of his vested Account balance shall be offset by any amounts paid from the Trust to the Participant or his Beneficiaries. Although the Bank reserves the absolute right at its sole discretion either to set aside funds to assist in fulfilling the obligations undertaken by this Plan or to refrain from so setting aside funds and to determine the extent, nature, and method of so setting aside funds, it is the Bank's intent to make contributions to the Trust of as much of the cumulative bookkeeping reserve associated with the Plan, determined in accordance with generally accepted accounting principles, as its operating cash flows permit. Nothing shall entitle the Bank to any reversion of assets from the Trust, other than in accordance with the terms and conditions of the Trust. At no time shall any Participant be deemed to have any lien, right, title or interest in or to any specific 21 Trust investment or to any assets of the Bank. At all times, either the Bank or the Trust shall be the owner of any assets used to satisfy the Bank's obligations hereunder. 22 ARTICLE IX ADMINISTRATION OF PLAN ---------------------- 9.1 Plan Administrator. The administration of the Plan shall be under the supervision of the Administrator. The Administrator will have full power to administer the Plan in all of its details, subject to applicable requirements of law. For this purpose, the Administrator's powers will include, but will not be limited to, the following authority, in addition to all other powers provided by this Plan: (a) To make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan, including the establishment of any claims procedures that may be required by applicable provisions of law; (b) To interpret the Plan, its interpretation thereof in good faith to be final and conclusive on all persons claiming benefits under the Plan; (c) To decide all questions concerning the Plan and the eligibility of any person to participate in the Plan; (d) To appoint such agents, counsel, accountants, consultants and other persons as may be required to assist in administering the Plan; and (e) To allocate and delegate its responsibilities under the Plan and to designate other persons to carry out any of its responsibilities under the Plan, any such allocation, delegation or designation to be in writing. 23 9.2 Examination of Records. The Administrator will make available to each Participant such of his or her records under the Plan as pertain to him or her, for examination at reasonable times during normal business hours. 9.3 Reliance on Reports and Certificates. In administering the Plan, the Administrator will be entitled to the extent permitted by law to rely conclusively upon any information furnished by any Bank, Participant, Beneficiary, accountant, controller, attorney, actuary, consultant or other advisor, and any agent of the foregoing, as the case may be. 9.4 Nondiscriminatory Exercise of Authority. Whenever, in the administration of the Plan, any discretionary action by the Administrator is required, the Administrator shall exercise its authority in a nondiscriminatory manner so that all persons similarly situated will receive substantially the same treatment. 9.5 Indemnification of Administrator. The Bank agrees to indemnify and to defend to the fullest extent permitted by law any Employee serving as the Administrator or as a member of a committee designated as Administrator (including any Employee or former Employee who formerly served as Administrator or as a member of such committee) against all liabilities, damages, costs and expenses (including attorneys' fees and amounts paid in settlement of any claim approved by the Bank) occasioned by any act or omission to act in connection with the Plan, if such act or omission is in good faith. 24 ARTICLE X MISCELLANEOUS ------------- 10.1 Alienability and Assignment Prohibition. A Participant's or Beneficiary's right to benefit payments under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Participant or the Participant's Beneficiaries. 10.2 Binding Obligation of Bank and Any Successor in Interest. The Bank expressly agrees that it shall not merge or consolidate into or with another corporation or sell substantially all of its assets to another corporation, firm or person until such corporation, firm or person expressly agrees, in writing, to assume and discharge the duties and obligations of the Bank under this Plan. 10.3 Amendment or Termination. The Bank expects the Plan to be permanent but, since future conditions affecting the Bank cannot be anticipated or foreseen, the Bank must necessarily and does hereby reserve the right to amend, modify or terminate the Plan at any time by action of the Board. No amendment or termination of the Plan shall operate to decrease any Participant's Account balance as of the date of such action. 10.4 Claims Procedure. In the event any claim by a Participant or Beneficiary is denied as to the amount and/or the method of payment under the Plan, such Participant or Beneficiary shall be given prompt notice in writing of such denial, which notice shall set forth the reason for the denial. The Participant or Beneficiary may, by filing notice in writing with the Board within sixty (60) days after the date of such notice of denial, request review of such denial. The Board shall 25 review such denial, and shall state its decision, in writing, in a manner calculated to be understood, to the Participant or Beneficiary concerned. 10.5 Employment and Other Rights. This Plan creates no rights whatsoever in any Participant to continue in the employ of the Bank for any length of time, nor does it affect the right of any Participant to participate in or be covered by any other pension, profit sharing, welfare benefit, bonus or other supplemental compensation plan or fringe benefit program of the Bank. 10.6 Governing Law. To the extent not preempted by ERISA, this Plan shall be construed, administered and enforced according to the laws of the Commonwealth of Virginia. IN WITNESS WHEREOF, the Bank has caused this Plan to be executed on its behalf by its duly authorized officer, on the day and year first above written. This Plan document is signed on _________________________________, 2001. BANK OF THE COMMONWEALTH By: -------------------------------------- Title: ----------------------------------- ATTEST: By: ------------------------------------ Title: --------------------------------- 26 EXHIBIT I --------- BANK OF THE COMMONWEALTH SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Schedule of Participants ------------------------ Number of Years of Service Date of as of Date of Opening Balance Name Participation Participation as of 01/01/2002 27 EX-5.1 5 dex51.txt OPINION OF KAUFMAN & CANOLES, P.C. [LETTERHEAD OF KAUFMAN & CANOLES] EXHIBIT 5.1 January 30, 2002 Commonwealth Bankshares, Inc. 403 Boush Street Norfolk, VA 23510 Dear Sirs: In connection with the registration on Form S-8 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Act"), of $1,500,000 of deferred compensation obligations (the "Obligations") of Commonwealth Bankshares, Inc. (the "Company"), which may be issued pursuant to the terms of the Bank of the Commonwealth Directors' Deferred Compensation Plan and the Bank of the Commonwealth Supplemental Executive Retirement Plan (collectively, the "Plans"), we hereby advise you that, in our opinion, that upon issuance pursuant to the terms of the Plans, the Obligations will be validly issued, fully paid and nonassessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. Very truly yours, /s/ Kaufman & Canoles, P.C. [PAGE FOOTER OF KAUFMAN & CANOLES] EX-23.1 6 dex231.txt CONSENT OF POTI, WALTON & ASSOCIATES, P.C. Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We hereby consent to the incorporation by reference in this Registration Statement on Form S-8, and the related prospectus, pertaining to the Bank of the Commonwealth Directors' Deferred Compensation Plan and the Bank of the Commonwealth Supplemental Executive Retirement Plan, of our report dated January 12, 2001, with respect to Commonwealth Bankshares, Inc. included in its Annual Report on Form 10-KSB for the year ended December 31, 2000, as filed with the Securities and Exchange Commission /s/ POTI, WALTON & ASSOCIATES, PC Richmond, Virginia January 24, 2002 -----END PRIVACY-ENHANCED MESSAGE-----